Recent Economic Performance in Sub-Saharan Africa1
AFRCE, April 12, 2006
I.
Introduction
This brief summarizes several key developments in Sub-Saharan Africa and how they affected
economic performance in 2005-06. The key developments were – i) the continuing strong
economic performance of several countries in spite of the recent oil price shock; ii) high
commodity and export prices that ameliorated the impact of the higher oil prices in oil importing
countries; iii) the increase in aid flows coupled with the announcement of significant debt relief;
and iv) because of the high commodity prices and aid flows, the potential issue of Dutch disease
- i.e., exchange rate appreciation and its likely harmful consequences on the tradable sector.
II.
Recent trends in Africa
Figure 1. Real GDP Growth, 2000-06
(Percent)
9
GDP. Higher oil prices did not diminish economic
growth in sub-Saharan Africa (SSA) and real GDP
grew by 5.1 percent in 2005, only slightly below the
5.5 percent in 2004 (see Figure 1). Oil importing
countries did very well and their economies grew by
5.0 percent (compared to 4.9 percent in 2004).
Economic growth in oil exporting countries slowed
somewhat to 5.8 percent from the recent higher
trajectory of 8.2 percent in 2004 and 7.8 percent in
2003, owing primarily to constraints in oil supply in
Chad, Equatorial Guinea and Nigeria. Growth is
projected to be sustained in 2006.
8
Oilproducing
countries
7
6
SSA
5
4
Oilimporting
countries
3
2
2000
2001
2002
2004
2005
2006
Figure 2. Inflation, 2000-06
(Percent)
26
Inflation. The recent gains in reducing inflation were
also maintained in 2005, suggesting an enduring and
prudent macroeconomic management during external
shocks. As expected, there was a pass through of
high oil prices to consumer prices in both oil
importing and oil exporting. As a result, inflation in
SSA went up slightly and returned to double digit
level at 10.8 percent in 2005, compared to the 9.8
percent in 2004.
2003
Source: IMF, SSA Regional Economic Outlook.
22
Oilexporting
countries
18
14
10
Oilimporting
countries
SSA
6
2000
2001
2002
2003
2004
2005
2006
Source: IMF, SSA Regional Economic Outlook.
1
This economic brief is drawn primarily from two related AFRCE notes – i) “Impact of high oil prices on Africa”
and ii) “Africa’s economy at a turning point” Please see those notes for more detailed discussion.
Structural shifs. The region’s higher economic performance is not transitory but is rather a
structural break from the past. A significant and durable improvement in the policy and
institutional environment has been observed across a growing number of countries in the last 10
years. The average scores of the Bank’s own Country Policy and Institutional Assessment
(CPIA) for SSA have been rising and the number of African countries with scores equal or
greater than the threshold of 3.5 for good performance has also been rising.
50
40
30
20
10
0
3.4
10
15
20
5
17
23
15
16
15
14
13
15
15
17
3.2
15
15
15
14
18
16
14
12
3.0
15
14
15
17
14
14
16
16
2.8
Average CPIA
Number of countries
Figure 3 Africa CPIA trends
CPIA>=3.5
3.0<=CPIA<3.5
CPIA<3.0
2.6
19961997 19981999 2000 2001 2002 20032004 2005
SSA simple
average
Data sources: Africa Region CPIA summary sheets, 2005 scores are provisional.
Economic growth has indeed accelerated. SSA GDP growth doubled to 3.8 percent per
year since the mid-1990s when compared to the 1.8 percent performance of the preceding 10
years (1985-95). Since the mid-1990s, economic growth of about 20 countries have exceed 4.5
percent per year (equivalent to 2% per capita growth). For several of these countries - including
Uganda, Mozambique, Tanzania, Ghana and Senegal - higher growth has been accompanied by
diversification of their economies and exports.
Table 1 Average per capita GD growth between 1996 and 2005
Little or no growth countries
20% of Africa population
Swaziland
2.8
Kenya
2.8
Lesotho
2.7
Eritrea
2.2
Comoros
2.0
Seychelles
2.0
Cote d'Ivoire
1.5
Burundi
1.2
Sierra Leone
1.1
Central African Republic
0.9
Guinea-Bissau
0.6
Congo, Dem. Rep.
0.0
Zimbabwe
-2.4
Simple average
Median
1.3
1.5
Slow growing countries
16% of population
Namibia
Zambia
Guinea
Niger
Togo
Madagascar
Malawi
South Africa
Sao Tome and Principe
4.0
3.6
3.6
3.5
3.3
3.3
3.2
3.1
3.1
3.4
3.3
Sustained growing countries
36% of population
Mozambique
8.4
Rwanda
7.5
Cape Verde
6.5
Uganda
6.1
Mali
5.7
Botswana
5.7
Ethiopia
5.5
Tanzania
5.4
Mauritius
4.9
Mauritania
4.9
Benin
4.8
Ghana
4.7
Senegal
4.6
Burkina Faso
4.6
Gambia, The
4.5
Cameroon
4.5
5.5
5.1
Oil countries
29% of population
Equatorial Guinea
20.9
Angola
7.9
Chad
7.8
Sudan
6.4
Nigeria
4.0
Congo, Rep.
3.5
Gabon
1.7
Data sources: World Bank WDI database, but 2005 data are from Africa SPA country data sheets.
7.4
6.4
Challenges. Nonetheless, SSA GDP per capita is still 50 percent the level of East Asia and the
growth rate is far short of the 7 percent needed if poverty is to be halved by 2015. Africa will
remain behind on most MDGs; on current trends it will not meet the 2015 targets (see Figure 4).
Figure 4a- Per capita GDP
SSA versus East Asia and Low income group
$1,140
1200
1000
Poverty
headcount
($PPP/day)
East Asia & Pacific
Low income
800
2%
$551
600
$579 $575
$483
$535 $527
$425
$478 $498 $504
$536
$448
400
$204
200
$136
19
60
19
63
19
66
19
69
19
72
19
75
19
78
19
81
19
84
19
87
19
90
19
93
19
96
19
99
20
02
People without
access to
improved
sanitation
0%
-4%
-0.4%
-0.6%
-2%
-1.3%
-1.3%
-2.7%
-2.8%
-2.8%
-4.4%
-6%
Change needed
-10%
Data sources: The World Bank WDI database.
People without
access to piped
water
Child
mortality
-8%
0
III.
% of children
without
primary
education
0.4%
Sub-Saharan Africa
Annual rate of change
GDP per capita 2000 constant $US
Figure 4b- The gap between the MDG Goals
and projected levels given current trends
Actual change
-9.2%
Global Monitoring Report, 2005.
Commodity prices
Figure 5a and b Oil and Commodity Prices
250
Oil and commodity prices in SSA
80
Price in 2000$ by US GDP
deflator
40
200
Oil / Non-oil price ratio
Metals&Minerals
Price indices
60
150
Agriculture
100
Raw_Materials
20
50
0
Source: DECPG
2006 1
2005 9
2005 5
2005 1
2004 9
2004 5
2004 1
2003 9
2003 5
2003 1
2002 9
2002 5
2002 1
2001 9
2001 5
2001 1
2000 9
2000 5
2000 1
1999 9
1999 5
1999 1
1998 9
0
1998 5
1.2
1998 1
19
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
2098
2000
02
Fe2004
b
Ap -05
Ju r- 0
20 n-0 5
2005-05
2005-18
2005-10
06 2
-02
Petro price /bbl
Current price
Oil and metal prices. Commodity prices have been rising in recent years, see Figure 5. The
nominal price of crude oil in particular (as of February 2006) has increased 4.6 times the level of
1998 when the current trend of rising oil prices started. During the last quarter of 2005, for
example, global oil price averaged about $57/bbl. A higher export price of oil now benefits
directly over 10 oil exporting countries in Sub-Saharan Africa (SSA), including Nigeria, Angola,
Equatorial Guinea, Gabon, Congo, Sudan, Chad, Cameroon, Cote d’Ivoire, DRC plus a few
others in the near future.
In real terms however, the recent price increase is only a cyclical recovery and has yet to reach
the peaks of 1979-80. Moreover, non-oil commodity prices such as metal and minerals (e.g.
gold and copper) have also risen significantly and have contributed very positively to the
balance-of-payment positions of countries like Ghana, South Africa and Zambia. As a result, the
ratio of oil and non-oil commodity prices has not risen as sharply as it did for oil importing
countries when compared to the previous shock of 1999-2000.
Terms-of-trade impact. For oil
importing countries, Table 2
summarizes the income impact. The
total terms of trade effect is
approximately -1.2 percent of GDP
in 2004-05, which is half the level of
the 1999 shock. Cumulatively, the
total effect on income from 1999 to
2005 is -2.3 percent of GDP – still a
real and permanent shock.
Table 2: Terms-of-trade impact of commodity price changes
Cumulative price change 1999-00
2001-03
2004-05
Oil
120.3
18.9
88.0
Agricultural products
0.3
15.7
8.9
Metals and minerals
25.0
10.2
47.9
Manufactures
-5.0
3.0
10.4
Total terms of trade effect (% of GDP)
Oil importers
Adjustment to higher oil prices.
Most oil importing countries in SSA
Low and middle income
-1.8
-0.1
-0.9
have been slowly adjusting to the
Low income
-3.8
-0.9
-2.9
new trend for over 15 years. Since
2003, the majority of SSA countries
Sub-Saharan Africa
-2.5
1.4
-1.2
have allowed frequent and full passSouth Asia
-3.9
-1.5
-2.7
through of higher oil prices to
domestic prices. The pass through is
Highly indebted poor
-4.3
1.5
-3.3
less pronounced in oil exporting
countries
countries. A few countries like Côte
d’Ivoire and Ethiopia have suspended the use of formula in favor of less frequent and ad-hoc
adjustment. Many countries have also tried to protect the poor by limiting the price increase and
taxation of kerosene (see Figure 6). For 14 SSA countries for which data are available,
petroleum subsidies increased to 1 percent of GDP in 2005 from 0.75 percent in 2003. On
average, petroleum taxes are important sources of revenue and constitute close to 2 percent of
GDP in indirect taxes.
Figure 6b. Average Pass-Through and
Taxation of Petroleum Products
120
Figure 6a. Pass-Through of Higher Oil Prices
60
Pass-through
Effective taxation rate 1
Oil-importing countries
50
(In 100
per
cent) 80
Oil-exporting countries
40
30
60
20
40
10
20
0
< 50 percent
50 to 100 percent
> 100 percent
0
Pass-through of higher international oil prices to domestic prices.
Kerosene
Diesel
Gasoline
Source: IMF, SSA Regional Economic Outlook.
1
Average effective taxation is defined as the average ratio of
receipts to pre-tax price per liter).
IV.
Aid flows and debt relief
In addition, not only have aid commitments increased but actual disbursements (inclusive of debt
relief) have also recovered recently - see Figure 7a and b. To be sure, ODA as a percent of GDP
in SSA has not fully kept in pace with the dollar amount of aid flows, but this is also due in part
to the good growth performance of Africa countries in recent years. Moroever, the promise of
additional and significant debt relief became reality when the World Bank and the International
Monetary Fund recently approved the financing and implementation of the Multilateral Debt
Relief Initiative starting July 1, 2006. Initially, 17 HIPC countries will be eligible for 100
percent debt cancellation – Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Honduras,
Madagascar, Mali, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda and
Zambia. IDA is expected to provide more than US$37 billion in debt relief over 40 years.
Figure 7a and b - ODA flows in SSA
25000
8
7
5
1
1
10000
19
14
11
Net ODA, excluding debt forgive
grant
16
6
Total ODA to SSA, $2000
5
15
4
3
ODA as % of GDP
10
2
5
12
1
0
0
2000
2001
2002
2003
2004
Data sources: World Bank GDF and WBI database.
0
ODA as % of GDP
Debt forgive grant
Total ODA, billion $US
3
15000
5000
20
7
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
Total net ODA, b$
20000
25
V.
Exchange rates in SSA
Figure 8: Real exchange rate indices, Selected countries
Oil exporting versus oil importing
countries. Figure 9 distinguishes the
real exchange rates of oil exporting
and oil importing countries during the
current oil price shock. Currencies in
oil exporting countries strengthened as
expected and their real exchange rate
as a group appreciated by about 10
percent in 2005. While experiences
varied more among oil importing
countries, their real exchange rate as a
group remained relatively stable
during 2005.
Q
3
Q
1
20
00
20
00
Q
1
20
01
Q
3
20
01
Q
1
20
02
Q
3
20
02
Q
1
20
03
Q
3
20
03
Q
1
20
04
Q
3
20
04
Q
1
20
05
Q
3
20
05
Real exchange rate index 1995=100
Selected currencies. As a result
of the higher commodity prices
160
142
and aid flows, coupled with a
135
132
132
140
weak US dollar, some African
122
Benin
136
116
currencies have appreciated
120
107
106
South Africa
significantly relative to a basket
100
95
Kenya
100
of currencies in real terms,
Uganda
bringing up renewed concerns
80
Zambia
82
about the potential negative
Tanzania
73
72
69
60
impact on the tradable sector in
63
Ghana
60
59
58
57
57
57
these countries. Figure 8 shows
40
the real exchange rate indices for
a few African currencies. In
particular, the South African rand
and CFA (e.g. in Benin) have increased in value by about 82 and 42 percent, respectively, since
the first quarter 2002. Currencies such as Kenyan shilling, Uganda shilling, and Zambian
kwacha have also shown some degrees of real appreciation, particularly in the last 3 years.2
Figure 9. Real Effective Exchange Rate, 200405
125
Oil-exporting
countries
120
115
110
105
Oil-importing
countries
100
95
Jan.04 Apr.04
Jul.04 Oct.04 Jan.05 Apr.05
Jul.05 Oct.05
Source: IMF, Information Notice System.
Rules of thumb. From economic
theory, the appropriate policy response
to price shocks depends very much upon their duration and nature - permanent shocks should
alter consumption; temporary shocks should alter savings while keeping consumption intact.
Application to smooth consumption is however made difficult by issues and controversies about
the nature of the commodity price shocks, particularly about their predictability and volatility.
The same problems would apply to the scaling up of aid if there are uncertainties about donor
behavior and commitments. The record in developing countries has also been poor in terms of
2
The recent appreciation of the Zambian kwacha and the problems it raises for Zambia are discussed in Verbeek
(2006).
generating public savings by taxing windfalls or spending the higher revenue in the budget
(Collier and Gunning, 1999). Moreover, RER of developing countries is approximately three
times more volatile than the RER of industrial countries (Hausmann, Panizza, and Rigobon
(2006). The lack of instruments to insure the risks prevent fiscal policy from being more
responsive and counter cyclical to risky revenue (Rigobon, 2006).
VI.
Options – Not just about additional financing
 Macro adjustment: expenditure switching and reduction
– the shock is viewed as permanent and many AFR countries already adjusting to
higher oil prices,
– alternative macro adjustments –
 exchange rate policy (trade-offs between inflation/CA deficit and growth)
 absorption reduction through demand management and substitution etc.
 Energy pricing policy:
– Fuel rationing or pricing mechanism is part of policy demand substitution and
conservation
– For African countries – adjustment is mainly through prices rather than quantities
 Exchange rate appreciation and volatility (Rigobon, 2006):
– Fiscal risk can be damaging to investment and growth: Real exchange rate
volatility; pro-cyclicality of fiscal policy
– Insurance and stabilization responses are generally not available or feasible
– Most stabilization funds are not correctly designed: appropriability,
governability, stochastic process.
– Better design requires better investment policies, cap on the funds, one fund for
aggregate fiscal revenues, moving average contingent on the stochastic process.