Chad, Equatorial Guinea & Angola oil. Ethiopia recovery

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Survey of Economic and Social Conditions in
Africa 2004-2005

For presentation at the Conference of African
Ministers of Finance, Planning and Economic
Development,
11-13 May 2005, Abuja, Nigeria
by Prof. Augustin Fosu Director, Economic and Soc
ial Policy Division, ECA
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Outline

• Recent Economic performance
• Growth performance by subregions
• Fastest slowest performers
• Implications for the MDGs
• Sources of growth
• Internal
• External
• Some areas of concern
• Medium-term prospects
• Trends in poverty
• Progress towards the MDGs targets
• Policy interventions

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African economic performance improves
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Underlying factors for improved performance in
2004

• High international oil prices coupled with high
  oil production benefited most African oil
  exporters
  
• Strong global recovery increased the demand for
  oil and most non-oil commodities
  
• Better performance in agriculture across the
  continent though locust invasion adversely
  affected this sector in Mauritania, Mali, Niger
  and Senegal
• Continued sound macroeconomic management
• Improved political situation in many countries
• Increased donor support in the form of aid and
  debt relief
  
• Rising FDI, expansion in the industrial sector
  and growth in the tourism sector

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Better performance in 3 of the 5 sub-regions
Central Africa led subregional performance in
2004, followed by East Africa, North Africa, West
Africa and, then, Southern Africa
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Sub regional performance explained by

• Rising oil prices for North and Central Africa
• Increased agricultural production, coupled with
  rising commodity prices for East and West Africa
  
  
• Strong global and domestic demand for South
  Africa, partly due to its low interest rate,
  benefited Southern African sub region
  

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Fastest and slowest performers in Africa

• The fastest growing African countries in 2004
  were Chad, Equatorial Guinea, Liberia, Ethiopia,
  Angola and Mozambique
  
• Chad, Equatorial Guinea Angola oil
• Ethiopia recovery in agricultural sector
• Liberia
• post-conflict economy
• substantial external aid in support of its
  rebuilding efforts

Contd
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Fastest and slowest performers Contd

• The slowest growing economies in Africa were
  Zimbabwe, Seychelles, Cote dIvoire, Central
  African Republic and Gabon
  
• Zimbabwe - performance was hampered by drought
  and an adverse political environment
  
• Cote dIvoire - continuing political turmoil
• Gabon -despite the discovery of new oil fields
  higher oil prices, a decline in oil production
  due to limited investments in upgrading existing
  fields

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Real GDP growth rates, top 10 bottom 5 African
countries, 2004 ()
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Growth and MDGs

• Achieving growth required to meet the MDGs
  remains a challenge for Africa
  
• For instance, based on the recent 2000-2004
  period, only four countries achieved the
  estimated 7 average annual growth rate required
  to meet MDG1 Equatorial Guinea, Chad,
  Mozambique, Angola
• However, 14 African countries have achieved an
  average annual growth rate of 5 or higher since
  2000
  
• Equatorial Guinea, Chad, Mozambique, Angola,
  Sudan, Ethiopia, Rwanda, Liberia, Uganda, Burkina
  Faso, Mauritius, Senegal, Tanzania, Botswana
  
• Improved income distribution helps

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Considerable gains by oil exporters
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Internal Sources of Growth

• Macroeconomic stability
• Inflation declined
• Fiscal deficits eased
• Current account improved
• Tourism on the rise
• Good weather prevailed

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External Sources of Growth

• Strong global economic recovery
• Rising export prices volumes of most African
  commodities
  
• ODA on the rise
• FDI flows are up

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ODA hit a new peak of US26.3 Billion in 2003
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FDI inflows to Africa rebounding

• Due to
• High prices of most key commodities
• Enhanced investor perceptions
• But concentrated in natural resource sectors

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Some areas of concern

• Risk of currency appreciation
• Low domestic savings
• Weak domestic investment
• Growth has so far not been translated into
  employment creation or poverty reduction

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Medium-term outlook is positive

• Africa is projected to grow at 5 in 2005highest
  in a decade

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• Upside factors
• Improved agricultural production, assuming
  continued good weather conditions
  
• Continued macroeconomic stability
• Vibrant growth in the tourism and mining
  sub-sectors
  
• Continuing strong oil sector
• ODA, FDI and remittances are expected to
  increase
  
• Continuing improving political stability in many
  African countries
  

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• Downside risks
• Global growth is expected to slow down (mainly
  b/c of high oil prices)
  
• High oil prices adversely affect oil importers by
  pushing up inflation
  
• Continuing political tension (instability) in
  Cote dIvoire, Zimbabwe Sudan
  

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Has Africas growth translated into unemployment
or poverty reduction?

• As employment is a source of income for the poor,
  increasing employment opportunities is a critical
  element of poverty reduction initiatives
  
• However, Africas growth has so far not been
  translated to employment creation or poverty
  reduction

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Trends in poverty

• SSA had the highest poverty rate in 2003
• With the exception of SSA, the poverty rate
  decreased substantially between 1980 2003 for
  all regions
  
• SSA was the only region where the proportion of
  the working poor increased during 1980-2003
  
• Therefore, GDP growth in SSA has been barely
  enough to absorb population growth

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Progress towards the MDGs targets

• Unsatisfactory performance of SSA in creating
  jobs and reducing poverty puts doubts on
  achieving the overall targets of the MDGs
  
• In fact, SSAs overall performance (during
  1990-2000) w.r.t. achieving the MDG targets has
  been disappointing (details later in the Issues
  Paper)

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Policy Interventions

• To achieve high sustainable growth and proper
  distribution in Africa, policy interventions will
  be required at different levels
  
• economic
• social
• political

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• At the economic level, priority must be given to
• minimizing dependency on the vagaries of the
  climate
  
• reducing exposure to commodity price shocks via
  export diversification
  
• consolidating macroeconomic stability
• mobilizing domestic savings to finance
  investments
  
• maximizing job creation by minimizing constraints
  to private sector investments and growth
  
• minimizing the unpredictability of ODA flows
• accelerating efforts at regional cooperation

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• At social level, interventions must be guided by
• maximizing physical and financial access to
  health systems by the poor
  
• addressing the adverse effects of major diseases
• investing in education training
• addressing reproductive health other
  gender-related issues
  
• On the political front, the overriding objectives
  should be
  
• securing peace and security
• improving governance
• making special provisions for the least-developed
  countries and post-conflict economies
  
• optimizing global partnerships

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Thank you!