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The African Economic Outlook 2008

Measuring the Pulse of Africa

Andrea Goldstein

Vice-Direttore,Heiligendamm Dialogue Process Support Unit

OCSE

11 July 2008IAI, Rome

Macroeconomic Outlook: Challenges and Opportunities

The Macroeconomic Picture

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Total OECD

Africa

Source: OECD Development Centre / African Development Bank, 2008

Real GDP Growth Real GDP growth expected to exceed

5% for the sixth consecutive year in

2008 , and reach 5.9%

•2007: 25 countries over 5%

•2008: 31 countries over 5%

•2007: 13 countries between 3-5%

•2008: 16 countries between 3-5%

Growth in 2009 will remain

sustained at 5.9%

GrowthGrowth Africa continues steady growth

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CommoditiesCommodities The commodity boom: a key driver for Africa

Global commodity prices 2001-2009

Source: OECD Development Centre / World Bank, 2008

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DriversDrivers China & India: new drivers of African growth

Source: OECD Development Centre / UN Comtrade, 2008

2001 2002 2003 2004 2005 2006

World 15524 4684 6427 4595 10509 17569

Developed economies

14964 3668 3156 4571 9564 7173

Developing economies

559 1016 3270 2024 476 9721

Africa 520 809 569 1849 360 746

Asia 39 141 2536 175 116 8850

Distribution of cross-border M&A purchases in Africa by home region, 2001-2006 (US$ million)

Source: OECD Development Centre based on UNCTAD cross-border M&A database, 2008

Trade Investment

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DriversDrivers Improved macroeconomic framework

* Excluding Zimbabwe

** Estimations for 2007 and predictions for 2008/09

Source: OECD Development Centre / African Development Bank, 2008

Fiscal Balance % GDP Current account % GDP Inflation

Average

2000-04

Average

2005-09**

Average

2000-04

Average

2005-09**

Average

2000-04

Average

2005-09**

Central 1.6 8.6 Central -3.2 3.2 Central 14.6 4.6

East -2.2 -3.2 East -4.3 -7.5 East 6 8.7

North -1.2 6 North 5.6 13.2 North 2.6 5.2

South -2.5 1.6 South -1.2 -1.7 South* 14.4 6.8

West -0.5 4.5 West -2.7 3.3 West 10.3 7.8

AFRICA -1.5 3.4 AFRICA 0.8 3.8 AFRICA* 8 6.4

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DriversDrivers Record investment in 2007: a new driver?

Source: OECD Development Centre / UNCTAD, 2008

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Public and Private Investment

% of GDP

Source: OECD Development Centre / EPFR, 2008

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GrowthGrowth Oil exporters and importers: divergent paths?

Source: OECD Development Centre / African Development Bank, 2008

Net Oil exporters: Algeria, Angola, Cameroon, Chad, Congo,

Côte d'Ivoire, Congo DRC, Egypt, Equatorial Guinea, Gabon,

Libya, Nigeria, Sudan

Real GDP Growth

• Growth rates for oil importer

and oil exporter countries

diverged significantly in 2007

and 2008

• However, this difference is

set to narrow in 2009, due to:

- Slower growth of oil

production in Angola

- Growth recovery in Kenya

and South Africa

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Oil Oil

ExportersExporters

Performance and threats

Source: OECD Development Centre / African Development Bank

*: African Economic Outlook forecasts

…but poor diversification &

governanceStrong growth…

Oil-exporting countries have a historical

opportunity to pull ahead, yet many remain

mired in poor governance, not using oil

windfalls to finance broad development.

Good performers’ assets:• Sustained and prolonged growth

• Improving macro management

• Rising Investment in non-oil sectors

Challenges:•Poor diversification and governance

•Structural declining productivity of oil fields

• Capitalise on windfall gains and maximise

spillover to rest of the economy

• Avoid Dutch Disease

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Oil Oil

ImportersImporters

Performance and threats

Source: OECD Development Centre / African Development Bank

*: African Economic Outlook forecasts

Oil-importing countries have performed well,

diversifying their sources of growth over recent

years. However, rising inflation, food prices and

lower global demand for non-resource exports

signal rougher waters ahead.

Good performers’ assets:• Sustained and prolonged growth

• Prudent macroeconomic policies

• Good Diversification

• Decreasing poverty

Challenges:• Contain fiscal deficits, streamline spending

• High dependency on ODA

• Finance widening trade deficit

• Prioritise poverty reduction

• Vulnerability to climatic and price shocks

Good performance… …yet challenges rising

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Food PricesFood Prices Significant food price inflation over past year

Source: OECD Development Centre / Thomson Datastream, 2008

Source: OECD Development Centre / FAO, 2008

2006(e) 2007(e)Change 2006-

2007 (%)

Africa 144.1 135.6 -5.9North Africa 36 28.9 -19.8Western Africa 49.1 47.4 -3.5Central Africa 3.6 3.5 -2.7Eastern Africa 33.9 33.9 0

Southern Africa 21.5 21.9 2.1

• Rising grain prices : an international and

local trend

• Sub- Saharan Africa is a net cereal

importer

• But vulnerability varies among countries

• Need for long term concerted solutions

African Cereal Production (million tonnes)

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StabilityStability Long term decline in political instability ?

Regime Hardening

(LHS)

Qualitative data obtained from Marchés Tropicaux et Méditerranéens. Data is used to construct two indicators referring to:

Political instability: occurrence of strikes, demonstrations, violence and coup d’état.

Hardening of the political regime : incarcerations of opponents, measures threatening democracy such as dissolution of political parties, violence

perpetrated by the police and the banning of demonstrations or public debates.

Source: OECD Development Centre “Moving towards

political stability? Monitoring political instability,

governments response and economic performance in

African countries” forthcoming article, April 2008.

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OutlookOutlook Oil exporter & importers: different challenges

ahead?

Oil and Mineral exporters

Challenges:

• Capitalise on windfall gains

• Maximise spillover to rest of the economy

• Avoid Dutch Disease

Trade Balance Inflation*

Growth Fiscal Balance

Oil importers

Challenges:

• Contain fiscal deficit

• Finance widening trade deficit

• Streamline spending to prioritise poverty reduction

Source: OECD Development Centre, African Economic Outlook, 2008

* Oil Importers exclude Zimbabwe

Inflation is a challenge for

the entire continent

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DiversificationDiversification

• Between 2002 and 2006 29 african countries have further specialised.

• The 10 less diversified countries are all oil exporters

• The 5 most diversified are Morocco, Tunisia, South Africa, Tanzania and Senegal

In 2007, only 12 out of 35 AEO countries

increased export volume by 5 per cent or

more

Diversification should be fostered to

sustain growth and fight against rising

import costs

Common challenges: diversify to raise exports

Source: OECD Development Centre, UN Comtrade, 2008

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ChallengesChallenges Energy crises threaten prospects

Liberia

Morocco

Source: Briceno-Garmendia (2006); Eberhard and others (2008).

Countries Vulnerable to Energy

Shortages: • Installed capacity in SSA is

insufficient to respond to high

growth rates and increasing demand

• Half of the continent is currently

experiencing severe energy

shortages.

• Crises have been worsened by South

Africa shortages, Kenyan political

crisis, droughts and high oil prices.

• A combination of high growth and

low investment in energy

infrastructures has created severe

bottlenecks to development

No crisis/no data

Energy crisis

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Credit Credit

CrisisCrisisIs Africa safe from U.S. downturn?

Source: OECD Development Centre / UN Comtrade, 2008.

(data on Nigeria corresponds to last available year, 2003)

Note: The “Others” category includes Latin America, the

Middle East. East Asia and South Asia.

� Due to a low share of

external trade with

the U.S, Africa is less

vulnerable to effects

of U.S credit crisis

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AidAid Foreign aid as a catalyst for development

Source: OECD Development Centre / African Development Banks, 2008

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MDGsMDGs Slow progress, despite growth

Source: OECD Development Centre / African Development Bank, 2008

Goal 1

Goal 2

Goal 3

Goal 4

Goal 5

Goal 6

Goal 7

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The African Economic Outlook 2008

Measuring the Pulse of Africa

Macroeconomic Outlook: Challenges and Opportunities

Federica Marzo

EconomistaCentro di Sviluppo

OCSE

11 July 2008IAI, Rome

Investing in African Youth

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AEOAEO Technical and Vocational Skills Development (TVSD)

� Which role for TVSD in Africa today?

� What is the status of skills development? Which providers and what access?

� Are skills gaps being adequately addressed? What are the constraints

� and what are the lessons learnt from recent reforms ?

Key questions

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DefinitionDefinition Technical and vocational skills development

Acquisition of knowledge,

practical competences & knowhow

Public or

private TVET

schools

Degree of formalization

of labour market

Formal Informal

Workplace

training in

enterprises

Informal

ApprenticeshipDual

Training

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Role of Role of

TVSDTVSDKey Facts

� Sustained economic growth …but:

• World’s lowest productivity (25% of world average, 1/12th of the average of industrialized countries, slow progress) partly due to limited technical skills

• Increasing youth unemployment (20% on average)

• Large informal sector (on average, more than 80% of total employment)

� Notable improvement in primary education, …but:

• Big pressure on secondary schools and TVET systems

• High drop out rates

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Achieving the MDGs

Technical and

Vocational Skills

Development

Technical and

Vocational Skills

Development

MDG 1: Eradicate Extreme

Poverty and

Hunger

MDG 2: Expand

Primary Education

MDG 3: Improve Gender

Equality in Educ.

MDG 4: Lower

Mortality Rates

MDG 5: Enhance

Reproductive

Health

MDG 6: Combat

HIV/AIDS, Malaria,

etc.

MDG 7: Environmental

Sustainability

MDG 8: Develop

Decent Work

strategies for youth

GINI ↓

SMEs

development

Elimination of

child labourBetter jobs

for parentsEmpowering Rural Women

Water & soil

mgt

For community

health workersInfo & counselling

Role of TVSDRole of TVSD

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0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

South Eastern

Asia

Latin America

& Caribbean

Eastern Asia OECD Sub-Saharan

Africa

North Africa

Percent, average 2002-2006

Enrolment in Secondary Technical and

Vocational Training in formal systems –

International Comparison

Source: OECD Development Centre / UNESCO-UIS (2006), 2008

AccessAccess

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Formal Training, what else?

The percentage of total secondary students enrolled in

technical and vocational programmes in 2005African countries can be

grouped in three

categories:

Group I: Proportion of

TVET enrolment > 10%.

Group II: Proportion of

TVET enrolment between

5 % and 9%.

Group III: Proportion of

TVET enrolment <5%.

Others: Data not

available

Source: OECD Developemnt Centre / UNESCO,

Global Education Digest, 2007

AccessAccess

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• Mostly financed by government’s budgetary allocations

• On average, only about 2 to 6% of educational budgets are devoted to (mainly formal) TVSD.

Access: Is Financing a Constraint ?

Source: OECD Development Centre, African Development

Bank / ILO world Employment Report (98-99), 2008

ConstraintsConstraints

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Access: ODA for vocational training in Africa

back on track?

The donor development agenda(commitments in USD millions, 2005)

Source: OECD Development Centre / DAC Creditor

Reporting System, 2008

ConstraintsConstraints

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Challenges

• The training system in Africa is largely underfinanced (only 2 to 6% of national edu. budget).

• Donors’ support to training has been erratic & insufficient to upgrade the quality and access to training.

• Many enterprises undertrain their staff.

• Funding is fragmented: Countries must make better use of existing funds

• Access remains more problematic for the poor and vulnerable, especially in rural areas.

ConstraintsConstraints Financing is a major problem!

Needs• Greater

diversification of funding sources for TVSD,

• Development of private training markets ,

• Increased competition between public and private TVSD providers,

• Encourage more and higher quality enterprise training .

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Constraints on TVSD’s impact & expansion

National

development

policy

TVSD

Industry skills needs Post-secondary

and tertiary

institutions

Firm-based

and informal

training

Lack of a coherent strategic

approach

Missing links Weak links

ConstraintsConstraints

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1. Adopting an integrated vision and clear lines of authorities :

• Senegal: Launched a TVSD reform making the TVSD a tool for competitiveness• Zambia: clear legal and regulatory framework: Technical, Vocational and

Entrepreneurship Training Authority, 2005• Tanzania : created a Vocational Education and Training Authority already in 1994

and skills development is part of the second generation PRS.

However in many cases it remains difficult to identify the leading institution

• Training authorities need to be given clear mandate and authority over resources.

2. Improving Forecasting and Planning for Skills Nee ds

• Successful TVSD reforms include – Long-term planning + skill audits (Rwanda )– Monitoring and Evaluation mechanisms

• Benin: Labour Market Observatory (tracking graduates, Labour Market survey)

Lessons Lessons

LearntLearnt

Vision and Planning

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3. Improving the quality of TVSD

• Switch to demand-driven training model .• TVET National Qualification Framework (NQF):

– Ethiopia: New Quality Management System (2006)

– South Africa: A new statement for the NQF was developed to enhance the efficacy and efficiency (2007)- involving users and providers

4. Addressing the informal sector’s skill needs (an d those of vulnerable groups)

• In view of its large size, Training in the informal sector should be recognised.– Benin: Test, certification of skills acquired through traditional apprenticeship

(Vocational Skill Certificate).

– Senegal: Pilot scheme to transform traditional apprenticeship into a dual system.

Lessons Lessons

LearntLearnt

Quality Improvement & Informal Sector

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5. Setting up accompanying measures• Design of integrated programs that couple training with access to finance,

Business development services, Marketing support, network• AfDB & ILO: Support to growth oriented women entrepreneurs (GOWE).• Angola First Job Law: Active labour mkt policies to facilitate transition to

work (internships, 60 per cent contribution to salary, support SMEs creation)

6. Foster Partnership with All stakeholders• Policy design and actual delivery of education and training can best be

achieved through a partnership between government, social partners and various stakeholder groups in the formal and informal sectors of the economy.

• Mauritius & Tunisia : strong partnership with private sector • Egypt: The most successful example of PPP between training institutions &

businesses is the Mubarak-Kohl Initiative (MKI) .

Lessons Lessons

LearntLearnt

Innovation & Partnership

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7. Involving Local Communities and Strengthening Lo cal Management of TVSD

• Delegation of responsibilities to regional authorities.

• Ethiopia: Consider establishing autonomous TVET Authorities at federal and state levels, governed by TVET Council.

• Tunisia: The decentralization process is based on the devolution of responsibilities to the training centres.

But...

• in many countries local authorises and school mgt have Insufficient pedagogical, managerial, and administrative capacity to discharge new responsibilities

Lessons Lessons

LearntLearnt

Local Communities & Management

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1.Coherent vision and governance to TVSD

2. Make TVSD bankable : Strategies, action plan and identification of objectives & resources needed

3. Increase awareness about benefits of TVSD among firms and parents

4. Foster evaluation and monitoring mechanisms

To sum up...

To be fully effective, TVSD strategies must be inte grated into comprehensive employment policies and focus on sect ors experiencing

employment growth and skill shortages

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Grazie!

For more information:

www.oecd.org/dev/aeowww.oecd.org/dev/aeo