Africa: Economic Report, 1/2, 8/5/98

Africa: Economic Report, 1
Date distributed (ymd): 980805
Document reposted by APIC

+++++++++++++++++++++Document Profile+++++++++++++++++++++

Region: Continent-Wide
Issue Areas: +economy/development+
Summary Contents:
This posting and the next contain substantive excerpts from the Economic Commission for Africa's African Economic Report - 1998, with analysis and data for calendar year 1997.The full report, as well as additional documents from the Addis-Ababa-based international agency, can be found on the ECA web site (http://www.un.org/depts/eca).
+++++++++++++++++end profile++++++++++++++++++++++++++++++

African Economic Report - 1998

I. The African Economy in 1997

I.A. Economic Performance

1. Africa's economic performance in 1997 demonstrated once again the fragility of the recovery and underscored the predominance of exogenous factors in the determination of the outturn. ECA preliminary estimates show that regional output increased by 2.9 per cent in 1997 compared to 4 per cent in 1996 and 2.7 per cent of 1995. Despite the considerable reduction in the overall rate of growth, per capita income increased by a mere 0.1 per cent.

2. This average, however, masks a large variation in growth across the continent. ... Overall GDP growth in 1997 ranged between a low of -8.7 per cent and a high of 12.7 per cent. Nearly 60 per cent of the African countries (31 out of 53) registered rates of economic growth in excess of their population growth rates, resulting in increased per capita incomes. About half of these countries posted annual economic growth rates of more than 5 per cent; the threshold required for sustained poverty-reduction growth in Africa. Of these countries, seven posted growth rates in excess of 6 per cent. Only three countries had negative growth in 1997 compared to two in 1996, six in 1995 and twelve in 1994.

3. The economic growth of the thirteen African oil-exporting countries whose combined GDP accounts for 51.1 per cent of the regional GDP, decelerated from 4.2 per cent in 1996 to 3.6 per cent in 1997. The slowdown was prompted by declining oil prices and the effect of negative factors on the agriculture sector. Crude oil prices declined by 10 per cent in 1997 from an average of US$ 22.1 to US$ 20.0 per barrel. To compensate for the shortfall in their foreign exchange earnings, these countries -- and more so the non-OPEC producers -- increased their output from 368.42 million tons in 1996 to 378.40 million tons in 1997, an increase of 2.7 per cent. Growth in the non-oil exporting countries declined from 3.7 per cent in 1996 to 2.3 per cent in 1997. For the least developed countries, the 1996 momentum was not sustained as GDP growth decreased from 4.9 per cent to 2.4 per cent in 1997.

Table 1.2: Recent Economic Performance Indicators of Africa, 1993-1997 (Percentage Growth Rates or otherwise as indicated)

Indicators 1993 1994 1995 1996 1997

GDP Growth - Africa 0 2 2.7 4 2.9

- Oil Exporting Countries -0.3 1.4 3.1 4.2 3.6
- Non-oil Exporting 0.1 2.6 2.4 3.7 2.3
Countries
- Least Developed Countries -4 -0.7 4 4.5 2.4

Sectoral Growth
- Agricultural output 0.9 3.9 1.5 5.2 1.7
- Mining Value-Added -0.5 -0.5 -0.2 6.5 3.8
- Manufacturing Value-Added -0.8 2.9 4.5 2.5 2.5

Export Unit Value* -7 0.5 7.3 -0.9 -2.1

Import Unit Value* -5.6 1 8.7 -2.9 -1

Oil price (Brent Crude $/b) 16.8 23.9 20.5 22.1 20

Non-oil Commodity Price* 2.8 22.1 5.9 -6.3 7.6

Consumer Prices* 29.5 38.7 33.1 25.1 28.3

Terms of Trade Index -4.5 1.2 1.5 4.6 1
(1990=100)

Africa's Share in World 2.4 2.4 2.2 2 1.9
Trade

Current account (US$Bl) -9.7 -11.9 -16.2 -9.6 -9.4

Source: ECA Secretariat

o Percentage changes over previous year

4. The slowdown in regional economic growth was due to the decline in sub-regional growth, which will be explained later. Given the significance of agriculture in the African economies, smaller harvests had adverse consequences on income, consumption and on the performance of the processing industries. Poor rainfall and drought in Morocco reduced its GDP growth for the fourth time in the last six years and necessitated higher cereal imports. The El Nino-induced weather condition in Southern and parts of East Africa provoked critical food shortages, eliciting urgent calls for international food aid in some countries such as Ethiopia - which had achieved food self-sufficiency in 1996 - Eritrea, Somalia, Rwanda, the Sudan, Tanzania and Uganda. Modest growth was nevertheless recorded in West and Central Africa although severe food shortages were reported in Burundi, the Republic of Congo and the Democratic Republic of Congo.

5. Despite the slowdown in the regional production due to low oil prices and poor agricultural output, exports continued to expand on the strength of increases in volume and this was the most significant factor behind GDP growth in several countries in 1997. Global output is estimated to have grown at a steady rate of more than 3 per cent in 1997. The financial turmoil in Southeast Asia did dampen its performance and may have reduced global growth by as much as one percentage point. Fortunately for Africa, its major trading partners successfully sterilised the negative fallout from Asia and strengthened their growth momentum. The strong rebound in Europe and particularly the robust recovery in France and Germany as well as the resilience of North American economies provided the stimulus for the high growth of world output and trade.

6. The volume of world trade is estimated to have grown by 9.4 per cent in 1997 as against 5.3 per cent in 1996. Africa's trade volume increased by 8 per cent. The larger export volumes boosted export revenues and made up for the decline in the prices of the continent's exportables. Africa's total export revenue increased by 5.9 per cent in 1997. However, despite the increase in export volume and earnings, the continent's share of world trade continued to decline, shrinking from 2 per cent in 1996 to 1.9 per cent in 1997.

7. Inflation moved up from 25.1 per cent in 1996 to 28.3 per cent in 1997, due mainly to food price increases. It jumped to double digits - the highest level in recent years - in Kenya and Uganda, two countries that had earlier reduced inflation to single-digit level, and remained high in Angola, Burundi, the Democratic Republic of Congo and the Sudan, where political factors disrupted the production and distribution of goods. Wage increases contributed to inflationary pressures in countries such as Benin and Zimbabwe, while in Ghana, inflation remained high as a result of exchange-rate depreciation and increases in the administered prices of petrol and electricity, among other things. In CFA zone countries, prices were generally stable, averaging a 2.5-per cent increase, with the exception of Cote d'Ivoire where the inflation rate more than doubled from 2.5 per cent in 1996 to 6 per cent in 1997.

8. In 1997, the overall policy thrust focused on minimizing the negative impact of the slowdown in agriculture on the economy and society through proactive and countercyclical measures, and on sustaining the growth momentum of the last three years. Although strong attempts were made to stabilise the economy through restrictive fiscal and monetary policies, the degree of freedom in some countries such as Morocco, Ethiopia, Zambia and Zimbabwe was circumscribed by their need to cushion the social impact of declining harvests. In other respects, African governments continued to deepen and widen the reform programmes, including trade and financial-sector liberalization, institution-building, and the reformulation of investment-related legislation to create an environment friendlier to foreign investment.

9. At the same time that these reforms were taking place, African governments sought to diversify their production base. The diversification drive focused on the horizontal dimension not only because that is where African countries have their comparative advantage but also because other options, and more so the dynamic expansion of the manufacturing industries, continue to face impossible impediments.

I.A.1. Growth of Agricultural Output

10. The strong recovery of agricultural output in 1996 was not sustained in 1997. For the African region as a whole, agricultural production growth decelerated to 1.7 per cent in 1997, after bumper crops had raised output by a record 5.2 per cent in 1996. This was essentially due to weather conditions that affected production in major producer nations. The production of the major export commodities fell in 1997 below their 1996 levels and this decline was particularly noticeable in the case of cocoa and coffee.

11. In the food sub-sector, regional production in 1997 was adversely affected by the erratic changes in weather conditions, mainly because most countries depend overwhelmingly on rain-fed agriculture. Civil strife also played a significant part in accentuating the region's food-supply difficulties. According to data from the United Nations Food and Agricultural Organization (FAO), cereal production fell by about 10.5 per cent from 126 million metric tons in 1996 to 113 million metric tons in 1997. Fruits, jute and vegetable production was slightly lower than in 1996, while the production of pulses increased.

12. Due to poor performance, difficulties are emerging in the eastern and north-eastern parts of the region. In Tanzania, for example, the 1997 cereal crop declined by one-third. In Rwanda and Burundi, although production has been recovering, it remained well below pre-crisis level. In Ethiopia and Eritrea food production fell drastically. Stocks were exhausted in an effort to make up for the shortfall and this required an urgent call for assistance to the international community to contain an impending disaster. ...

13. In West Africa, the performance of agriculture was mixed, but the already precarious food situation in some countries such as Sierra Leone continued to deteriorate as a result of the negative impact of civil strife. Improvement was achieved in Liberia following the conclusion of the civil war and the installation of the democratically elected government.

14. The generally negative or poor record of 1997 points to serious gaps in food supply for the majority of African countries. Again this is likely to lead to a sharp decline in the stock-to-utilisation ratio in 1998, pushing it below the minimum level necessary to safeguard regional food security. Of the 31 countries projected by the FAO to face critical food deficits, 20 are located in Africa. The replenishment of stocks might be suspended by low-income countries and the resumption of such efforts will require sizeable improvements in production techniques and increases in actual production in the coming year otherwise these countries will revert to long-term dependence on food aid.

15. Among the subregions, the most drastic falls in cereal production were recorded in North Africa, where production declined by 50-60 per cent in Algeria, Morocco and Tunisia, and by about 30 per cent n the subregion as a whole. Performance was poor in Central Africa and mixed in West, East and Southern Africa.

16. Shortfalls in the production of cereals and other food crops triggered an increase in food prices and required significantly larger imports, particularly wheat. Preliminary estimates by the FAO put the 1997/1998 wheat imports by African countries at a record 21 millions tons, with imports by Algeria, Egypt, Morocco and Tunisia forecast to exceed 14 million tons.

17. Major commercial crops did not do well in 1997, again as a result of adverse weather conditions. The cocoa bean harvest declined by 9 per cent. Most of the shortfall came from Cote d'Ivoire, which reported climatic disruptions during the planting and harvesting seasons. Similarly, tea and sugar production declined by 7.8 per cent and 0.48 per cent respectively, in 1997. The region's negative tea output resulted mainly from a poor harvest in Kenya.

18. The production of green coffee was much lower in 1997 than in 1996 in Kenya, Madagascar, Rwanda, Tanzania and Uganda as well as in Cote d'Ivoire. Ethiopia managed to increase production by some 7.8 per cent, but the prevailing adverse conditions in Kenya and Uganda resulted in a 21- and 25.8-per cent fall in the two countries respectively. In consequence, the regional output of coffee fell by 7 per cent from about 1.2 million metric tons in 1996 to about 1.1 million metric tons in 1997. The generic decline in commercial-crop production was equally evident in other crops, with total seed cotton production declining by 1.4 per cent.

I.A.2. Growth in the Industrial Sector

19. The output of the industrial sector (broadly defined to include non-agricultural commodity production) increased by 3.3 per cent in 1997, well below the 1996 rate of 5.4 per cent, due mainly to the slowdown in the mining subsector (3.3 per cent in 1997 as against 6.5 per cent in 1996). Manufacturing industries maintained their growth rate of 2.5 per cent. The booming industrial activities in 1997 as in the previous years, were construction (5.4 per cent) and energy and water (3.1 per cent).

20. Performance indicators of the African mining industry in 1997 were similar to those for 1996 despite the surge in investment. The production results of the 15 main minerals representing over 90 per cent of the sector's total output show that, with few exceptions, output either declined or stagnated in 1997. The overall mining-production index (excluding oil) remained virtually unchanged in 1997, increasing marginally by 0.6 per cent over 1996.

21. In Ghana, gold production in the first half of 1997 increased by 10 per cent at the Ashanti Goldfield at Obuasi, the country's largest. Despite this early surge in output, production was estimated to have remained unchanged at 44.4 tons for 1997 due to considerable slowdown during the second half of the year.

22. In South Africa, most mines continued to face significant productivity problems associated with working conditions, dwindling reserves and slender profit margins. Output in the sector fell by 0.5 per cent in the first quarter of 1997. Gold production was particularly affected due to the declining quality and quantity of the ore milled. Production in 1997 was estimated at 484 tons, down from 495 tons in 1996. The increase in copper production in Zambia was overshadowed by a steep decline in production in the Democratic Republic of Congo.

23. The oil sector continued to pursue dynamic development in 1997. The favourable conditions under which African countries offer concessions to the oil companies, coupled with low exploration and production costs, due to technological developments, have continued to attract investment to the continent. Important new oil discoveries were reported, particularly in Algeria, Angola, Egypt and Equatorial Guinea, and exploration and drilling activities have been booming across the continent.

24. Crude oil production in Africa increased from 368.4 million tons in 1996 to 378.4 million tons in 1997. Production from members of the Organization of Petroleum Exporting Countries (OPEC) increased marginally to 252.10 million tons, 2.8 per cent more than in 1996, due to the quota system imposed on member countries by the organization. Production from non-OPEC oil-producing countries rose to 126.30 million tons in 1997 from 123.24 millions tons in 1996.

Table 1.4: Crude Oil Production in Africa, 1993-1997 (Millions of tons)

COUNTRY/GROUP 1993 1994 1995 1996 1997*

Algeria** 59.77 59.16 60.52 62.91 66.84
Libyan Arab 68.18 69.22 70.5 69.22 70.72
Jamahiriya

Nigeria 102.1 94.62 104.08 113.05 114.54
Sub-total OPEC 230.05 223 235.1 245.18 252.1

Angola 25.5 27.69 31.62 34.7 35.41
Cameroon 5.48 4.78 4.73 4.48 4.98
Congo 8.66 9.36 8.81 9.3 10.05
Cote d'Ivoire 0.51 0.55 0.55 1 0.96
Democratic Rep. 1.14 1.45 1.44 1.57 1.6
of Congo
Egypt 46.3 46.5 46.5 47.06 47.06
Equatorial 0.2 0.32 0.42 1.74 3.98
Guinea
Gabon 14.77 16.28 17.66 18.33 17.93
Ghana 0.85 0.9 0.9 0.9 0
Tunisia 4.64 4.52 4.3 4.16 4.33

Sub-total 108.05 112.35 116.93 123.24 126.3
non-OPEC

Africa 338.11 335.35 352.03 368.42 378.4

Source: UN, Monthly Bulletin of Statistics, Various issues; OPEC Annual Report, Various issues, EIU Country reports, and country sources.

* ECA estimates

** Including condensates

25. In 1997, the manufacturing industry maintained its previous year's growth at 2.5 per cent. The sector continues to be constrained by a host of structural and demand constraints. With the exception of the North African countries, where capacity utilization and expansion remained buoyant, performance remained subdued in the rest of the continent. In South Africa where the industrial infrastructure is most advanced, depressed demand entailed capacity under-utilization.

26. The services sector continued to grow at a higher rate than commodity production, increasing by 4 per cent in 1997. The liberalization of financial services and trade is the main factor driving its growth. The high rate of expansion of the sector had a positive spillover effect on the demand for and subsequent growth in energy, water and construction activities which, as pointed out earlier, are booming.

27. While the formal services are growing at high rate, this may not accurately reflect the actual size and dynamics of the sector since it may not capture the informal services, which seem to be growing much faster than the formal ones.

(continued in part 2)

************************************************************

Africa: Economic Report, 2
Date distributed (ymd): 980805
Document reposted by APIC

+++++++++++++++++++++Document Profile+++++++++++++++++++++

Region: Continent-Wide
Issue Areas: +economy/development+
Summary Contents:
This posting and the previous one contain substantive excerpts from the Economic Commission for Africa's African Economic Report - 1998, with analysis and data for calendar year 1997. The full report, as well as additional documents from the Addis-Ababa-based international agency, can be found on the ECA web site (http://www.un.org/depts/eca).

+++++++++++++++++end profile++++++++++++++++++++++++++++++

(continued from part 1)

I.A.3. Savings and Investment

28. Gross domestic investment has remained very low compared to the volume required to accelerate the rate of economic growth as well as in comparison with the high-performing areas in Southeast Asia. In the last two years, the volume of investment as a proportion of GDP stabilized at 21 per cent, a considerable improvement over the 19 per cent of the 1990-1995 period. One major reason behind the low volume of investment is the low mobilization of resources from both domestic and external sources. ...

29. Table 1.5 contains statistics on the volume of saving and investment as well as the resource gap as a proportion of GDP from 1975 to 1997.

30. First, gross domestic savings (GDS) defined as GDP less total consumption expenditure has been consistently declining. In 1975-84, African countries saved a quarter of their GDP, but this fell to 20 per cent during the second half of the 1980s and to 16 per cent for the 1990-97 period. Compared to the 1975-1984 period, gross domestic savings in Africa declined by 34 per cent during the first half of the 1990s. The fall was most severe for the North African countries, where it amounted to 45 per cent (from 34 per cent to 19 per cent of GDP) while for Sub-Saharan Africa, the fall was around 25 per cent. The decline in saving was relatively harsh for the SSA countries, excluding the two dominant economies of Nigeria and South Africa. Starting from a low base of 15 per cent of GDP or 63 per cent of the regional GDS in the 1974-84 period, it declined by 28 percent to 11 per cent in 1990-97.

Table 1.5: Savings and Investment in Africa 1975-97:periodical average (as% of GDP)
1975-84 1985-89 1990-97 Indicator

Gross Domestic Savings (GDS)

Africa 24.5 19.9 16.2
North Africa 34.1 23 18.8
Sub-Saharan Africa (SSA) 21.3 18.2 15.9
SSA excluding South Africa and 15.3 13.4 11.1
Nigeria

Gross National Savings (GNS)

Africa 21.2 15.3 12.4
North Africa 31.1 19.1 15.7
SSA 17.9 13.3 11
SSA excluding South Africa and 12.1 8.4 4.9
Nigeria

Resource Transfer (GDS - GNS) Abroad

Africa 3.3 4.6 3.8

North Africa 3 3.9 3.1
SSA 3.4 4.9 4.9
SSA excluding South Africa and 3.2 5 6.2
Nigeria

Gross Domestic Investment (GDI)

Africa 25.4 21.6 19.3
North Africa 31.7 28.7 24.6
SSA 22.9 17.7 17.3
SSA excluding South Africa and 19.9 17.3 16.9
Nigeria

Resource Balance

Africa -4.2 -6.3 -6.9
North Africa -0.6 -9.6 8.9
SSA -5 -4.4 -5.9
SSA excluding South Africa and 7.8 4 5.9
Nigeria

Source: IMF, World Economic Outlook, May 1997

31. Gross national savings (GNS), defined as the sum of GDS, net factor income and net private and public transfers from abroad, tells an even more daunting story. Between 1975-84 and 1990-97, GNS declined by 42 per cent for Africa as a whole, by 50 per cent for North Africa and by 39 per cent for SSA. GNS in SSA excluding South Africa and Nigeria fell by 60 per cent.

32. During the same period, the net transfer of resources from Africa averaged 3.9 per cent of GDP per annum. Net transfers abroad as the difference between gross domestic savings and gross national savings increased from 3.3 per cent of GDP in 1975-84 to an annual average of 4.6 per cent during the mid-1980s and then decreased to 3.8 per cent in 1990-1997.

33. The decline in GNS has had important repercussions on gross investment in Africa in two major respects. The first is the negative impact of declining GNS on investment. The correspondence and correlation between the proportion of GDP saved and invested and between the latter and GDP is very robust. Hence, as GNS declined so did the volume of investment and growth. The second is the increased dependence of these countries on external resources.

34. Between 1975 and 1997, the resource gap (defined as the difference between GDI and GNS) averaged 5.9 per cent of GDP per annum. In the North African countries, the difference between the two parameters increased from 0.6 per cent of GDP in 1975-84 to 10 per cent of GDP in 1985-89, before decreasing to 9 per cent during the first half of the 1990s. The corresponding figures for the SSA countries were 5, 4 and 6 per cent of GDP respectively. If South Africa and Nigeria are excluded from the SSA aggregates, these figures become 8, 4 and 5 per cent of GDP. These statistics strongly suggest that African countries need to redouble their efforts to increase the volume of investable resources they are to mobilise from domestic as well as external sources.

I.A.4. External Sector

35. Positive developments in the external sector contrasted with the negative impact of agriculture on the region's economic performance in 1997. The value of exports increased by 5.9 per cent due to an 8.0 per cent growth in volume and a 2.1-per cent decrease in unit prices. Imports continued their upward trend at a rate of 7.6 per cent of which 6.3 per cent resulted from an increase in volume and 1.3 per cent from higher prices. The terms of trade declined marginally by about 0.5 per cent.

36. The volume of oil exports increased as a result of growth in production, particularly by the non-OPEC countries. Other minerals maintained their previous year's volume of exports. Despite unfavourable weather conditions and the decline in the output of agricultural exportables, export volume increased as a result of a depletion of stock held over from previous years.

37. The trade balance remained positive at US$8.3 billion in 1997, comprising a surplus of US$32.9 billion for the oil exporters and a deficit of US$24.6 billion for the non-oil countries.

38. Despite the region's positive trade balance, the current account deficit increased from US$8.6 billion in 1996 to US$9.5 billion in 1997. The persistent current account deficit is due mainly to the balance of services, made up of interest payments on the external debt, trade-related financial services (banking and insurance) and transport (mainly shipping) services.

I.A.5. The Debt Burden Remains Unsustainable

39. The external debt of African countries rose from US$340 billion in 1996 to US$349 billion in 1997, an increase of nearly 3 per cent. The debt service amounted to US$33 billion, up from US$ 31 billion in 1996, absorbing 21.3 per cent of earnings from the export of goods and services.

Table 1.7: External Debt and Debt Related Statistics (billion of US$ andpercentage)

19931994199519961997

Total debt (US$301.7 312.2 329340.6 349 Billions)

As a percentage of65.466.36867.867.5 GDP

As a percentage of345.6 302.1 304.9 293.4 283.9 XGS

Debt service (US$37.738.332.93133 Billions)

As a percentage of28.325.830.529.321.3 XGS

Source: World Bank, National Sources.

40. There is a general consensus that the debt overhang continues to be a major obstacle to recovery and to the sustainability of high economic growth, particularly in the highly indebted poor countries. The difficulties in meeting debt-service obligations are reflected in the accumulation of arrears and the strong demand for their rescheduling.

I.B. Sub-Regional Growth Performance

47. In 1997, all Africa's subregions recorded lower growth rates than in 1996. Growth was lowest in Southern Africa (2.4 per cent) and North Africa (2.8 per cent) and highest in Central Africa (3.8 per cent) followed by West Africa (3.7 per cent) and East Africa (3.5 per cent). The largest decline was in North Africa (from 4.4 per cent to 2.8 per cent, a fall of 36 per cent) followed by Southern Africa, where growth in 1997 was 80 per cent of what it was in 1996.

Table 1.8: Subregional Growth Rates (% p.a.) 1993-97*

Sub Region 1993 1994 1995 1996 1997

North Africa 0.5 1.8 1.8 4.4 2.8
West Africa 0.5 2.5 3.4 4.2 3.7
Central -9.2 -1.3 5 4.4 3.8
Africa
Eastern Africa 2.4 4.5 4.9 4.3 3.5
Southern Africa 1.5 2.5 2.5 3 2.4
Africa 0 2 2.7 4 2.9

Source: ECA Secretariat
* Weighted Average

I.C. Policy Development in 1997

58. As is probably well known, the major thrust of economic policymaking on the continent has been informed for the last decade or so by the core policy content of adjustment programmes (of the type supported by the IMF and the World Bank).

59. The comprehensive programme of reform being carried out is geared to bring about economic growth by improving revenue performance, rationalizing and improving the efficiency of the taxation system, improving and reorganizing public administration, developing and improving the financial sector as well as strengthening bank supervision, encouraging private sector development and working towards sustainable agricultural development.

60. These and other adjustment measures are expected to improve and strengthen a country's balance of payments position and enhance its growth. As of 31 December 1997, there were 22 African countries with active extended Structural Adjustment Facility (ESAF) agreements with the IMF. The main policies pursued in 1997 and during the "medium-term strategy " to achieve macroeconomic objectives remained those belonging to the core set of reform policies and they included the following: financial policies (fiscal and monetary), structural reforms and social policies.

III. Medium-Term Outlook and Policy Challenges

III.A. Medium-Term Outlook

93. In the foreseeable future, the major determinants of the African economic performance will continue to be based on the outturn of the two exogenous factors - weather conditions and development - in the external economic environment. In addition to this, the pursuit of strong economic reforms will continue to be an important domestic determinant of performance.

94. Under different assumptions, the growth of the African economy is forecast to rebound to between 4.0 per cent and 5.0 per cent in 1998 with a mean projection of 4.5 per cent. The lower and upper ceilings are based on the possible outcome of the two major determinants. The higher projection is based on the assumption that conducive weather conditions will prevail and export prices will improve. The lower ceiling of 4.0 per cent would obtain if either of these two conditions fail to materialize i.e. agricultural output or world prices or both are unfavourable.

95. Given the 7- to 10-year El Nino-related cycle, weather conditions are expected to be more favourable in 1998 than in 1997 and, therefore, a considerable turnaround in agricultural output -- expected to grow by 7 per cent -- is assumed.

96. Developments in the external sector are derived on the basis of a possible outturn of three major factors of importance to African economies.

97. The first and most important is world prices for Africa's exports and imports. In addition to the global supply and demand (the usual determinants of world prices), one must factor in the possible effect of the currency crisis in East and Southeast Asian countries which, in recent years, have become important trading partners for Africa as well as major competitors on the world market.

98. The depreciation of the currencies of these countries may slow their growth, in which case global demand for some of the major export items of interest to Africa may decline. The most important export products that may feel the impact of this development are oil, gold and industrial minerals such as copper. The Asian slowdown as well as the increased output from the huge investment in the production of these commodities in Africa and elsewhere are expected to push their prices downward.

99. Beverage prices are expected to decline from the third quarter of the year, while stabilising in the meantime at the 1997 fourth-quarter prices. In addition to the bumper crop expected from the more conducive weather conditions, the depreciated Asian currencies are likely to exert downward pressure on coffee, tea cocoa and timber prices.

100. On the other hand, it is assumed that the prices of importables will stabilize at their 1996 levels, although they could decline as a result of the depreciation of the Asian currencies.

101. The second major external factor impinging on Africa's economic performance is the debt overhang. That the excessive debt burden has been an important factor behind the low volume of investment is acknowledged by African countries as well as the international community at large. Although the HIPC Initiative is a welcome development, it needs to be placed on a fast track to entail an effective and observable outcome. The assumptions here are that debt-relief measures will obtain and that the volume of foreign exchange required will exceed the 1997 figure of US$ 33 billion.

102. The third important external component is the inflow of resources. While the expected positive development on the debt front would contribute to a reduction of the drain on foreign exchange, it is deemed insufficient to boost investment, particularly in the non-oil exporting countries. It is expected that net transfers from bilateral and multilateral sources will at least maintain their 1997 level.

103. On the domestic front, the higher-growth scenario assumes that African governments will continue to implement vigorously macroeconomic management reforms which emphasize reducing the rate of inflation, reducing the budget deficits, eliminating current-account and balance-of-payments deficits, efficiently managing the external debt and meeting debt-servicing obligations, etc. These medium-term measures have to be complemented by long-term programmes that place emphasis on the reduction or eradication of mass poverty, meeting the basic health, housing, educational and social needs of the population, reducing income inequality, raising the standards of living and per capita income of the citizens, protecting the environment and promoting diversified, self-reliant and sustainable development.

III.B. Evaluation of ESAF in Africa

104. The overarching policy challenge facing African governments in the foreseeable future is the reduction and eventual eradication of poverty. Towards this end policymakers in Africa face the challenge of developing modalities that would make it possible to attain high and sustainable growth, expand employment, and achieve equitable income distribution in an environment of stable prices and a sustainable balance-of-payments position.

105. This is a daunting task. According to current estimates, close to 50 per cent of the population live in absolute poverty. This percentage is expected to increase at the beginning of the next millennium and to prevent that, African countries will need at least to match their GDP-growth and population-increase rates. Assuming that the labour force increases at the same rate as the population --2.9 per cent per annum -- they would need to create 17 million new jobs each year to stabilise the unemployment rate at the current level, which is already unacceptably high.

106. During the past decade and a half, African countries have gone through the phase of adjusting their economies with the support of the IMF and the World Bank. An authoritative and candid evaluation of the ESAF programmes shows that the results were disappointing compared to the programme targets and to the performance of non-ESAF countries (see Box II).

107. In the coming years, African policymakers, in partnership with their development partners, would need to create an environment and operational modalities capable of inducing and sustaining a high rate of growth so as to stabilise their countries' economies and reduce poverty at home while generating capacity to live up to their obligations abroad. This challenge offers opportunities to the African policymakers to cooperate among themselves, develop mechanisms and institutions to mobilize foreign direct investment and improve their economies and societies, bringing them to a higher plane by upgrading their governance.

Editor: Ali B. Ali-Dinar

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