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Brookings InstitutionWashington DC, USA
AEO 2016 Presentation27 Sept 2016
1
Development Research Department
African Development Bank
Macroeconomic Developments and
Prospects
Key Messages
Africa ‘Rising’ narrative under scrutiny as low commodity price environment persists, shrinking revenues
Slowdown in average Africa GDP growth but still above global average
Growth expected to rebound in 2017 as current adjustment measures take effect; weather patterns improve
Growth resilience also underpinned by strong domestic consumption, public infrastructure investment
Policy response: Strengthen policy buffers to external shocks; explore new drivers of growth – diversification; structural measures
2
Africa’s projected real GDP growth rates
3.6%
2015
1.9%
2016 3.2%
20175.9%
2010
Africa’s medium term projected real GDP growth ratesGrowth will be subdued in 2016; expected to recover in 2017, underpinned by:
Underlying downside risks to growth: Protracted low commodity price environment, persistent power shortages, adverse weather (drought), pockets of civil conflict and political instability
But Africa remains resilient despite adverse internal and external conditions; strong policy buffers needed to sustain growth
Adjustment measures
Relatively strong domestic consumer demand
Robust public investment in infrastructure
3
4
Regional Growth Prospects 2016
Central AfricaEast Africa
Southern Africa
West AfricaNorth Africa
GDP growth
2.4%
GDP growth
0.7%
GDP growth
1.8%
GDP growth
4.9%
GDP growth
1.2%
Africa1.9%
Build up of inflationary pressures
Average inflation in 2016 likely to be more elevated than median
inflation.
High inflation countries Angola (29.1), Zambia
(20.7%), Malawi (19.7%), Sudan (17.9%),
Ghana (17.8%), Mozambique (16.6%), and Nigeria (15.3%)
5
0
2
4
6
8
10
12
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16 (
p)
20
17 (
p)
%
Median inflation Average inflation
Global Oil Price Effect (1)
Oil-exporting versus importing countries
Growth to be sharply lower in exporting
countries
Recession in Nigeria; Political paralysis Libya and South
Sudan
Expected recovery in 2017 but uncertainty on commodity price movements; global
growth
2014 2015 2016 2017
Africa 3.7 3.3 1.9 3.2
Oil exportingcountries
3.7 3.1 1.1 2.6
Oil importingcountries
3.8 3.6 3.0 4.0
Growth in real GDP (Percent)
6
Strong domestic policy buffers
required to protect growth from further
decline
Low Global Oil Price Effect (2)
First round effects shown in continued weakness in fiscal
and external positions
Moderate improvements
expected in 2016/2017
Oil exporting countries
7
-10
-5
0
5
10
15
20
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16 (
p)
20
17 (
p)
% o
f G
DP
Current account Fiscal balance
Global Oil Price Effect (3)
Oil importing countries
Fiscal and current account deficits broadly weaker
Impacted by falling non-oil commodity
prices
Improvement expected in 2016/2017
8
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16 (
p)
20
17 (
p)
% o
f G
DP
Current acount Fiscal balance
Summary and Policy Recommendations
9
• Economic growth in commodity dependent countries still vulnerable to swings in
commodity prices
• Fall in commodity revenues reduced fiscal space, threatening gains made in
past years
• Broad based macroeconomic imbalances observed in few countries
• Delayed adjustment to shocks address the imbalances
• Africa’s non-commodity dependent countries among fastest growing economies in
the world
• Solid macroeconomic environment and public infrastructure investment
• Benefitted from low oil prices, lowering average inflation
• Need to strengthen resilience to external shocks through counter-cyclical fiscal
policies to build buffers
• Addressing inequality and poverty will require bold policy decisions and investment
in critical infrastructure to engender diversification and industrialization.
• AfDB is taking leadership in this regard through the High 5s transformativeagenda
Special Theme: Sustainable cities and
structural transformation in Africa
10
Africa’s rural and urban boom
11
0
200
400
600
800
1 000
1 200
1 400
1 600
1950 1970 1990 2010 2030 2050
Rural population
Urban populationToday
Urbanisation does not reduce poverty by itself
12
Nakuru North medianincome = $PP1,077
Nyandomedian income= $PP 259
Note: Results of a survey of 285-299 households in the 3 regions
Source: Losch, Fréguin-Gresh and White, 2012
Urbanisation does not bring about industrialization by itself
13
0
5
10
15
20
25
30
35
40
15 20 25 30 35 40 45 50 55
Ma
nu
fac
tur
ing
va
lue
-ad
de
d (
%
GD
P)
Urbanization level (%)
East Asia & Pacific (developing only) Sub-Saharan Africa (all income levels)
Urbanization = the spatial component of structural transformation
14
1. Economic = sectoral re-allocation of factors of production towards higher-productivity activities
2. Demographic = decline in fertility rates
3. Spatial = urbanisation
different patterns
of structural transformation in Africa
15
6 DiversifiersMost advanced on all three dimensions:- Economic diversification
towards higher productivity activities
- Declining fertility rates- High urbanisation rates
16
Early urbanisers• Started fertility transition • Started urbanising
Late urbanisers• Started fertility transition • but not yet urbanising
Agrarians• fertility transition not started• not yet urbanising
Very slow or no diversification towards higher
productivity sectors
NO straight causality relationship between those three dimensions.
Demographic Spatial Economic
Typology of African
economies
Started fertility
transition
Started
urbanising
Divers. / Higher
productivity
Diversifiers
Early urbanisers -
Late urbanisers - -
Agrarians - - -Resource
dependent
some some -
Very few African countries have urbanisation + diversification
EGY
MUS
MARZAF
TUN
BEN CMR
CIV
GHA
LBR
SEN
TGO
CAF
ERIETH KEN MDG
MOZ
RWA
SLE
SDN
TZA
BFA
BDI
MWI
MLI
NER
UGA
DZA
AGO
BWA
TCD
COG
COD
GAB
GIN
LBY
MRT
NGA
SOM
SSD
ZMB
ZWE
0
1
2
3
4
5
6
7
8
10 20 30 40 50 60 70 80 90
To
tal
Fe
rti
lity
Ra
te,
20
10
-20
15
Urbanisation level (%), 2015Diversifiers Early urbanisers Late urbanisers
Agrarians Natural resource-based
Diversifiers
Agrarians
Late urbanisers Early urbanisers
Diverse types of structural transformation
Contribution to population growth by urban and rural areas, by type of African country, 2000-10
36 36
6472
38
2339
2719
40
4125
9 922
0
10
20
30
40
50
60
70
80
90
100
Diversifiers Early urbanisers Late urbanisers Agrarians Natural resource-based
Population growth from rural areas Growth from urban areas < 500 000 inhabitants in 2000
Population growth from cities > 500 000 inhabitants in 2000
% o
f to
tal
po
pu
lati
on
gro
wth
25 Million 22 Million 67 Million 29 Million 85 Million
Smaller cities will drive urbanization
Population settlements and rural-urban linkages in West Africa, 2000
City networks improve the links between rural and urban economies
City networks can foster regional integration
Integrate Africa
Industrialise Africa
Cities can provide enabling conditions to host African productive sectors …
City attracts capital, firms and
skilled workers
Higher productivity and living standards
Agglomeration economies
Pool of labour & inputs
Services for economic
activities (real and financial)
Knowledge spillovers and tech transfer
… but urban sprawling impedes agglomeration benefits
Source: AUE, 2016 project, contribution by UN-Habitat
Accra’s urban expansion (Ghana), 1991-2014
… and the cost of air pollution is already high despite slow industrialisation
0 50 100 150 200 250 300
Childhood underweight
Unsafe sanitation
Ambient particulate matterpollution
Household air pollution
Unsafe water
USD Billion
Economic cost of selected risk factors in the African continent
Cities could “lighten up and power Africa”
Light up and power Africa
Projected electricity demand from the sub-Saharan African population gaining access to electricity, “New Policies Scenario” 2020-40
0
30
60
90
120
150TWh
2020 20402030 20352025
On-grid
Mini-grid
Off-grid
Traditionalfinance
Innovative finance
Bridging the financing gap
Ecological capital
Green funds
National transfers
Local revenues
Private finance Removing fossil fuel subsidies
Public Private Partnerships
Coproduction
