African Economic Outlook 2018

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1 African Development Bank Group African Economic Outlook 2018 Download the full report at: Africa Business Forum Johannesburg, South Africa May 3, 2018

2 Part 1 Outline of Main Report Chap. 1: Africa s macroeconomic performance and prospects Chap. 2: Growth, Jobs, and Poverty in Africa Chap. 3: Africa s Infrastructure: Great Potential but Little Impact on Inclusive Growth Chap. 4: Financing Africa s Infrastructure: New Strategies, Mechanisms, and Instruments Part 2 Summary Country Notes

3 Chapter 1 Macroeconomic Performance and Prospects

4 African economies have been resilient to negative shocks 9 Average Real GDP growth in Africa is estimated at 3.6 percent in Good recovery from 2.2 percent recorded in North Africa non-libya Nigeria SSA non-nigeria AFRICA And projected to grow by 4.1 percent a year in 2018 and (e) 2018(p) 2019(p) Africa Africa (excluding Nigeria and south africa) Oil-exporting countries Oil importing countries

5 Drivers of Growth Growth was driven by: improved global economic conditions. better macroeconomic management. recovery in commodity prices (mainly oil and metals). sustained domestic demand, partly met by import substitution. improvements in agriculture production.

6 Wide variations in regional GDP growth performance % North Africa 4.9% North Africa West Africa West Africa 0.5% Central Africa East Africa 2.4% Central Africa East Africa 0.1% 4.9% Africa 0.9% 5.9% Southern Africa 0.9% 2016: 2.2% 2017: 3.6% Southern Africa 1.8%

7 East Africa fast growing region whilst Southern and Central Africa lag behind other regions Growth in East Africa powered by Ethiopia, Kenya and Tanzania, with strong domestic expenditure and high capital investment driving growth in those economies. Malawi, Mozambique and Zambia experienced strong growth performances in the Southern Africa region, but South Africa continued to be a drag on regional growth, with output of 0.3% recorded in Growth was moderate in West Africa due in large part to tepid growth of Nigeria recording growth of 0.8 a result of persistently low oil prices and policy challenges related to exchange rate adjustments offsetting strong growth in Cote d Ivoire and Senegal. Central Africa slowed down by poor performances of Equatorial Guinea, Chad and Republic of Congo all of which experienced shrinking GDP.

8 More Promising Economic Outlook Ahead, North Africa 2018: 5.1% 2019: 4.5% East Africa West Africa 2018: 3.6% 2019: 3.8% Central Africa 2018: 5.9% 2019: 6.1% 2018: 2.4% 2019: 3.0% 2018: 4.1% 2019: 4.1% Southern Africa 2018: 2.0% 2019: 2.4%

9 Africa needs higher growth and investment rates, but debt levels must be monitored closely Public debt ratios on the rise, stocked by appetite for infrastructure spending. About 40 countries in the region recorded increase in external debt from Nine experienced a decline. Amid growing concerns on debt levels in Africa, it is important to stress that if used productively debt may be necessary to unlock long-term growth potential. Need for policy makers to ensure that fiscal policy does not undercut the growth-promoting effects of public investments External Debt (% of GDP) Total Debt (% of GDP) This could reverse gains made in poverty reduction, health, and education across the continent. High debt levels need closer monitoring

10 Chapter 2 Growth, Jobs and Poverty Reduction

11 Africa still experiencing jobless growth About two thirds of countries in Africa have experienced growth acceleration. 2 Basically, a growth acceleration period is one in which the average growth rate of GDP per capita over a period of 8 years is at least 3.5% per annum. Employment Growth Rate Due to limited structural change, this sustained high growth has had limited impact on job creation GDP Growth Rate

12 Tackling poverty will need efforts to increase employment elasticity of growth The employment elasticity of growth of 0.41 in Africa is below the desirable 0.7 for all developing countries. Pressing policy concern is therefore to ensure that growth is reflected in creation of high and quality jobs. Elasticity Equatorial Guinea Mozambique Lesotho Tanzania Mauritius Namibia Nigeria Rwanda Ethiopia Morocco Chad Gabon Angola Zambia Sierra Leone Tunisia Sudan Ghana South Africa Burkina Faso Uganda Botswana Congo, Dem. Rep. Kenya Swaziland Egypt, Arab Rep. Djibouti Senegal Congo, Rep. Malawi Niger Benin Mauritania Cote d'ivoire Cameroon Mali Gambia, The Guinea-Bissau Burundi Togo Algeria Liberia Madagascar Guinea Comoros

13 Chapters 3 & 4 Infrastructure Development: Context and new perspectives

14 Poor infrastructure is a serious impediment to inclusive growth MDG TCD ZAR ETH NER MLI TZA MOZ TGO CAF LBR AGO GIN COG BEN KEN NGA UGACMR CIV GHA BFA BDI LSO MWI SEN RWA ZMB SWZ COM GAB ZWE NAM MAR Infrastructure Index

15 Access to Electricity (% of total population) Africa needs massive investment in infrastructure Partly due to lack of investment in infrastructure, Africa s infrastructure lags that of other regions on quantity, affordability, and quality At same level of GDP per capita, South Asia, East Asia and Latin America had higher access to electricity and water than most African countries Log GDP per capita (2010 $) Africa East Aisa Latin America South Asia Linear (Africa) Linear (East Aisa) Linear (Latin America) Linear (South Asia)

16 Global saving glut and Africa s thirst for development finance: a tragic mismatch The global economy boasts of 100 trillions of dollars of savings in rich countries chasing investment opportunities. Africa can be the next investment frontier. Three options for the international financial community to resolve the savings glut: First, adopt a policy of even more negative real interest rates in high-income countries adding to inflation but this would be technically and politically difficult. Second, use the excess savings to finance public investment in rich countries. For example, a recent government report indicates that 44 percent of Germany s bridges need repair again, that would be difficult to deliver politically given the limited appetite for further fiscal stimulus and rising fiscal deficits in rich economies. Third, facilitate the flow of capital to developing countries, where there are many profitable investment opportunities would require purchasing capital equipment from industrialized economies.

17 Infrastructure finance in Africa in 2016 was 62.5 Billion USD

18 Infrastructure deficits are likely to be permanent New AfDB estimates show that investment needs for infrastructure will be in the range of $130 $170 billion a year. Problem with the infrastructuredeficit approach is underlying assumption that one day Africa and the world might be able to resolve it. Yet throughout history, infrastructure deficit has been a perpetual policy problem and solving remains work in progress. 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Gap as a % of GDP, Current trends Investment needs

19 Path out of the infrastructure financing conundrum Many new financing mechanisms could be implemented in all African countries, taking into account the specific economic circumstances and the productive structures of national economies. Countries should better leverage public funds and infrastructure investments, while encouraging private sector participation. But the different stages of development of African countries mean that the policy approaches need to be country specific. Universal access to high-quality infrastructure is likely to be a longterm goal.

Strategic targeting will be essential Trying to achieve it with limited resources has led governments to spend too much on too many projects with low economic returns and little impetus for

20 Strategic targeting will be essential Trying to achieve it with limited resources has led governments to spend too much on too many projects with low economic returns and little impetus for industrial growth and employment creation. But African countries do not need to solve all their infrastructure problems before they can achieve sustained and inclusive growth. Instead, they should focus on how to best use their scarce infrastructure budget to achieve the highest economic and social returns. One pragmatic approach is to create islands of excellence in SEZs or industrial parks. Hawassa Industrial Park in Ethiopia

21 Policy Recommendations 1. Maintaining prudent macroeconomic policies. 2. Strengthen the governance and institutional framework. 3. Focus on maintenance and the productivity of infrastructure. 4. Adopt a pragmatic approach in strategically prioritizing infrastructure, as economic returns from infrastructure differ by type. 5. Address the infrastructure deficit in special economic zones and industrial parks. 6. Mobilize domestic resources through well-targeted subsidies and rigorous collection of fees through the application of ICTs. 7. Attract more private funding to infrastructure projects, focusing on risk mitigation. 8. Create an infrastructure asset class to attract institutional investors. 9. Choose the appropriate financing instrument to develop infrastructure.

Regional outlook Sub-Saharan Africa 24/11/2015. Share commodities in good exports. Share commodities in goods imports

Regional outlook Sub-Saharan Africa 24/11/2015. Share commodities in good exports. Share commodities in goods imports Table 1: Economic structure indicators Number of Inhabitants (m.) Size of the economy (in USD bn.) Size of the economy (% of world GDP) Share commodities in good exports Share commodities in goods imports