RISE FACING THE CHALLENGES, CONTINUING TO STATE OF THE AFRICA REGION WORLD BANK IMF SPRING MEETINGS PDF Free Download

FACING THE CHALLENGES, CONTINUING TO RISE STATE OF THE AFRICA REGION WORLD BANK IMF SPRING MEETINGS 2015 Francisco H. G. Ferreira Chief Economist, Africa Region The World Bank

OUTLINE 1. Africa s rise 2. Structural challenges a. Harnessing demography b. Boosting productivity c. Promoting inclusiveness 3. Immediate risks a. The end of the commodity super-cycle b. Fragility and violence c. Health challenges 4. Policy lessons, old and new

1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Real GDP per capita (US$ at 2005 prices) 1. Africa s rise: Twenty years of sustained economic growth have established that Africa can find its own path to successful development 1050 1000 950 900 850 800 750 700 650 Source: World Development Indicators. Actual Trend

South Sudan Central African Republic Sudan Equatorial Guinea Madagascar Cape Verde Swaziland South Africa Guinea Comoros Mali Guinea-Bissau Senegal Botswana Mauritius The Gambia Cameroon Benin Burundi Cote d'ivoire Mauritania Seychelles Sao Tome and Principe Angola Namibia Gabon Eritrea Togo Niger Sierra Leone Lesotho Malawi Congo, Rep. Kenya Uganda Nigeria Chad Burkina Faso Congo, Dem. Rep. Tanzania Rwanda Mozambique Zambia Ghana Zimbabwe Ethiopia Liberia 1. Africa s rise: Progress has been sustained since the Great Recession, albeit heterogeneously 12 Growth in GDP, average 2009-2013 GDP growth 10 8 6 4 2 0-2 -4-6 -8-10 Source: World Development Indicators.

South Sudan Central African Republic Sudan Equatorial Guinea Madagascar Cape Verde Swaziland South Africa Guinea Comoros Mali Guinea-Bissau Senegal Botswana Mauritius The Gambia Cameroon Benin Burundi Cote d'ivoire Mauritania Seychelles Sao Tome and Principe Angola Namibia Gabon Eritrea Togo Niger Sierra Leone Lesotho Malawi Congo, Rep. Kenya Uganda Nigeria Chad Burkina Faso Congo, Dem. Rep. Tanzania Rwanda Mozambique Zambia Ghana Zimbabwe Ethiopia Liberia 1. Africa s rise: Progress has been sustained since the Great Recession, albeit heterogeneously Growth in GDP and GDP per capita, average 2009-2013 12 GDP growth GDP per capita growth 10 8 6 4 2 0-2 -4-6 -8-10 Source: World Development Indicators.

South Sudan Central African Republic Sudan Equatorial Guinea Source: World Development Indicators. Madagascar Cape Verde Swaziland South Africa Guinea Comoros Mali Guinea-Bissau Senegal Botswana Mauritius The Gambia Cameroon Benin Burundi Cote d'ivoire Mauritania Seychelles Seychelles Sao Tome and Principe Angola Namibia Gabon Eritrea Togo Niger Sierra Leone Lesotho Malawi Congo, Rep. Kenya Uganda Nigeria Chad Burkina Faso Congo, Dem. Rep. Tanzania Tanzania Rwanda Mozambique Zambia Ghana Zimbabwe Ethiopia Liberia 1. Africa s rise: Progress has been sustained since the Great Recession, albeit heterogeneously 12 10 8 6 Growth in GDP and GDP per capita, average 2009-2013 GDP growth GDP per capita growth 4.2 6.7 3.5 3.7 4 2 0-2 -4-6 -8-10

Cumulative growth index (1995=1) 1. Africa s rise: This growth has been investment-driven and, since 2004, increasingly financed by foreign savings 1.8 1.7 1.8 1.6 1.5 1.4 1.5 1.4 1.4 1.3 1.2 1.1 1 Source: World Bank. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 C I G X M

Output per capita index (1995=1) 1. Africa s rise: Growth has been particularly pronounced in the extractives and services sectors 2 1.9 1.8 1.7 1.6 1.5 1.4 1.3 1.2 1.1 Growth in GDP per capita by sector 1.92 1.84 1.69 1.62 1.55 1 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Sub-Saharan Africa Agriculture Manufacturing Other industry Services Source: staff estimates based on WDI (2015). Note: Population-weighted average of 29 countries for which sectoral value added data can be decomposed into manufacturing and other industry

% 1. Africa s rise: In a global context 7 Average annual growth in GDP and GDP per capita, 1995-2013 PPP (constant 2011 international $) 6 5 4 3 2 1 0 Europe & Central Asia Latin America & Caribbean Middle East & North Africa Sub-Saharan Africa East Asia & Pacific South Asia GDP GDP per capita Source: World Development Indicators.

Outline 1. Africa s rise 2. Structural challenges a. Harnessing demography b. Boosting productivity c. Promoting inclusiveness 3. Immediate risks a. The end of the commodity super-cycle b. Fragility and violence c. Health challenges 4. Policy lessons, old and new

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054 2056 2058 2060 2062 2064 2066 2068 2070 2072 2074 2076 2078 2080 2082 2084 2086 2088 2090 2092 2094 2096 2098 2100 2. Structural challenges: Harnessing demography 4000000 Population projections Medium fertility scenario 3000000 2000000 1000000 0 East Asia & Pacific Europe & Central Asia Latin America & Caribbean Middle East & North Africa South Asia Sub-Saharan Africa Source: adapted to World Bank regions using data from United Nations, Department of Economic and Social Affairs, Population Division (2013).

2. Structural challenges: Harnessing demography Dividend or Disaster? Highest fertility rates in the world are associated with: Low women s empowerment High maternal and child mortality Low investment in education High dependency ratios Youth employment challenges

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2. Structural challenges: Harnessing demography Urban population (millions) 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 EAP ECA LAC MENA SAR SSA AFR Source: World Urbanization Prospects of the UN and WDI

Percent per year 2. Structural challenges: Boosting productivity A standard Solow growth decomposition, and TFP trends 2.0 Contribution to output per worker growth, 1995-2011 1.05 Total Factor Productivity 1.5 1 1 1.0 0.5 0.95 0.0-0.5-1.0 0.9 0.85 0.9 0.8-1.5 Sub-Saharan Africa Resource Rich Non-resource-rich Physical Capital Human Capital Total Factor Productivity Source: World Bank. 0.8 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 AFR SSA AFR SSA Resource Rich AFR SSA Resource Poor

2. Structural challenges: Boosting productivity Unit labor costs and GDP per capita.35 AGO.3 MLI GHA Unit labor cost.25.2 MOZ UGA SEN NGA IDN COL BRA ZAF MEX CHL ZMB UKR RUS ETH BGD TZA KEN VNM PHL ARG URU TUR.1.15 2 2.5 3 3.5 4 Ln GDP per capita 2006 (constant 2005 US$) Sub-Saharan Africa Other Countries Source: Gelb, Meyer, and Ramachandran (2013) and WDI

$1.25 a day headcount (%) 2. Structural challenges: Promoting inclusiveness Poverty reduction during Africa s rise has been too slow - The rise must be for all Africans 70 60 50 56.0 59.9 59.6 59.2 57.1 52.7 49.5 48.0 Sub-Saharan Africa 46.9 40 30 South Asia 24.5 20 10 0 Source: PovcalNet, March 2015. East Asia and Pacific 7.9 MENA 1.7 ECA 0.5 1990 1993 1996 1999 2002 2005 2008 2010 2011 LAC 4.6

Thailand Turkey Egypt, Arab Rep. Pakistan Colombia Russian Federation Argentina Kazakhstan Morocco Tunisia Philippines Israel Bhutan Nepal South Africa Peru Vietnam Romania Bangladesh Other developing countries India Brazil Indonesia Mexico China Tanzania Mozambique Ethiopia Sub-Saharan Africa Nigeria Iraq 2. Structural challenges: Promoting inclusiveness 4 The growth elasticity of poverty reduction is lower than in other regions 2 0-2 -4-6 -8-10 -12-14 -2.02-0.7 Source: PovcalNet, March 2015.

2. Structural challenges: Promoting inclusiveness Most growth takes place in the services and extractives sectors, but most people work in agriculture Sectoral contribution to per capita value added (2002-2012) Sectoral composition of labor (2002-2012) 16.4 32.1 61.8 21.8 8.7 59.2 Agriculture Industry Services Agriculture Industry Services Source: GDP sectoral data fom WDI, and labor force composition from International Income Distribution Database

2002.01 2002.04 2002.07 2002.10 2003.01 2003.04 2003.07 2003.10 2004.01 2004.04 2004.07 2004.10 2005.01 2005.04 2005.07 2005.10 2006.01 2006.04 2006.07 2006.10 2007.01 2007.04 2007.07 2007.10 2008.01 2008.04 2008.07 2008.10 2009.01 2009.04 2009.07 2009.10 2010.01 2010.04 2010.07 2010.10 2011.01 2011.04 2011.07 2011.10 2012.01 2012.04 2012.07 2012.10 2013.01 2013.04 2013.07 2013.10 2014.01 2014.04 2014.07 2014.10 2015.01 Commodity prices (Index 2010=100) 3. Immediate risks: End of the commodity super-cycle After rising steadily in 2002-2008, commodity prices have fallen since 2010 180 Commodity prices, 2002-2015 160 140 120 100 80 60 40 20 Source: World Bank Commodity Markets Outlook (DEC-PG) Energy Beverages Food Raw Materials Metals & Minerals

2011.01 2011.02 2011.03 2011.04 2011.05 2011.06 2011.07 2011.08 2011.09 2011.10 2011.11 2011.12 2012.01 2012.02 2012.03 2012.04 2012.05 2012.06 2012.07 2012.08 2012.09 2012.10 2012.11 2012.12 2013.01 2013.02 2013.03 2013.04 2013.05 2013.06 2013.07 2013.08 2013.09 2013.10 2013.11 2013.12 2014.01 2014.02 2014.03 2014.04 2014.05 2014.06 2014.07 2014.08 2014.09 2014.10 2014.11 2014.12 2015.01 2015.02 2015.03 Commodity prices (Index 2011M1=100) 3. Immediate risks: End of the commodity super-cycle 140 120 100 80 60 40 20 Source: World Bank Commodity Markets Outlook (DEC-PG) Iron Ore Copper Cocoa Cotton Rubber

Correlation of commodity j and oil price, 2000-2015 3. Immediate risks: End of the commodity super-cycle Though oil price plunges of this magnitude are not unprecedented, the current episode is characterized by a higher correlation between oil and other commodity prices 0% -10% Episode of sharp decline in oil prices, 1970-2015 (T= peak month of oil price episode) T T+1 T+2 T+3 T+4 T+5 T+6 T+7 T+8 T+9 T+10 T+11 T+12 Co-movement of commodities with oil prices has increased over the past 15 years 0.8 0.7 0.6 Rubber Iron Ore Copper -20% -30% 0.5 0.4 0.3 Cotton -40% -50% -60% -70% Nov-85 Jul-08 Jun-14 Source: World Bank Commodity Markets Outlook (DEC-PG) 0.2 0.1 0.0 Cocoa -0.2-0.1 0.0-0.1 0.1 0.2 0.3 0.4 0.5 0.6 0.7-0.2-0.3 Correlation of commodity j and oil price, 1970-1999 Agriculture Metals & Minerals Energy

3. Immediate risks: End of the commodity super-cycle Correlation analysis among commodity prices, 1970-1999 vs. 2000-2015 Crude Oil Natural Gas Cocoa Coffee Tea Rice Wheat Sugar Tobacco Cotton Aluminum Iron Ore Copper Gold Silver Crude Oil 1 0.3986 0.0004 0.0287 0.1489 0.1614 0.2265 0.1491 0.1342 0.2737 0.1725 0.2411 0.2883 0.3687 0.4140 Natural Gas 0.5785 1-0.0592-0.0829 0.1800 0.1013 0.2013 0.1130 0.0581-0.0498-0.1493 0.2627-0.1058 0.1913 0.1136 Cocoa 0.1714 0.0214 1 0.4875 0.4069 0.0506-0.1423-0.0898 0.1447 0.2214 0.1600-0.0242 0.1039-0.0760 0.0508 Coffee 0.2581 0.0392 0.3193 1 0.2613-0.1470-0.1711-0.1767 0.0576 0.1072 0.3026 0.0454 0.2581-0.0540 0.0824 Tea 0.4354-0.0015 0.3066 0.1638 1-0.0266-0.1195 0.1586 0.3297 0.2497 0.1459 0.0507-0.0275 0.1014 0.1617 Rice 0.4613 0.4258 0.1242 0.0456 0.2859 1 0.5608 0.3015-0.0581 0.3415 0.1267-0.1076 0.4237 0.3150 0.1729 Wheat 0.6450 0.3567 0.1286 0.2670 0.3700 0.3301 1 0.1685 0.0286 0.2355 0.0873-0.0407 0.4453 0.2141 0.1841 Sugar 0.1868-0.0353 0.4144 0.6298 0.1959-0.0742-0.0660 1 0.0051 0.0014 0.1535 0.0577 0.0240 0.5049 0.2781 Tobacco -0.2095-0.3100 0.2576 0.2199 0.1422-0.1523-0.2837 0.2754 1 0.1409-0.2602 0.5334-0.0568-0.1564-0.0684 Cotton 0.3375 0.1981 0.2500 0.6193 0.2940-0.0299 0.4845 0.3884 0.0755 1 0.1994 0.0985 0.4889 0.3019 0.2371 Aluminum 0.6702 0.3877 0.1212 0.4018 0.3054 0.1704 0.4538 0.3218-0.2495 0.4153 1-0.2307 0.5222 0.3833 0.3991 Iron Ore 0.8056 0.4224 0.2479 0.3067 0.3913 0.2955 0.6676 0.2500-0.1684 0.4608 0.6155 1-0.0515 0.1017 0.1017 Copper 0.6813 0.1916 0.1604 0.3806 0.4824 0.0964 0.5401 0.3770-0.1724 0.4830 0.8919 0.6853 1 0.2609 0.3161 Gold 0.4223-0.0147-0.0463 0.3636 0.4257 0.3501 0.3710 0.3852-0.1354 0.2110 0.3222 0.3715 0.4677 1 0.7945 Silver 0.4924 0.0591 0.0492 0.5929 0.3789 0.2189 0.5258 0.4067-0.0651 0.5694 0.5189 0.4483 0.6232 0.8230 1 Source: World Bank. Note: The table reports the correlation among year-on-year changes in international commodity prices. The above the diagonal (shaded in light red) represent correlation coefficients for the period 1970-99 while those below the diagonal (shaded in light green) correspond to the period 2000-15. Elaboration: AFRCE Staff.

3. Immediate risks: End of the commodity super-cycle Impact on aggregate terms of trade of movements in international commodity prices in SSA 2011-2015 forecast: 39 African countries suffer a negative ToT shock (88% of population, 92% of GDP) Overall average ToT loss is 8% per year 9 countries have a loss greater than 10% per year Source: staff estimates based on commodity prices (Commodity Markets Outlook, DEC-PG) and commodity trade (WITS)

3. Immediate risks: End of the commodity super-cycle 2014-2015 forecast: - 36 African countries suffer a negative ToT shock (80% of population, 70% of GDP) - Overall average ToT loss is 18% - 14 countries have a loss greater than 10% Impact on aggregate terms of trade of movements in international commodity prices in SSA 2010-2012: - Africa s oil trade surplus equals 12% of GDP - Oil among top 5 export items in 18 countries Source: staff estimates based on commodity prices (Commodity Markets Outlook, DEC-PG) and commodity trade (WITS)

GHA BEN TGO RWA BDI MWI BFA SWZ CAF ETH CIV CPV MLI GNB UGA TZA MUS GMB ZWE MDG SYC COM 3. Immediate risks: End of the commodity super-cycle 5 Aggregate Terms of Trade effect More vulnerable SSA countries 2014-2015 forecast: 10 Aggregate Terms of Trade effect Less vulnerable SSA countries -5 5-15 0-25 -5-35 -10-15 -45 AGO SSD COG NGA TCD SDN GAB GNQ MRT ZAR CMR GIN LBR SLE Agriculture Metals & Minerals Energy Total Agriculture Metals & Minerals Energy Total Source: staff estimates based on commodity prices (Commodity Markets Outlook, DEC-PG) and commodity trade (WITS)

3. Immediate risks: Fragility and violence After decreasing throughout the mid-2000s, violent deaths due to conflict and violence against civilians in particular has steadily risen again since 2012.

3. Immediate risks: Fragility and violence Over the last decade, the region saw a reduction in traditional types of armed conflict and actors, including interstate violence and rebellion, and an increase in non-traditional forms of conflict and conflict actors that increasingly target civilians Agents of violence by total conflict involvement, Africa, 1997-2014 Source: ACLED

3. Immediate risks: Fragility and violence Contrary to previous decades, violence is largely concentrated in a small number of subregions The Sahel Sudan & South Sudan Northern Nigeria Darfur Somalia & Kenya Eastern DRC

3. Immediate risks: Health challenges Ebola outbreak is slowing, but progress toward zero cases has also slowed with several reverses in Sierra Leone and Guinea Over 10,000 deaths and 25,000 cases to date Economic impacts in three core countries are devastating 10 8 6 4 2 0-2 -12-4 -14-6 4.3 2015 Forecast Growth Rates -0.2 6.8 3.0 8.9 Guinea Liberia Sierra Leone Pre-Ebola forecast 2015-12.8-5.0 Figure source: Martin (2015)

3. Immediate risks: Health challenges Ebola has highlighted weak health systems 1,200 1,000 800 600 400 200 0 990 Maternal deaths per 100,000 live births 1990 1995 2000 2005 2010 2013 Source: WHO, World Bank, et al. (2014) Sub-Saharan Africa 510 Developing Regions World South Asia LAC East Asia Maternal mortality has fallen in Africa, but remains more than double that of developing regions Healthcare workers are lowest of any region & 27% of global average Disease surveillance systems are weak across much of the continent Affects risk not only for infectious disease, but all health conditions

3. Immediate risks: Health challenges 400 Health expenditures remain very low in SSA Public health expenditure per capita (current US$) 350 300 250 200 150 100 50 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 EAP ECA LAC MENA AFR SAR Source: aggregate level data from WBG HNP database and data for developing countries only

4. Policy lessons: old and new I. For the long run 1. Stronger institutions of governance Better able to manage both external and internal shocks 2. Human capital / skills Education: invest in quality and gender equality 3. Infrastructure Close the energy, transport and logistics deficits.

4. Policy lessons: old and new II. For the short run Policy making in times of scarcity 1. Treat the commodity price shock as permanent rather than temporary 2. Borrow with moderation 3. Raise domestic savings public and private 4. Diversify revenues, as well as output 5. Prioritize spending: reduce fuel subsidies, target social spending on the poor 6. Enhance public investment management capacity no room for waste 7. Policy coordination and economic integration within Africa 8. Make a deliberate effort to cushion the poor even if at the expense of others

Thank you

RISE FACING THE CHALLENGES, CONTINUING TO STATE OF THE AFRICA REGION WORLD BANK IMF SPRING MEETINGS 2015