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Africa: Economic Growth Improving
AfricaFocus Bulletin
May 9, 2005 (050509)
(Reposted from sources cited below)
Editor's Note
"Africa's real GDP grew by 4.6 per cent in 2004, the highest in
almost a decade, up from 4.3 per cent in 2003. ... [this] reflects
a continued upward trend since 1998. Unfortunately, the growth has
so far not been translated to employment creation or poverty
reduction." - United Nations Economic Commission for Africa (ECA)
As African finance ministers and economic experts gather in Abuja,
Nigeria this week for their annual consultations, reports concur
in noting improved economic growth for last year and favorable
continuing prospects. This summary conclusion, contrasting with
media images of unrelieved crisis, reflects both stability in much
of the region and increased world demand for African products.
However, the average results are accompanied by wide gaps among
different countries, with oil-producing countries
having the most favorable growth outlook. Most seriously, as the
report prepared by the ECA for the Abuja meeting stresses, growth
has been both quantitatively and qualitatively insufficient to
create jobs and reduce poverty. In a statement issued in Dakar on
May 7, the ministers stressed the urgency that rich countries deal
with the overhanging debt burden that still blocks adequate longterm
social investment. The Abuja meeting will also focus on how to
improve aid coordination and other measures needed to deal with the
fact that most African countries are falling far short of meeting
the Millennium Development Goal targets for addressing poverty.
Another report released by the International Monetary Fund last
month also approvingly cited high growth and low inflation in
Africa. Among the obstacles it stressed to further growth, however,
were falling world cotton prices and the removal of textile quotas
that is expected to devastate recently expanded African textile
exports.
This AfricaFocus Bulletin contains excerpts from the survey
prepared by the Economic Commission for Africa. The full report and
other documents prepared for the Finance Ministers' meeting this
week, are available at
http://www.uneca.org/conferenceofministers/2005/documents.htm
The Regional Economic Outlook from the International Monetary Fund
is available at
http://www.imf.org/external/np/sec/pr/2005/pr0586.htm
Previous AfricaFocus Bulletins on economic issues are available at
http://www.africafocus.org/econexp.php
++++++++++++++++++++++end editor's note+++++++++++++++++++++++
Survey of Economic and Social Conditions In Africa 2004-2005
United Nations Economic Commission for Africa
[Excerpts only. PDF of full report, with footnotes and graphs, is
available at
http://www.uneca.org/conferenceofministers/2005/documents.htm
E/ECA/CM.38/4 6 April 2005
This Survey was prepared by the Economic and Social Policy Division
(ESPD) of ECA, for presentation at the Conference of African
Ministers of Finance, Planning and Economic Development, 2005.
It is derived from the Economic Report on Africa 2005: "Meeting the
Challenges of Unemployment and Poverty in Africa".
1. Overall Growth Performance
Africa's real GDP grew by 4.6 per cent in 2004, the highest in
almost a decade, up from 4.3 per cent in 2003 (Figure 1). This
improvement was underpinned by higher prices of commodities,
including oil, stemming from a strong growth in global demand. In
addition, good macroeconomic management, better performance in
agriculture, the improved political situation in many countries,
and increased donor support in the form of aid and debt relief
contributed to this positive outcome. The favourable growth
performance in Africa in 2004, furthermore, reflects a continued
upward trend since 1998. Unfortunately, the growth has so far not
been translated to employment creation or poverty reduction.
1.1 Subregional Performance
The escalation in growth between 2003 and 2004 on the continent was
attributable to an improvement in the performance of sub-Saharan
Africa (SSA), in contrast with 2002-2003 when the increase emanated
from North Africa (Figure 1). Central Africa experienced the
highest growth rate in 2004, followed by East Africa, North Africa,
West Africa and Southern Africa (Figure 2). Contributing to West
Africa's relatively slow growth was the decline in Nigeria's real
GDP growth from 10.2 per cent in 2003 to 4.6 per cent in 2004.
Also contributing to the weak performance in West Africa was the
ongoing political crisis in Cote d'Ivoire, which led to yet another
year of slow real GDP growth (0.9 per cent in 2004). Furthermore,
a locust invasion seriously affected the agricultural sectors of
Mali, Niger and Senegal, contributing to their relatively low
growth rates.
On the other hand, growth in six of the 15 West African countries
was 5 per cent or higher, with Liberia leading the group with a
real growth rate of 15 per cent, followed by the Gambia (6.6%),
Sierra Leone (6.6%), Burkina Faso (5.4%), Cape Verde (5.4%), and
Ghana (5.3%). Rising oil prices buoyed growth in North and Central
Africa. Meanwhile, East and West Africa benefited from increased
agricultural production, coupled with rising commodity prices. In
Southern Africa, real GDP growth increased in 2004, mainly as a
result of steady growth in South Africa, which benefited from
strong global and domestic demand created in part by its low
interest rate environment.
1.2 Fastest versus Slowest Growing Countries
2004 Growth Record
The fastest growing African countries in 2004 were Angola, Chad,
Equatorial Guinea, Ethiopia, Liberia, and Mozambique (Figure 3).
Liberia's strong performance must be placed in context, however, as
a most recent post-conflict economy, Liberia grew from a relatively
low base of output. In addition, its growth was buoyed by
substantial external aid in support of its rebuilding efforts.
Thus, the sustainable nature of the growth may be in question.2 The
slowest growing economies in Africa were Central African Republic,
Cote d'Ivoire, Gabon, Seychelles and Zimbabwe, (Figure 3). The poor
performance was hampered by drought and an adverse political
environment (Zimbabwe); continuing political turmoil (Cote
d'Ivoire); and, despite the discovery of new oil fields and higher
oil prices, a decline in oil production due to limited investments
in upgrading existing fields (Gabon)
... the growth performance of the top and bottom performers has
been fairly stable over the last half-decade. In effect, 14 African
countries have been capable of sustaining their growth at 5 per
cent or higher since 1999, a rate that puts them closer to meeting
the estimated 7 per cent rate required to achieve the
poverty-reduction goal ...
1.3 Internal Sources of Growth, 2004
The internal factors explaining the growth record in Africa in 2004
include: continued macro- stability based on prudent fiscal and
monetary policy, an improvement in the current account balance due
to rising commodity prices (including cash-crop agriculture) and
receipts from tourism, as well as improved political stability in
several African countries.
1.3.1 Macro-stability
Inflation Declined
On average, inflation in Africa declined from 10.3 to 8.4 per cent
between 2003 and 2004. The favourable trend in inflation was due to
prudent monetary and fiscal policies, good harvests and relatively
stable and, in some cases, appreciating exchange rates. The average
trend, however, masks country differences. Inflation declined in 29
African countries but increased in 20 countries. ...
Fiscal Deficits Eased
Fiscal deficits in Africa declined between 2003 and 2004; 32
countries either recorded surpluses or declines in their fiscal
deficit. Of the 32 countries, 13 recorded surpluses while 19
experienced declines. Fiscal surpluses were concentrated in
oil-producing countries; 8 of the 13 countries that experienced a
fiscal surplus were oil producers. The success of African economies
as a whole in improving their fiscal stance in 2004 was
attributable to revenues generated from windfall gains in oil
prices and prudent fiscal policies. Notwithstanding progress on the
fiscal front, challenges remain for several African countries; 10
countries experienced deficits in excess of 5 per cent of GDP.
...
The Current Account Improved
Roughly, one-half of African countries (26 out of 51) experienced
an improvement in their current account, which moved from a deficit
of 0.1 per cent of GDP to a surplus of 0.4 per cent for the
continent overall.
The favourable performance on the current account was due to strong
growth in oil- and non-oil exports, and improved market access
facilitated by initiatives such as the Africa Growth and
Opportunities Act (AGOA) and the Everything But Arms (EBA)
initiative. For instance, the combined value of the 37 eligible
AGOA countries' exports to the USA grew by 38.1 per cent in 2004,
up from $US24.4 billion in 2003. However, the strings attached to
these preferential trading arrangements, in terms of rules of
origin and time-bound preferential treatment, are constraints to
export growth. Furthermore, the end of the Multi-Fibre Agreement
(MFA) poses a challenge for African textile and garment producers,
since it will open up the market to intense competition,
particularly from highly competitive countries such as China, India
and Pakistan. In effect, the contribution of textile and garment
exports to the current accounts of African economies could be
compromised as a result of the rollback of the MFA. ...
1.3.2 Tourism on the Rise
Tourism is fast becoming an important source of foreign exchange
earnings in Africa. Receipts from the tourism sector were $US18.6
billion in 2003 (the latest year for which data are available),
representing an increase of 19.2 per cent over 2002. Receipts per
tourist arrival were estimated at $US510 in 2003. While these
amount to only about one-half the per capita tourist expenditure in
the Americas ($US1029), they nevertheless represent a significant
source of income for African economies. Indeed, together with an
enabling environment and delightful weather conditions, the low
cost of touring Africa may be a positive factor that makes Africa
the preferred destination for tourists.
1.4 External Sources of Growth, 2004
Among the external factors explaining African economic growth in
2004 are: increased flows of foreign direct investment (FDI) and
overseas development assistance (ODA), as well as a rise in
commodity prices induced by increased global demand. While rising
oil prices were key in spurring growth in oil-producing African
countries such trends posed a threat to the growth of non-oil
producing African countries.
1.4.1 Strong Global Economic Growth
The global economy grew at 4.0 per cent in 2004, the strongest in
two decades. Global growth was widespread but particularly robust
in the United States and China, which experienced growth rates of
4.4 and 9.0 per cent, respectively. ...
1.4.2 Rising Commodity Prices
Africa's growth performance was spurred by rising oil and non-oil
commodity prices. The commodity price index, denominated in US
dollars, increased by 26.3 per cent in 2004 induced by increased
demand from Asia, particularly China. Oil price changes accounted
for the bulk of the commodity price increase, while metals and
minerals and fertilizers contributed significantly to the rise in
non-energy commodity prices. In contrast, the price of cocoa,
coffee, cotton and groundnut oil declined between 2003 and 2004, on
account of excess supply on the world market.
ODA to Africa recovered from a low of $US15.3 billion in 2000 to a
new high of $US26.3 billion in 2003 (Figure 4). The recovery in ODA
flows was largely driven by debt relief, provided through the
Highly Indebted Poor Country (HIPC) initiative, and emergency
assistance. ... By their per capita gross national income (GNI),
Denmark (0.94), Norway (0.87), the Netherlands (0.81), Sweden
(0.80) and Luxemburg (0.78) led the way in donations in 2001-2003.
...
1.4.4 FDI Flows are Up
Africa has been recording increased flows of FDI despite recent
declines in FDI globally. FDI flows to Africa increased from $US12
billion in 2002 to $US15 billion in 2003 and were projected to rise
to $US20 billion in 2004. FDI flows to Africa tend to be
concentrated regionally (i.e., North Africa) and sectorally (i.e.,
in the extractive industries).
Two thirds of all flows to Africa went to North Africa where
investments favoured oil-rich Libya, the Sudan and
investor-friendly Morocco. In SSA, the preferred FDI destinations
were: Angola, Equatorial Guinea, Nigeria and South Africa.
FDI flows to the service sector, at large, and the electricity and
wholesale and retail subsectors in particular, have been on the
rise in recent years challenging the dominance of the extractive
industry. In particular, increased FDI flows to the service sector
have been influenced by privatization and liberalization of the
sector (e.g., telecommunications, electricity and water) and
technological innovations that have increased the range of tradable
services.
2. Some Areas of Concern
Notwithstanding the favourable growth performance in 2004, savings
and investment remain low. Meanwhile, the depreciation of the
dollar has contributed to the appreciation of the currencies of
several African countries and threatens to undermine their
international competitiveness. Global growth is, furthermore,
expected to decline to 3.2 per cent in 2005 on account of rising
crude oil prices, tighter fiscal and monetary policies in the USA
to address the deterioration of its budget and current account
deficits, and a cooling of the Chinese economy. A slowdown in
global growth may have adverse implications for African countries.
2.1 Risk of currency appreciation
As a result of continued weakening of the US dollar, 30 African
countries experienced appreciation of their currencies against the
dollar in 2004. ...
2.2 Weak Domestic Investment
Investment in Africa is generally low. It barely exceeded 20 per
cent of GDP during 2000- 2002.8 Only 11 out of the 50 countries for
which data are available experienced high investment rates, that
is, in excess of 25 per cent during 2000-2002, with a majority of
these countries being oil-producing (Figure 5).
2.3 Low Domestic Savings
The low level of investment in Africa is partly due to the low
savings rate in the region. On average, Africa had a savings rate
of 21.1 per cent of GDP during 2000-2002. Only 11 of the 50
countries registered savings rates above the average for the region
suggesting that even the average rate is dominated by the
performance of a few countries (Figure 6). The low level of
domestic savings deepens dependence on external aid and renders
African countries vulnerable to the volatilities of FDI and ODA
flows.
3. Prospects for Growth in 2005
Africa is projected to grow at 5.0 per cent in 2005, up from 4.6
per cent in 2004 (Figure 7). Growth is expected to be driven by the
upturn in the growth prospects of 32 countries (including the
largest 5 economies except Nigeria). Growth will be underpinned by
continued macroeconomic stability; rising African exports in the
context of strong, albeit slower, global growth; continued
improvement in agricultural output, assuming continued good weather
conditions; and vibrant growth in the tourism and mining
subsectors.
Central Africa and Eastern Africa are expected to lead the growth
process in 2005, while Southern Africa and West Africa are
projected to grow at the slowest rate (Figure 7). Growth in Central
Africa and Eastern Africa is, however, projected to be lower in
2005 than in 2004.
...
4. Growth, Employment and Poverty
4.1 Employment growth
Given the significance of employment as a source of income for the
poor, increasing employment opportunities must be considered a
critical element of poverty reduction initiatives. Sustained
economic growth represents the route for creating "decent" jobs
with above-poverty wages. Unfortunately, while real GDP growth in
SSA has been on an upward trend since 1998, for example, employment
growth has remained flat (Figure 8).
These trends suggest, then, that real GDP growth in SSA has not
been sufficiently employment-intensive.
4.2 Poverty Trends
In 2003, for example, SSA had the highest poverty rate, while North
Africa and the Middle East (MENA) experienced the lowest rate
(Figure 9). Moreover, the poverty rate decreased substantially
between 1980 and 2003 for all subregions with the exception of SSA,
where the rate actually increased slightly.12 In addition, SSA was
the only subregion where the proportion of the "working poor"
increased during 1980-2003 (Table 2). This finding is likely
explained by the fact that GDP growth in SSA during this period was
barely enough to absorb population growth.
5. Progress Towards MDG [Millennium Development Goal] Targets
5.1 Overall SSA performance
The unsatisfactory performance of SSA in creating jobs and reducing
poverty raises concerns about the subregion's progress in meeting
the overall targets of the MDGs, practically all of which relate to
social conditions. SSA's overall performance during 1990-2000, with
respect to achieving the MDG targets, has been disappointing
(Figure 10). Performance was particularly weak on halving poverty,
reducing maternal mortality and increasing the primary education
completion rate, though there appears to be significant progress on
meeting gender equality education targets, as well as on access to
improved water sources.
5.2 Subregional and country-level performance
The apparently dismal performance at the regional level, however,
masks subregional and country-level differences. North Africa, for
example, is singled out as a subregion with a remarkable progress
towards achieving the MDGs (Figure 11). It is also noteworthy that
several countries are projected to achieve each of the goals.
Nonetheless, the majority still lag behind, and special efforts
will be required to ensure that they can achieve the MDGs.
6. Conclusion and Policy Recommendations
The country-level MDG performance of African countries is cause for
"unrelenting concern" but not for "despair". Africa's favourable
real GDP performance in recent years is a welcome development,
especially when placed in the context of historically low levels of
growth. Sustainable growth in Africa will require policy
interventions at the economic, social, and political levels.
6.1 Economic
At the economic level, priority must be given to:
- Minimizing dependency on the vagaries of the climate, through
agricultural transformation; Reducing exposure to commodity price
shocks via export diversification; Consolidating macroeconomic
stability through prudent fiscal and monetary policies underpinned
by effective expenditure tracking systems and an efficient public
sector;
- Mobilizing domestic savings to finance investments, through
macroeconomic stability and measures to deepen financial and
capital markets;
- Maximizing job creation by minimizing constraints to private
sector investments and growth (e.g., complementary public
investments in roads, utilities, etc., and minimization of
red-tape);
- Minimizing the unpredictability of ODA flows by negotiating
greater donor coordination and commitment to streamline aid
delivery modalities and, where relevant, ensuring greater effort on
the part of African countries to fulfill mutually agreed benchmarks
with donors; and
- Accelerating efforts of regional cooperation to effectively
harness global forces for development.
6.2 Social
Social-level interventions must be guided by the goal of improving
the health and human capital of the citizenry. This can be achieved
by:
- Maximizing physical and financial access to health systems by the
poor, through cost-effective investments in social services,
including the design of financially sustainable social safety nets;
- Addressing the adverse effects of major diseases such as malaria,
and especially halting the spread of HIV/AIDS as well as addressing
the needs of people living with AIDS; and
- Investing in education and ensuring that human capital (acquired
either through formal education or skills training) is relevant to
the workplace; and putting in place effective policies to retain
human capital and reverse the brain drain.
6.3 Political
On the political level, the overriding objectives should be:
- Securing peace and security through the development of credible
democratic processes and institutions, including the respect for
the rule of law and the rights and liberties of the citizenry;
providing for the rule of the majority while respecting the rights
of minorities;
- Making special provisions for the least-developed countries and
post-conflict economies; and
- Optimizing global partnerships to level the playing field in the
trade arena; as well as developing and maintaining the capacity for
infrastructure development and effective management.
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with
a particular focus on U.S. and international policies. AfricaFocus
Bulletin is edited by William Minter.
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