Africa s s Economic Prospect and Challenges Louis Kasekende Chief Economist, African Development Bank and Sudhir Shetty Sector Director, Poverty Reduction & Economic Management, Africa Region The World Bank Strategic Partnership for Africa Tunis, February 21-22, 2008
SPA Annual Plenary Meetings, Tunis 2008 2 Key Messages I. African growth picking up and becoming more broad II. III. IV. Cyclical and Policy factors explain most of the growth An opportunity not to be missed: growth remains volatile and major development challenges persist Need to sustain the good times
Africa s GDP growth is now increasing in tandem with other developing countries and is as fast as world GDP growth Annual Change in Real GDP % 9 8 7 6 5 4 3 2 1 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 Wo rld Advanced economies Other emerging market and developing countries Africa Africa: Sub-Sahara SPA Annual Plenary Meetings, Tunis 2008 3
SPA Annual Plenary Meetings, Tunis 2008 4 For the fourth consecutive year, in 2007 Africa s real GDP growth rate exceeded 5% -- with growth becoming more broad-based 6.5% 6.0% 5.6% 5.7% 5.9% 5.7% 5.9% 25 countries achieved GDP growth rate of above 5 % in 2007 5.5% 5.0% 4.5% 4.0% 4.9% Real GDP growth 14 countries achieved GDP growth rate between 3% to 5% in 2007 3.5% 3.5% 3.0% 2002 2003 2004 2005 2006 2007 2008
A group of diversified sustained growers has emerged, but economic performance varied substantially 7 6 % GDP growth, 1996-2005% 5 4 3 2 1 0 Little or no growth countries: 20% of Africa's population Slow growth countries: 16% of Africa's population Sustained growth countries: 36% of Africa's population Oil exporters: 29% of Africa's population Source: ADI 2006 SPA Annual Plenary Meetings, Tunis 2008 5
SPA Annual Plenary Meetings, Tunis 2008 6 Growth is More Broad Based: growth has also picked up in resource-scarce and land-locked countries GDP Growth: Resource Rich vs. Resource Poor Real GDP Growth GDP Growth: Coastal vs. Land-locked 8.0 7.0 6.0 9.0 8.0 7.0 6.0 5.0 5.0 4.0 4.0 3.0 3.0 2.0 2.0 1.0 1.0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 a/ 2008 b/ Resource-Rich Countries Oil-exporting countries Mineral exporting countries Resource-Scarce Countries 0.0 2000 2001 2002 2003 2004 2005 2006 2007 a/ 2008 b/ Landlocked Countries Coastal Countries Coastal Resource rich Coastal Resource scarce
Overall Terms-of-Trade of African Countries remains relatively favorable due to price increases of both oil and non-oil commodities Terms of Trade Index in SSA: 1973-1980 & 1999-2006 (1973, 1999=100) Source: World Bank SPA Annual Plenary Meetings, Tunis 2008 7
Oil prices have risen to all-time high. Metals prices have remained strong since 2001. Food prices are being boosted by supply constraints and strong demand. Figure 1: Recent Developments in Commodity Price Index (1995=100) Chart 15: Coffee, Robusta (Cents/kg) 500 450 400 350 300 230 210 19 0 170 150 13 0 110 90 70 50 250 200 150 100 50 0 1986M 1 1987M 4 1988M 7 1989M 10 1991M 1 1992M 4 1993M 7 1994M 10 1996M 1 1997M 4 1998M 7 1999M 10 2001M 1 2002M 4 2003M 7 2004M 10 2006M 1 2007M 4 140 130 120 110 100 90 80 70 Chart 17: Food Index Prices (1995=100, in terms of US $) Crude Oil (petroleum) Metals * Comprises Crude Oil (Petroleum), Natural Gas, and Coal Price Indices SPA Annual Plenary Meetings, Tunis 2008 8
While pass-through of oil cost in Africa is relatively high, African governments have not delayed domestic adjustments to rising oil price Pass-Through Coefficients for Gasoline and Diesel in Local Currency (Jan 2004-Apr 2006) SPA Annual Plenary Meetings, Tunis 2008 9
SPA Annual Plenary Meetings, Tunis 2008 10 Rising ODA & Debt Relief have also played a role in stimulating growth but aid is still falling short of Gleneagles commitments of doubling assistance to Africa by 2010 there is little new aid beyond debt relief and humanitarian aid Aid from all donors to SSA, 1990-2006 2004 US$ billions 60 50 40 30 20 10 0 ODA to SSA (% of GNI) 1990 1992 1994 1996 1998 2000 2002 2004 2006 7 6 5 4 3 2 1 0 % of GNI Other ODA Technical cooperation Humanitarian Aid Debt forgiveness grants
Good policy has also contributed to the recent good time Better economic management More competitive exchange rate Better institutions Better governance Fewer conflicts SPA Annual Plenary Meetings, Tunis 2008 11
SPA Annual Plenary Meetings, Tunis 2008 12 3.60 3.50 3.40 3.30 3.20 3.10 3.00 2.90 Economic Management Country Policy and Institutional Assessment [CPIA] Scores (African Average - 2004-2006) Structural Policies Policies for Social Inclusion/ Equity 2004 2005 2006 Publi Sector Management Total Fundamentals gradually picking up Economic Management has improved to strengthen growth.greater macroeconomic stability attained
SPA Annual Plenary Meetings, Tunis 2008 13 Looking ahead, the priority for African policymakers must be to avoid growth collapses
SPA Annual Plenary Meetings, Tunis 2008 14 Had Africa avoided the bad times, GDP per capita would have been 30 percent higher in 2005 Actual and simulated GDP per capita ($) 3,600 3,400 3,200 3,000 2,800 2,600 2,400 2,200 2,000 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Actual GDP per capita GDP per capita growth at the observed average (0.7 percent a year) GDP per capita growth in the no-collapse scenario (1.7 percent a year) Source: ADI 2007
SPA Annual Plenary Meetings, Tunis 2008 15 Export diversification is very low relative to other regions 90 180 80 160 70 140 60 120 50 100 40 80 30 60 20 40 10 20 0 Europe and Central Asia East Asia- Pacific South Asia Latin America and Caribbean Middle East and North Africa Sub Saharian Africa 0 Export Concentration Index (0-100) left axis Share of Top 5 Products in Total Exports (%) left axis No. of Exported Product Categories right axis Source: World Bank, World Trade Indicators
SPA Annual Plenary Meetings, Tunis 2008 16 Africa still lags other regions in the cost of doing business 140 132 131 Average Ranking of Doing Business, the lower the better 120 100 80 2005* 2006** 72 74 81 77 92 92 84 98 102 105 60 40 20 0 Sub Saharan Africa East Asia & Pacific East Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Sources: World Bank Doing Business Database *Normalized ranking from Doing Business 2006. ** Ranking from Doing Business 2007.
SPA Annual Plenary Meetings, Tunis 2008 17 Infrastructure remains a major bottleneck Losses due to unreliable infrastructure services are substantial Better infrastructure could improve productivity and increase employment 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Percentage of sales lost due to weak infrastructure Power outages Transportation delays 8% 7% 6% 5% 4% 3% 2% 1% 0% Impact of better infrastructure on productivity and employment TFP Employment Source: World Bank Enterprise Surveys
SPA Annual Plenary Meetings, Tunis 2008 18 Indirect costs are much higher, and net productivity is much lower than factory floor productivity Mozambique Eritrea Kenya Tanzania Zambia Uganda Bolivia Nigeria Ethiopia China Nicaragua Morocco India Senegal Bangladesh 0 10 20 30 40 50 60 70 80 90 100 Share of total costs (%) Materials Labor Capital Indirect 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Zimbia Eritrea Total factor productivity (China=1) Mozambique Ethiopia Nigeria Bolivia Uganda Gross Kenya Tanzania Nicaragua Net Bangladesh Senegal Morocco India China Source: Eifert, Gelb, & Ramachandran (2005)
Governance performance in Africa has improved but remains low Av. Score for Public Sector Management and Institutions 3.3 Average Score (1=lowest, 6=highest) 3.2 3.1 3.0 2.9 2.8 2.7 Africa Asia 2.6 2001 2002 2003 2004 2005 2006 Source: World Bank Country Policy and Institutional Assessment (CPIA) Note: Only IDA countries for Asia SPA Annual Plenary Meetings, Tunis 2008 19
SPA Annual Plenary Meetings, Tunis 2008 20 Resource Rich Countries in Sub-Saharan Africa MAURITANIA SENEGAL THE GAMBIA GUINEA GUINEA BISSAU COTE SIERRA LEONE LIBERIA d IVOIRE MALI BURKINA BENIN TOGO GHANA NIGERIA NIGER CAMEROON CHAD CAR SUDAN ERITREA ETHIOPIA DJIBOUTI Definition of Resource Rich i) average share of hydrocarbon and/or mineral fiscal revenues in total fiscal revenues at least 25% over the period 2000-2005 or (ii) average share of hydrocarbon and/or mineral export proceeds in total export process of at least 25% Source: IMF (2007) Guide on Resource Revenue Transparency, Appendix I EQUATORIAL GUINEA STP GABON REP. CONGO DRC RWANDA BURUNDI UGANDA TANZANIA KENYA SOMALIA KEY: Hydrocarbon-rich Potentially large med to longterm hydrocarbon revenue ANGOLA ZAMBIA MALAWI Potentially large med to longterm hydrocarbon revenue and mineral-rich NAMIBIA ZIMBABWE MOZAMBIQUE MADAGASCAR Mineral-rich BOTSWANA LESOTHO SWAZILAND SOUTH AFRICA
Fragility and Conflict Remain Pervasive Population in Living in Fragile and Conflict-Affected Situations 600 Population (million) 500 400 300 200 100 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Year Africa Other Regions Source: World Bank DDP SPA Annual Plenary Meetings, Tunis 2008 21
To sustain the good times and avoid the bad In resource-scarce economies: Accelerating productivity growth and increasing private investment are key Therefore, emphasis on: Improving the investment climate Improving infrastructure Spurring innovation Building institutional capacity SPA Annual Plenary Meetings, Tunis 2008 22
To sustain the good times and avoid the bad In resource-rich economies: Ensuring that natural resource wealth translates into broadbased income growth and delivery of services is key Therefore, emphasis on: Awards of contracts and licenses Regulation and monitoring of operations Collection and disclosure of taxes and royalties Resource extraction and economic management decisions Public spending for sustainable development SPA Annual Plenary Meetings, Tunis 2008 23
To sustain the good times and avoid the bad In fragile and conflict-affected situations: Laying the basis for long-term recovery is critical Therefore, emphasis on: Preventing of escalation or resumption of conflict Achieving visible results in terms of service delivery through alternative mechanisms Focusing on ways to enhance the capacity and accountability of state institutions SPA Annual Plenary Meetings, Tunis 2008 24