Recent Economic Developments in Africa
Louis Kasekende
Chief Economist,
African Development Bank
Dublin, 25 May 2009
Main Messages
1. Africa not decoupled as previously thought
•
although GDP is positive, per capita incomes are
falling; growth drivers severely affected by the crisis
2. The recent growth deceleration largely due to external
factors
3. Africa is in a much better position to manage the crisis
than in previous periods due to better economic
management
4. ..But long term development challenges remain
Outline of the Presentation
I.
II.
Pattern of African Growth
Explaining Recent Growth
Acceleration
III. The Impact of the Global Crisis
IV. Transforming accelerations into
sustainable dynamic growth
I. Pattern of African Growth
History: Booms and Busts a feature of African
Growth
5.0
4.0
Africa: Real Per Capita GDP growth (%)
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
20
07
-4.0
Episodic
growth is
typical of
natural
resource
driven growth
External factors underpin growth accelerations and decelerations
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
Real GDP Growth (%)
Natural resources
underpin most of the
growth cycles in Africa
1981
Africa
1984
1987
1990
1993
1996
Resource-Rich Countries
1999
2002
2005
2008
Resource poor Countries
…driven by growth
in global demand
7.0
6.0
Africa and World GDP Growth (%)
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
1981
1984
1987
1990
Africa
1993
1996
1999
2002
2005
World
2008
Explaining recent growth accelerations
Sustained growth period
Recent growth acceleration was underpinned by:
•
Strong global demand for Africa’s raw materials
•
Large financial inflows
•
Good macroeconomic management
Openness a key driver of recent growth acceleration
Hard commodities
400
350
300
Soft Commodities
400
Petroleum
Copper
Aluminium
Gold
350
300
250
250
200
200
150
150
100
100
50
50
0
0
Source: OECD Development Centre, based on World Bank, 2009
Cocoa
Coffee (arabica)
Coffee (robusta)
Tea
Cotton
Oil exporters were growing faster than importers
Source: African Economic Outlook 2008
Net Oil exporters: Algeria, Angola, Cameroon, Chad,
Congo,
Côte d'Ivoire, Congo DRC, Egypt, Equatorial Guinea,
Gabon, Libya, Nigeria, Sudan
10
Higher financial inflows also a key growth driver
Africa
20
08
(e
)
20
09
(e
)
20
07
20
06
20
05
30
04
20
03
20
02
20
00
20
01
Remittances (US$bn)
45
40
35
30
25
20
15
10
5
0
SSA
Source: IMF Regional Economic Outlook, 2008
Foreign reserves (US$bn)
500
450
45
40
35
30
25
20
15
10
5
0
US$ Billion
US$ billion
Aid,
esp. debt relief also made a difference
50
400
350
300
250
200
150
100
50
0
2002
2003
2004
2005
2006
2007
2000
2001 2002
2003
2004 2005
2006
2007 2008
3.60
Payoffs from more than two decades of reforms
3.50
Country Policy and Institutional Assessment [CPIA] Scores
(African Average - 2004-2006)
3.40
2004
2005
2006
3.30
3.20
3.10
3.00
2.90
Economic
Management
Structural Policies
Policies for Social
Inclusion/ Equity
…leading to greater
macroeconomic
stability, despite the
food price increases
in 2008
Publi Sector
Management
Total
Africa benefitted from
improved economic
management which
strengthened growth
Africa not decoupled: continent hit by the global crisis
Low external
demand of
Commodities
Impact on
Africa
Global
Down
turn
Fall in
Global
Demand
Low external
demand of
Manufacturers
goods
Unemployment
Collapse of
Financial
Markets
Finan
cial
crisis
Financia
l Risks
Aversio
n
Increase of
sovereign
spread
Fall in
Commodities
prices
Fall in Exports of
commodities and
goods and
services(volume)
Fall in
Remittances
and Tourists
arrivals
Fall in
reserve
s
Current
Account and
Budget
Deficits
Low
investment
Outflow of portfolio
investment
Fall in Bonds
issuances
Low
Growth
Low FDI
Trade finance
restrictions
Fall In
imports
Poverty
and social
instability
Severe macroeconomic impact (February forecast)
% of GDP
Fiscal balance
20
15
10
5
0
-5
-10
Current Account
% of GDP
15
10
• Twin deficit problem:
the crisis will cause
fiscal and current
account balances to
deteriorate significantly
across the continent.
5
0
-5
-10
Inflation
• Inflation will, however,
stabilise as commodity
prices fall, though food
prices have remained
high
Source: OECD Development Centre / African Development Bank. 2008
* Excluding Zimbabwe
** Estimations for 20078and predictions for 2009/10
Shortfall in Trade Taxes
Fiscal balance
The crisis is taking a toll on Africa’s growth prospects
Real GDP Growth (%)
7
6
April 08 projections
5
Nov 08 projections Feb 09 projections
4
May 09 projections
3
2
1
0
2007
2008(e)
2009(p)
2010 (p)
Africa (April 2008 forecast)
Africa (November 2008 forecast)
Africa (May 2009 forecast)
Africa (February 2009 forecast)
Source: OECD Development Centre / African Development Bank. 2008
Oil Exporters
Suffering from lack of diversification
…and little room left
Taking a hit from the oil
price fall ..
for manoeuvre
• Many oil exporters did
not take advantage of
commodity windfalls to
improve governance and
diversify their
economies
Angola
Eq. Guinea
Sudan
Congo Rep. of
Nigeria
D. R. Congo
AFRICA
Gabon
OIL IMPORTERS
Cameroon
Algeria
2008(e)
Chad
2009(p)
-8
-6
-4
-2
0
2
4
6
8
10
12
14
16
Source: OECD Development Centre / African Development Bank
*: African Economic Outlook forecasts
• Nevertheless, some oil
exporters have
performed well in terms
of reducing external
debt
Oil Importers
Benefiting from low commodity prices & reforms
Holding up against the crisis so far…
Rwanda
Tanzania
Ghana
Oil Exporters
Mozambique
Cape Verde
Morocco
Africa
Mauritania
Tunisia
Senegal
Kenya
2008(e)
2009(p)
0.0
2.0
4.0
6.0
8.0
10.0
Source:
*: African Economic Outlook forecasts
…yet challenges rising
Oil-importing countries find it
difficult preserving pre-crisis
gains. Rising inflation and
deteriorating macroeconomic
balances.
Good performers’ assets:
• Sustained growth; Prudent
macroeconomic policies;
Diversification; Decreasing
poverty
Challenges:
• Fiscal deficits; ODA
dependency; widening trade
deficit; climatic & price
shocks
But the shock is not a disaster for Africa
Africa today is in a much better position to weather the crisis
Africa today is much more resilient to exogenous shocks:
• Committed macro management in many countries has
brought inflation under control and improved fiscal
balances
• Debt relief initiatives (HIPC & MDRI) have significantly
reduced debt levels in many countries
• The commodity boom helped to improve terms of
trade
• Business climate indicators are steadily improving,
reflecting government efforts in nurturing private
sector and enterprise
• Political conflicts are on the wane
Growth set to recover in 2010
-Growth “pause” in 2009:
Recovery in 2010 and
beyond is promising.
7.0
6.0
5.0
Africa
4.0
• Net oil exporters (4.1%)
• Net oil importers (3.8%)
Sub-Saharan Africa
3.0
2.0
1.0
0.0
2005
2006
2007
2008(e)
2009(p)
2010(p)
-The challenge is for
Africa to transform this
acceleration into
sustainable dynamic
growth
Some countries weathering the crisis
Cost of the crisis:
Growth differential
2008 - 2009
- 3.1 to – 23 %
- 2 to- 3 %
Zero to – 1.9 %
Increased growth
between 2008-09
Source: African Economic Outlook, 2009
• Oil exporters the most hit.
• More integrated
economies also strongly
affected
• Low-income / non-oil
exporting countries are
less affected. because:
-- beverages (cocoa. tea.
coffee) less affected by
decline in global incomes.
-- less integration to the
world economy
Some regions are weathering the crisis
GDP Growth (%)
Central Africa
Eastern Africa
Southern Africa
Western Africa
AFRICA
Memorandum items
North Africa (including Sudan)
Sub-Saharan Africa
Oil-exporting countries
Oil importing countries
Source: African Economic Outlook, 2008/09
2005 2006 2007 2008(e) 2009(p) 2010(p)
5.3
7.1
6.3
5.7
5.7
3.4
7.6
6.8
5.1
6.0
4.0
8.8
7.0
5.4
6.1
4.5
7.2
5.1
4.8
5.5
2.0
5.1
-1.0
3.3
2.3
3.2
5.5
3.6
3.4
4.0
5.0
6.1
6.3
5.0
6.1
5.9
6.1
5.8
5.7
6.5
6.8
5.4
5.9
5.2
6.3
4.5
3.6
1.4
2.5
2.1
4.2
3.8
4.1
3.8
The China-India factor
• Although China and India have not escaped the negative effects of the
global crisis, growth remains robust.
• They continue as important sources of investment and trade for most of
Africa.
Significant Chinese and Indian investments in
African infrastructure, up to April 2008
China-Africa trade
USD billion
120
100
80
60
40
20
India
China
0
Source: OECD Development Centre, based on China Mofcom, 2009
Source: OECD Development Centre, based on UNCTAD, Nepgen and Jansson 2009
But downside risks loom large
Some downside risks
•
•
•
Deteriorating macroeconomic balances
-difficult to stick to sustainability indicators
- limited fiscal space for stimulus packages
•
Tension between reform and control
•
Creeping protectionism
•
Interest in Africa may wane
Deteriorating Macroeconomic balances
Overall Fiscal Balance (including grants) in percentage of GDP
2008(e)
2009(p) February
2009(p) May
2.8
February
2008(e)
-5.4
May
2009(p)
-5.8
External Current Account (including grants) in percentage of GDP
2008(e)
2009(p) February
2009(p) May
3.3
February
2008(e)
-4.4
Untenable targets
on fiscal and debt
sustainability
indicators in the face
of worsening
macroeconomic
balances .
May
2009(p)
-5.3
Limited fiscal space
for fiscal stimulus
packages
Source: OECD Development Centre / African Development Bank. 2008
* Excluding Zimbabwe ** Estimations for 20078and predictions for 2009/10
Tension between reform and control
• In the face of the crisis, some countries have
imposed controls (sometimes temporary or
limited) to stem sudden capital outflows.
• But the room that capital controls give to
policy makers is limited:
– Their later removal may be accompanied by large outflows.
– Time-consistency problem: if investors view capital controls
as a discretionary policy instrument, expectations of their
imposition may encourage capital flight.
• Countries need to persevere with reforms
Risk of declining ODA
• Crisis related budgetary constraints in donor
countries may cause them to cut back on ODA.
– Previous crises in donor countries led them to also
cut ODA budgets (Japan in 1990; Nordic countries
after 1991)*
– In the EU, although ODA is up, many countries cutting
back on commitments to meet the EU time limits of
achieving a target of 0.7% of GNI
• e.g. Ireland cut aid budget by €255 million since July 2008
• Italy will cut back its aid by €1 billion by 2010
• Good news: ODA trend for Africa is upward
* See: Rooodman, D. (2008): History says Financial Crisis will Suppress Aid” Global Development; and Frot, E. (2009): “Aid and the Financial
Crisis: Shall we expect Development Aid to Fall?”
Other Downside Risks
• Prolonged crisis in developed countries may
delay the recovery in Africa
• Corporate failures as a result of the economic
crisis may lead to a banking or financial crisis
in Africa
• Risk of aid dependency
• The transition of some countries to a middle
income status may be delayed
Transforming growth acceleration into sustainable
dynamic growth
Africa still faces many long-term development
challenges
 High cost of doing business in Africa
 Management of natural resources
 Reforming the financial sector
 Large gaps in infrastructure and logistics, including
ports, roads, energy, IT
 Lack of product and market diversification
 Poverty reduction remains on
overarching development challenge
Putting Africa on a long-term growth trajectory
• Increase the level and productivity of investment
– Infrastructure
– Skills development (education and health)
• Pursue globalisation
– Diversification (products and markets), including
manufacturing
• Deepen economic and institutional reforms
• Invest in IT and R&D
Africa is lagging behind in infrastructure and
logistics
Paved road density
Mainline density
141
134
131
106
94
78
31
10
Sub-Saharan Africa Other low-income Sub-Saharan Africa
Other middle
LICs
countries
MICs
income countries
Sub-Saharan Africa Other low-income Sub-Saharan Africa
Other middle
LICs
countries
MICs
income countries
Improved water
86
72
75
60
Sub-Saharan Africa Other low-income Sub-Saharan Africa
Other middle
LICs
countries
MICs
income countries
Lack of diversification a major challenge
Share of
manufacture
s in total
exports
Range (%)
2006
Number
of
countries
< 15
Algeria, Angola,
Burundi, Benin,
Burkina Faso,
Cameroon
Cote d’Ivoire,
Malawi, Mali,
Mauritania,
Mozambique,
Niger, Sudan
Zambia
14
16-30
Egypt, Kenya,
Tanzania, Uganda
4
31 and above
Central African
Republic, Ghana,
Madagascar,
Morocco, Senegal,
South Africa, Togo
Tunisia, Zimbabwe
9
Invest in innovation, especially in ICT and R&D
ICTs in Africa has proven to be an innovation frontier by combining state-of-art
technologies with local customs and constraints through incremental innovations.
However, there is still more to be done to deliver more and better value added services
to the poorest population :
• Expensive inland high capacity networks require government support
• Governments have to ensure that wholesale price drops are passed on
• Policies on ICT and Innovation are not yet well integrated in broader development
strategies: Donor targets, MDGs and PRSPs.
• With many fixed-line operators close to bankruptcy, governments must attract
private investment and knowhow to the fixed-line sector by adapting convergent
licensing regimes and setting symmetric regulation of termination charges.
Economic and Institutional Reforms
• Strengthen financial and banking sector
reforms
• Public management and public
expenditure reform
• Revenue reform
Embrace Globalisation
Africa should pursue globalisation through:
– Enhanced competitiveness
– Reduction of barriers to trade
– Investing in logistics
– Fast-tracking regional integration
Thank you for your attention