Africa’s Economic Prospect and ChallengesAfrica’s Economic Prospect and Challenges Louis Kasekende Chief Economist, African Development Bank and ... An opportunity not to be missed:

AfricaAfrica’’s Economic Prospect and s Economic Prospect and ChallengesChallenges

Louis KasekendeChief Economist,

African Development Bank

and

Sudhir ShettySector Director, Poverty Reduction & Economic Management,

Africa RegionThe World Bank

Strategic Partnership for AfricaTunis, February 21-22, 2008

SPA Annual Plenary Meetings, Tunis 2008 2

Key Messages

I. African growth picking up and becoming more broad

II. Cyclical and Policy factors explain most of the growth

III. An opportunity not to be missed: growth remains volatile and major development challenges persist

IV. 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 %

0123456789

1999 2000 2001 2002 2003 2004 2005 2006 2007

World Advanced economies Other emerging market and developing countries Africa Africa: Sub-Sahara


For the fourth consecutive year, in 2007 Africa’s real GDP growth rate exceeded 5% -- with growth becoming more broad-based

25 countries achieved GDP growth rate of above 5 % in 2007

14 countries achieved GDP growth rate between 3% to 5% in 2007

5.6% 5.7%5.9%

5.7%

5.9%

3.5%

4.9%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

2002 2003 2004 2005 2006 2007 2008

Real GDP growth


A group of diversified sustained growers has emerged, but economic performance varied substantially

0

1

2

3

4

5

6

7

% G

DP g

row

th, 1

996-

2005

%

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


Growth is More Broad Based: growth has also picked up in resource-scarce and land-locked countries

Real GDP Growth GDP Growth: Coastal vs. Land-locked

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2000 2001 2002 2003 2004 2005 2006 2007 a/ 2008 b/

Landlocked Countries Coastal Countries

Coastal Resource rich Coastal Resource scarce

GDP Growth: Resource Rich vs. Resource Poor

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2000 2001 2002 2003 2004 2005 2006 2007 a/ 2008 b/

Resource-Rich Countries Oil-exporting countries

Mineral exporting countries Resource-Scarce Countries


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


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.

* Comprises Crude Oil (Petroleum), Natural Gas, and Coal Price Indices

Figure 1: Recent Developments in Commodity Price Index (1995=100)

0

50

100

150

200

250

300

350

400

450

500

1986M1

1987M4

1988M7

1989M10

1991M1

1992M4

1993M7

1994M10

1996M1

1997M4

1998M7

1999M10

2001M1

2002M4

2003M7

2004M10

2006M1

2007M4

Crude Oil (petro leum) M etals

Chart 15: Coffee, Robusta (Cents/kg)

50709 011013 015017019 02 102 3 0

Chart 17: Food Index Prices (1995=100, in terms of US $)

708090

100110120130140


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)


Rising ODA & Debt Relief have also played a role in stimulating growth

Aid from all donors to SSA, 1990-2006

ODA to SSA (% of GNI)

0

10

20

30

40

50

60

1990 1992 1994 1996 1998 2000 2002 2004 2006

2004

US$

bill

ions

0

1

2

3

4

5

6

7

% o

f GN

I

Other ODA Technical cooperation Humanitarian Aid Debt forgiveness grants

• … 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


Good policy has also contributed to the recent good time

– Better economic management– More competitive exchange rate– Better institutions– Better governance– Fewer conflicts


Fundamentals gradually picking up …Economic Management has improved to strengthen growth

Country P olicy and Institutional Assessm ent [CP IA] Scores (African Average - 2 0 0 4 -2 0 0 6 )

2.90

3.00

3.10

3.20

3.30

3.40

3.50

3.60

EconomicManagement

Structural Policies Policies for SocialInclusion/ Equity

Publi SectorManagement

Total

2004 2005 2006

……….Greater macroeconomic stability attained


Looking ahead, the priority for African policymakers must be to avoid growth

collapses


Had Africa avoided the bad times, GDP per capita would have been 30 percent higher in 2005

Actual and simulated GDP per capita ($)

2,000

2,200

2,400

2,600

2,800

3,000

3,200

3,400

3,600

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

Actual GDP per capitaGDP 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


Export diversification is very low relative to other regions

0

10

20

30

40

50

60

70

80

90

Europe and CentralAsia

East Asia- Pacific South Asia Latin America andCaribbean

Middle East andNorth Africa

Sub Saharian Africa0

20

40

60

80

100

120

140

160

180

Export Concentration Index (0-100)left axis

Share of Top 5 Products in Total Exports (%) left axis

No. of Exported Product Categoriesright axis

Source: World Bank, World Trade Indicators


Africa still lags other regions in the cost of doing business

Sources: World Bank Doing Business Database *Normalized ranking from Doing Business 2006.** Ranking from Doing Business 2007.

132

7281

92 92102

131

74 7784

98105

0

20

40

60

80

100

120

140

Sub SaharanAfrica

East Asia &Pacific

East Europeand Central

Asia

Latin Americaand Caribbean

Middle Eastand North

Africa

South Asia

2005*

2006**

Average Ranking of Doing Business, the lower the better


Infrastructure remains a major bottleneck

Impact of better infrastructure on productivity and

employment

0%

1%

2%

3%

4%

5%

6%

7%

8%

TFP Employment

Better infrastructure could improve productivity and increase employment

Losses due to unreliable infrastructure services are

substantial

Percentage of sales lost due to weak infrastructure

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Power outages Transportationdelays

Source: World Bank Enterprise Surveys


Indirect costs are much higher, and net productivity is much lower than factory floor productivity

0 10 20 30 40 50 60 70 80 90 100

BangladeshSenegal

IndiaMorocco

NicaraguaChina

EthiopiaNigeriaBolivia

UgandaZambia

TanzaniaKenyaEritrea

Mozambique

Share of total costs (%)

Materials Labor Capital Indirect

Total factor productivity (China=1)

0.00

0.20

0.40

0.60

0.80

1.00

1.20

Zimbia

Eritrea

Mozambiq

ueEthi

opiaNigeriaBoliv

iaUgand

aKenya

Tanzani

aNica

ragua

Banglades

hSenegalMoro

cco IndiaChin

a

Gross Net

Source: Eifert, Gelb, & Ramachandran (2005)


Governance performance in Africa has improved but remains low

Av. Score for Public Sector Management and Institutions

Source: World Bank Country Policy and Institutional Assessment (CPIA)Note: Only IDA countries for Asia

2.6

2.7

2.8

2.9

3.0

3.1

3.2

3.3

2001 2002 2003 2004 2005 2006

Aver

age

Sco

re (1

=low

est,

6=hi

ghes

t)

AfricaAsia


MAURITANIA

MALINIGER

CHAD SUDAN

ETHIOPIA

DJIBOUTI

ERITREA

SOMALIAKENYA

TANZANIA

DRC RWANDA

GABON

EQUATORIAL

CONGO

NIGERIABENIN

d’IVOIRESIERRA

SENEGAL

GHANA

THE

GUINEA

LIBERIA CAMEROON

MALAWI

ZAMBIA

MOZAMBIQUE MADAGASCARZIMBABWE

BOTSWANA

SWAZILANDLESOTHO

NAMIBIA

ANGOLA

UGANDA

BURUNDI

GUINEAREP.

TOGOCOTE

BURKINAGUINEA

LEONE

GAMBIA

BISSAU

SOUTH

CAR

AFRICA

STP

Hydrocarbon-rich

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

KEY:

Potentially large med to long-term hydrocarbon revenue

Mineral-rich

Potentially large med to long-term hydrocarbon revenue and mineral-rich

Resource Rich Countries in Sub-Saharan Africa


Fragility and Conflict Remain Pervasive

Population in Living in Fragile and Conflict-Affected Situations

0

100

200

300

400

500

600

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Year

Popu

latio

n (m

illio

n)

Africa Other Regions

Source: World Bank DDP


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

To sustain the good times and avoid the bad


In resource-rich economies:

Ensuring that natural resource wealth translates into broad-based income growth and delivery of services is key


– 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




In fragile and conflict-affected situations:

Laying the basis for long-term recovery is critical


– 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

Documents

Africa’s Economic Prospect and ChallengesAfrica’s Economic Prospect and Challenges Louis Kasekende Chief Economist, African Development Bank and ... An opportunity not to be missed: