recent economic developments in africa louis kasekende chief economist, african development bank...
TRANSCRIPT
Recent Economic Developments in Africa
Louis KasekendeChief Economist,
African Development Bank
Dublin, 25 May 2009
Main Messages
1. Africa not decoupled as previously thought• although GDP is positive, per capita incomes are
falling; growth drivers severely affected by the crisis
2. The recent growth deceleration largely due to external factors
3. Africa is in a much better position to manage the crisis than in previous periods due to better economic management
4. ..But long term development challenges remain
Outline of the Presentation
I. Pattern of African Growth
II. Explaining Recent Growth Acceleration
III. The Impact of the Global Crisis
IV. Transforming accelerations into sustainable dynamic growth
I. Pattern of African Growth
History: Booms and Busts a feature of African Growth
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
Africa: Real Per Capita GDP growth (%) Episodic growth is typical of natural resource driven growth
Natural resources underpin most of the growth cycles in Africa
External factors underpin growth accelerations and decelerations
…driven by growth in global demand
-2.0-1.00.01.02.03.04.05.06.07.08.09.0
1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
Africa Resource-Rich Countries Resource poor Countries
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
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1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
Africa World
Africa and World GDP Growth (%)
Real GDP Growth (%)
Explaining recent growth accelerations
Sustained growth period
Recent growth acceleration was underpinned by: • Strong global demand for Africa’s raw materials
• Large financial inflows
• Good macroeconomic management
Source: OECD Development Centre, based on World Bank, 2009
Hard commodities Soft Commodities
Openness a key driver of recent growth acceleration
Oil exporters were growing faster than importers
Source: African Economic Outlook 2008Net Oil exporters: Algeria, Angola, Cameroon, Chad, Congo, Côte d'Ivoire, Congo DRC, Egypt, Equatorial Guinea, Gabon, Libya, Nigeria, Sudan
10
Higher financial inflows also a key growth driver
05
101520253035404550
2002 2003 2004 2005 2006 2007
US
$ b
illi
on
Source: IMF Regional Economic Outlook, 2008
Foreign reserves (US$bn)Aid, esp. debt relief also made a difference
0
50
100
150
200
250
300
350
400
450
500
US
$ B
illi
on
2000 2001 2002 2003 2004 2005 2006 2007 2008
05
101520
2530354045
Africa SSA
Remittances (US$bn)
Africa benefitted from improved economic management which strengthened growth
Payoffs from more than two decades of reformsPayoffs from more than two decades of reforms
Country Policy and Institutional Assessment [CPIA] Scores (African Average - 2004-2006)
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
…leading to greater macroeconomic stability, despite the food price increases in 2008
Fiscal Balance in Positive territory, Inflation is Stable (6.9%-9%)
-2.6-2.3
-0.5
2.6
5.2
1.66.9
8.38.7 8.3
8.7 8.9
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2002 2003 2004 2005 2006 20070.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Fiscal Balance
Inflation
Africa not decoupled: continent hit by the global crisis
Financial crisis
Low external demand of Commodities
Collapse of Financial Markets
Global Down turn
Fall in Global Demand
Low external demand of Manufacturers goods
Unemployment
Financial Risks Aversion
Fall in Exports of commodities and goods and services(volume)
Fall in Remittances and Tourists arrivals
Fall in Commodities prices
Increase of sovereign spread
Low FDI
Trade finance restrictions
Outflow of portfolio investment
Fall in Bonds issuances
Fall In imports
Fall in reserves
Current Account and Budget Deficits
Low investment
Low Growth
Poverty and social instability
Impact on Africa
Severe macroeconomic impact (February forecast)
* Excluding Zimbabwe** Estimations for 20078and predictions for 2009/10
Source: OECD Development Centre / African Development Bank. 2008
Inflation
Current Account
Fiscal balance• Twin deficit problem:
the crisis will cause fiscal and current account balances to deteriorate significantly across the continent.
• Inflation will, however, stabilise as commodity prices fall, though food prices have remained high
Shortfall in Trade Taxes
Fiscal balance
Real GDP Growth (%)
Source: OECD Development Centre / African Development Bank. 2008
The crisis is taking a toll on Africa’s growth prospects
April 08 projections
Nov 08 projections Feb 09 projections
May 09 projections
Oil ExportersOil Exporters Suffering from lack of diversification
Source: OECD Development Centre / African Development Bank *: African Economic Outlook forecasts
…and little room left for manoeuvre
• Many oil exporters did not take advantage of commodity windfalls to improve governance and diversify their economies
• Nevertheless, some oil exporters have performed well in terms of reducing external debt
Taking a hit from the oil price fall ..
Oil ImportersOil Importers Benefiting from low commodity prices & reforms
Source: *: African Economic Outlook forecasts
Oil-importing countries find it difficult preserving pre-crisis gains. Rising inflation and deteriorating macroeconomic balances.Good performers’ assets:
• Sustained growth; Prudent macroeconomic policies; Diversification; Decreasing poverty
Challenges:• Fiscal deficits; ODA
dependency; widening trade deficit; climatic & price shocks
Holding up against the crisis so far… …yet challenges rising
0.0 2.0 4.0 6.0 8.0 10.0
KenyaSenegalTunisia
MauritaniaAfrica
MoroccoCape Verde
MozambiqueOil Exporters
GhanaTanzaniaRwanda
2008(e)
2009(p)
But the shock is not a disaster for Africa
Africa today is in a much better position to weather the crisis
• Committed macro management in many countries has brought inflation under control and improved fiscal balances
• Debt relief initiatives (HIPC & MDRI) have significantly reduced debt levels in many countries
• The commodity boom helped to improve terms of trade
• Business climate indicators are steadily improving, reflecting government efforts in nurturing private sector and enterprise
• Political conflicts are on the wane
Africa today is much more resilient to exogenous shocks:
Growth set to recover in 2010
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2005 2006 2007 2008(e) 2009(p) 2010(p)
Sub-Saharan Africa
Africa
-Growth “pause” in 2009: Recovery in 2010 and beyond is promising.
• Net oil exporters (4.1%)• Net oil importers (3.8%)
-The challenge is for Africa to transform this acceleration into sustainable dynamic growth
Some countries weathering the crisis
Source: African Economic Outlook, 2009
Cost of the crisis:
• Oil exporters the most hit.• More integrated
economies also strongly affected
• Low-income / non-oil exporting countries are less affected. because:-- beverages (cocoa. tea. coffee) less affected by decline in global incomes.-- less integration to the world economy
- 2 to- 3 %
Zero to – 1.9 %
- 3.1 to – 23 %
Increased growth between 2008-09
Growth differential 2008 - 2009
Source: African Economic Outlook, 2008/09
Some regions are weathering the crisis
GDP Growth (%) 2005 2006 2007 2008(e) 2009(p) 2010(p)
Central Africa 5.3 3.4 4.0 4.5 2.0 3.2Eastern Africa 7.1 7.6 8.8 7.2 5.1 5.5Southern Africa 6.3 6.8 7.0 5.1 -1.0 3.6Western Africa 5.7 5.1 5.4 4.8 3.3 3.4AFRICA 5.7 6.0 6.1 5.5 2.3 4.0Memorandum itemsNorth Africa (including Sudan) 5.0 6.1 5.7 5.9 3.6 4.2Sub-Saharan Africa 6.1 5.9 6.5 5.2 1.4 3.8Oil-exporting countries 6.3 6.1 6.8 6.3 2.5 4.1Oil importing countries 5.0 5.8 5.4 4.5 2.1 3.8
The China-India factor
Source: OECD Development Centre, based on China Mofcom, 2009
• Although China and India have not escaped the negative effects of the global crisis, growth remains robust.
• They continue as important sources of investment and trade for most of Africa.
India China
Source: OECD Development Centre, based on UNCTAD, Nepgen and Jansson 2009
Significant Chinese and Indian investments in African infrastructure, up to April 2008
But downside risks loom large
Some downside risks
• Deteriorating macroeconomic balances• -difficult to stick to sustainability indicators• - limited fiscal space for stimulus packages
• Tension between reform and control
• Creeping protectionism
• Interest in Africa may wane
Untenable targets on fiscal and debt sustainability indicators in the face of worsening macroeconomic balances .
Limited fiscal space for fiscal stimulus packages
Deteriorating Macroeconomic balances
* Excluding Zimbabwe ** Estimations for 20078and predictions for 2009/10
Source: OECD Development Centre / African Development Bank. 2008
Tension between reform and control
• In the face of the crisis, some countries have imposed controls (sometimes temporary or limited) to stem sudden capital outflows.
• But the room that capital controls give to policy makers is limited: – Their later removal may be accompanied by large outflows. – Time-consistency problem: if investors view capital controls
as a discretionary policy instrument, expectations of their imposition may encourage capital flight.
• Countries need to persevere with reforms
Risk of declining ODA
• Crisis related budgetary constraints in donor countries may cause them to cut back on ODA.– Previous crises in donor countries led them to also cut
ODA budgets (Japan in 1990; Nordic countries after 1991)*
– In the EU, although ODA is up, many countries cutting back on commitments to meet the EU time limits of achieving a target of 0.7% of GNI
• e.g. Ireland cut aid budget by €255 million since July 2008• Italy will cut back its aid by €1 billion by 2010
• Good news: ODA trend for Africa is upward
* See: Rooodman, D. (2008): History says Financial Crisis will Suppress Aid” Global Development; and Frot, E. (2009): “Aid and the Financial Crisis: Shall we expect Development Aid to Fall?”
Other Downside Risks
• Prolonged crisis in developed countries may delay the recovery in Africa
• Corporate failures as a result of the economic crisis may lead to a banking or financial crisis in Africa
• Risk of aid dependency
• The transition of some countries to a middle income status may be delayed
Transforming growth acceleration into sustainable dynamic growth
Africa still faces many long-term development challenges
High cost of doing business in Africa
Management of natural resources
Reforming the financial sector
Large gaps in infrastructure and logistics, including ports, roads, energy, IT
Lack of product and market diversification
Poverty reduction remains on overarching development challenge
Putting Africa on a long-term growth trajectory
• Increase the level and productivity of investment– Infrastructure– Skills development (education and health)
• Pursue globalisation – Diversification (products and markets), including
manufacturing
• Deepen economic and institutional reforms
• Invest in IT and R&D
Africa is lagging behind in infrastructure and logistics
31
134
94
141
Sub-Saharan Africa LICs
Other low-income countries
Sub-Saharan Africa MICs
Other middle income countries
Paved road density
10
78
106
131
Sub-Saharan Africa LICs
Other low-income countries
Sub-Saharan Africa MICs
Other middle income countries
Mainline density
6072 75
86
Sub-Saharan Africa LICs
Other low-income countries
Sub-Saharan Africa MICs
Other middle income countries
Improved water
Lack of diversification a major challenge
Share of manufactures in total exports Range (%)
2006 Number of countries
< 15 Algeria, Angola, Burundi, Benin, Burkina Faso, CameroonCote d’Ivoire, Malawi, Mali, Mauritania, Mozambique,Niger, SudanZambia
14
16-30 Egypt, Kenya, Tanzania, Uganda
4
31 and above Central African Republic, Ghana, Madagascar, Morocco, Senegal, South Africa, Togo Tunisia, Zimbabwe
9
Invest in innovation, especially in ICT and R&D
ICTs in Africa has proven to be an innovation frontier by combining state-of-arttechnologies with local customs and constraints through incremental innovations.
However, there is still more to be done to deliver more and better value added services to the poorest population :
• Expensive inland high capacity networks require government support
• Governments have to ensure that wholesale price drops are passed on
• Policies on ICT and Innovation are not yet well integrated in broader development strategies: Donor targets, MDGs and PRSPs.
• With many fixed-line operators close to bankruptcy, governments must attract private investment and knowhow to the fixed-line sector by adapting convergent licensing regimes and setting symmetric regulation of termination charges.
Economic and Institutional Reforms
• Strengthen financial and banking sector reforms
• Public management and public expenditure reform
• Revenue reform
Embrace Globalisation
Africa should pursue globalisation through:
– Enhanced competitiveness
– Reduction of barriers to trade
– Investing in logistics
– Fast-tracking regional integration
Thank you for your attention