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Africa: Economic Prospects, Obstacles
AfricaFocus Bulletin
Jan 27, 2006 (060127)
(Reposted from sources cited below)
Editor's Note
"Africa's real GDP is estimated to have grown by 5.1 per cent in
2005, roughly the same rate that was achieved in 2004. ... the
relatively high rates of growth recorded over the last five years
confirm the continued recovery of African economies. ... Thus far
[however] increased growth seems to have had a limited effect on
poverty reduction. In fact, growth has largely concentrated in
relatively capital-intensive sectors with little spillover effects
on employment creation and on the rest of the economy." - United
Nations
Several recent reports, including the United Nations World Economic
Situation and Prospects released this month and the annual report
from the Economic Commission for Africa (ECA) released in December
2005, confirm that African growth rates continue to exceed the
world average of 3.3 percent by almost two percentage points.
According to the UN Commission on Trade and Development
(http://www.unctad.org), foreign direct investment (FDI) in Africa
in 2005 increased by more than 50 percent over 2004, going from
$18.7 billion to $28.9 billion. The UN's new report estimated an
even larger increase in FDI, from $18 billion to $30 billion.
Each report, however, is careful to note several caveats, or, in
the words of a UN press release on January 25, some "jokers in the
deck." Most of the new investment in concentrated in oil and other
mineral sectors, notes the UN. And the ECA takes as the theme of
its report the failure of increased growth to have sufficient
impact on employment.
This AfricaFocus Bulletin contains excerpts from the press release
and from the section on Africa in World Economic Situation and
Prospects (http://www.un.org/esa/policy/wess/wesp.html)
and a press release from the ECA on its Economic Report on Africa 2005
(http://www.uneca.org/era2005).
For earlier AfricaFocus Bulletins on economic issues, see
http://www.africafocus.org/econexp.php
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Africa: the recovery is on, for now
(United Nations, Johannesburg, 25 January) "Steady growth in the
latter half of the 1990s and the relatively high rates of growth
recorded over the last five years confirm the continued recovery of
African economies," says the UN's latest annual world economic
report, projecting growth of 5.4 per cent in Africa in 2006.
Five per-cent growth in 2004 and 2005 was underpinned by a strong
performance of the agricultural sector and a general increase in
commodity prices, according to the UN's World Economic Situation
and Prospects 2006, launched regionally today.
The last two years also saw continued progress in macroeconomic and
structural reforms, including unification of foreign exchange
markets and better public expenditure and financial management.
Parliamentary and presidential elections in Burundi and Liberia in
2005, a peace agreement in Sudan and the sign-up by 23 countries
for the African Peer Review Mechanism (to monitor integrity and
transparency in government) underscore recent political gains on
the continent, and augur well for stability and improved economic
performance in 2006.
A return to stability in many countries in Sub-Saharan Africa and
strong outlook for commodities are encouraging a positive trend in
foreign direct investment. FDI in the continent swelled from $18
billion in both 2003 and 2004, to an estimated $30 billion last
year. Also brightening prospects are increases in official
development assistance, and a reduction in the stock of debt, says
WESP 2006.
Oil exports bolster many economies, but manufacturing little
improved
Aided by windfall oil earnings, gross domestic product (GDP)
expanded robustly in all North African countries except Morocco in
2005.
Oil earnings also helped Sub-Saharan exporters such as Angola and
Chad to achieve double digit GDP growth rates, and even in
conflict-wracked Sudan the economy managed to grow by 7 per cent.
In Mauritania, new oil fields are expected to come on stream in
2006.
Zimbabwe, Cote d'Ivoire and the Seychelles (where tourism suffered
a downturn) were the only countries in the region in which GDP is
estimated by WESP 2006 to have contracted in 2005.
Nigeria experienced slowing growth in 2005, but increased oil and
gas revenues enabled a current account surplus, and are being used
to upgrade infrastructure and aid economic diversification. South
African GDP grew by 5 per cent last year, driven by domestic demand
as well as export opportunities.
A major challenge across the region remains the still-lacklustre
status of the manufacturing sector. The sector absorbed additional
losses last year with the end of the Agreement on Textiles and
Clothing and increased competition from Asian textile mills. From
January to September 2005, for instance, the value of Sub-Saharan
textile and apparel exports to the United States dropped by 11 per
cent.
The losses exacerbated already very high unemployment in the
region, while growth of capital intensive commodity sectors did
little to create new jobs.
In all, several major threats to African recovery remain, including
the possibility of a worsening AIDS epidemic or an avian influenza
pandemic, or new civil conflicts. Moreover, commodity prospects for
the year ahead are mixed. The boom in raw materials is already
showing signs of weakening for some commodities. Furthermore, if
oil prices remain high or surge still further, the cumulative
inflationary impact will be felt more severely by net oil-importing
countries in 2006.
United Nations
World Economic Situation and Prospects 2006 (excerpt)
For full report, see
http://www.un.org/esa/policy/wess/wesp.html
Developing economies
The overall benign international economic environment supported
economic growth in developing countries, which reached 5.7 per cent
in 2005 after having recorded 6.6 per cent in 2004. The slowdown
albeit moderate was present in most regions and related to the
deceleration in the global economy because of the maturing of its
cyclical recovery. Owing to increased globalization and economic
integration, external demand conditions are becoming progressively
relevant for growth in developing countries, while domestic demand
remains constrained or subdued in many economies. Africa was the
exception to this general deceleration in developing countries, as
the region was able to maintain its economic performance thanks to
favourable conditions in agriculture and higher prices and volumes
for the main exports of the region. ...
The outlook for oil-importing developing countries remains
positive, despite the fact that the expected persistence of high
oil prices will negatively affect their terms of trade and put
stronger upward pressure on inflation rates. In 2006, developing
countries are expected to keep up the current rate of growth and
expand output by 5.6 per cent.
Africa: GDP growth continues to be robust
Africa's real GDP is estimated to have grown by 5.1 per cent in
2005, roughly the same rate that was achieved in 2004. Steady
growth in the latter half of the 1990s and the relatively high
rates of growth recorded over the last five years confirm the
continued recovery of African economies. Growth in 2005 was
underpinned by the same factors that drove growth in 2004. The
agricultural sector had a good overall performance, which benefited
Africa in the aggregate, although several countries suffered from
drought and other setbacks, such as the locust invasion in West
Africa in 2004 that affected crop yields in 2005. Continued
progress in macroeconomic and structural reforms, including the
unification of foreign exchange markets and better public
expenditure and financial management, and a high degree of
macroeconomic stability in a large number of countries encouraged
economic activity and improved economic welfare. Parliamentary and
presidential elections in Burundi and Liberia, and the signing of
a peace agreement in the Sudan, improved the growth prospects of
those countries and underscored recent gains made throughout Africa
in strengthening civil and political governance.
The region also benefited from a supportive international economic
environment. Higher oil prices and buoyant world market prices of
some of Africa's main non-fuel, primary export commodities
contributed to growth in export earnings and GDP. Increased FDI and
official development assistance (ODA) inflows and a reduction in
the stock of debt were also factors supportive of growth. Growth is
expected to be sustained at 5.5 per cent in 2006. The favourable
factors underlying the current growth performance are unlikely to
change substantially in the outlook, despite some risks discussed
below.
GDP expanded robustly in North African countries in 2005, except in
Morocco, owing to the poor performance of its agricultural sector
and a contraction in textile and clothing exports. Increased oil
and gas exports (in both value and volume) underlined Algeria's GDP
growth. ... Egypt's GDP growth in 2005 was largely explained by the
rise in oil prices, strong performance in the services sector and
an increase in domestic demand following the reduction of customs
duties and income tax rates.
Economic growth in sub-Saharan Africa (excluding Nigeria and South
Africa) averaged 5 per cent in 2004 and 2005 and is expected to
remain at roughly the same rate, possibly with a slight
acceleration, in 2006. Most countries in this subregion will
achieve GDP growth rates in the range of 3 to 7 per cent.
Oil-exporting countries such as Angola and Chad grew at
double-digit rates in 2005 (and the Sudan at a slightly lower rate
of 7.0 per cent) as a result of higher export volumes and stronger
domestic spending. Mauritania will also join the group of
fast-growing economies in the region when new oil fields come on
stream in 2006.
Nigeria's GDP growth decelerated in 2005, but increased oil and gas
export revenues enabled the country to run a current-account
surplus. Part of the increase in revenues is being used to upgrade
infrastructure in order to lay a solid foundation for future
growth. Additionally, agriculture has been the focus of recent
policy measures to promote economic diversification and the
revitalization of sectors other than the hydrocarbons sector.
South Africa's GDP grew by 5.0 per cent in 2005, driven mainly by
growth in real domestic expenditure owing to rising real incomes,
low interest rates and moderate inflation. Strong global demand
boosted exports, although the current account remained in deficit
because of faster import growth. The high unemployment rate
(officially reported at 26.5 per cent) remains a major challenge
and was further complicated in 2005 by a large influx of illegal
and unskilled workers from neighbouring countries and a large
outflow of skilled workers constituting a "brain drain" to the rest
of the world.
Cote d'Ivoire, Seychelles and Zimbabwe were the only African
countries where GDP contracted in 2005. Economic decline in C“te
d'Ivoire and Zimbabwe was associated with political instability and
civil unrest, while the economy of the Seychelles contracted as the
result of weak domestic demand and decreased tourism revenues.
Despite the overall benign external environment, there was a
decline in manufacturing output in countries heavily dependent on
textiles and clothing exports, owing to the end of the Agreement on
Textiles and Clothing (ATC) in January 2005 and increased
competition from low-cost producers in China and other Asian
countries (see chapter II). For example, from January to September
2005, the value of sub-Saharan African textile and apparel exports
to the United States dropped by 11 per cent compared with the same
period in 2004.4 Thousands of jobs were reportedly lost in Lesotho,
Madagascar, Malawi, Mauritius, Swaziland and South Africa as a
result of the contraction of the textile sector, with little
opportunity for the displaced workers to be absorbed in other
sectors of the formal economy. ...
Africa's average inflation remained at low double-digit rates in
2005. Increased inflationary pressures, however, were recorded in
countries such as Ghana, Guinea, Malawi, Zambia and Zimbabwe that
faced currency depreciation and/or the immediate pass-through of
higher imported oil and food prices to consumers.
The commitment of Africa to economic and political reforms was
further underscored as 23 African countries have signed up for the
African Peer Review Mechanism (APRM) as of November 2005. The main
objective of the APRM exercise is to encourage integrity and
transparency in political and economic governance of individual
countries and thereby secure the confidence of external development
partners and foreign investors in the sustainability of African
reform efforts. It is hoped, in particular, that the APRM process
will eventually confirm Africa as a desirable destination for FDI.
In 2005, the fi rst stage of APRM reviews was conducted for two
countries (Ghana and Rwanda).
The external debt situation of Africa improved in 2005 and is
expected to improve further in 2006 owing to higher export
earnings, continued debt relief and more active debt management.
The G-8 proposal to write off multilateral debt owed by the heavily
indebted poor countries (HIPCs), emanating from the July 2005
Gleneagles Summit, is expected to facilitate long-term debt
sustainability in many African countries if commitments are met
(see chapter III). The decision of Algeria, Nigeria and other
African oil-producing countries to use their windfall oil earnings
to repay some of their debt ahead of schedule also enhanced their
debt sustainability.
Despite the relatively positive aggregate economic performance,
African economies are faced with fundamental challenges that
require attention if better and faster growth is to be achieved in
the future. The aggregate rate of growth has remained below 7 per
cent, which the Economic Commission for Africa (ECA) and the World
Bank estimate as the minimum average rate at which sub-Saharan
African countries need to grow in order to achieve the first
Millennium Development Goal of halving poverty on the continent by
2015. Thus far, increased growth seems to have had a limited effect
on poverty reduction. In fact, growth has largely concentrated in
relatively capital-intensive sectors with little spillover effects
on employment creation and on the rest of the economy. Moreover,
its benefits have been unequally shared owing to the pattern of
income distribution of the region (Africa is the region with the
second highest inequality in the world after Latin America). In
addition, pandemics such as HIV/AIDS and malaria continue to exert
tremendous pressure on Africa's productive resources, which might
impose additional constraints on the long-term growth prospects of
some of the more seriously affected countries.
There are a number of downside risks to economic growth in 2006.
First, prolonged high oil prices over the next one to two years
will have a stronger inflationary impact on most African economies.
Despite the higher oil prices, many countries registered terms-oftrade
gains owing to increased commodity prices (particularly
minerals and base metals) and lower prices of imported
manufactures, thus offsetting inflationary pressures until
recently. Price gains of some commodities, however, weakened in
2005 (see chapter II). Many net fuel importers will therefore be
hit if oil prices remain high. This additional burden could be
severe since, in some countries, oil imports account for up to 50
per cent of their total import bill. Second, a possible disorderly
adjustment of the current-account deficit of the United States
could seriously undermine exports and growth in many African
countries, as this might entail a significant depreciation of the
dollar and contraction of United States imports. Third, African
countries will face increased competition in global markets for
textiles and apparel from lower-cost producers as the impact of the
elimination of the ATC continues to unfold. Fourth, continued
tensions in C“te d'Ivoire, the Ethiopian-Eritrean border, the
Darfur region of the Sudan and Zimbabwe are a source of great
concern and could jeopardize progress made in reducing conflicts
and improving civil and political governance in a large number of
African countries in recent years. Fifth, the eventual reduction
and/or removal of market-distorting subsidies on agricultural
products within the framework of WTO negotiations may benefit some
African agricultural exporting countries in the longrun, provided
they are able to compete in global markets. Many net food
importers, however, are likely to suffer from higher food prices in
the short term. Finally, African economies remain vulnerable to
weather shocks, and the projected increased growth rate would have
to be revised downwards if bad weather were to seriously affect the
agricultural sector.
Economic Report on Africa 2005: Job creation lies at the heart of
the poverty battle
ECA Press Release No. 21/2005
http://www.uneca.org/era2005
ECA Communication Team PO Box 3001, Addis Ababa, Ethiopia
Tel: +251 11 551 58 26; Fax: +251 11 551 0365
Email: ecainfo@uneca.org;
A new report by the Economic Commission for Africa (ECA) shows that
despite record economic growth in Africa, poverty is actually
getting worse.
The Economic Report on Africa 2005 (ERA 2005), ECA's flagship
publication, this year is entitled "Meeting the Challenges of
Unemployment and Poverty in Africa". It analyses the vicious cycle
of inadequate economic performance and high unemployment.
Despite showing signs of rapid change, at a record 5.2 percent
growth in 2005, Africa's economy is dampened by record unemployment
and higher rates of poverty than ever before. The implication is
that poverty has been unresponsive to economic growth.
"As long as people are kept from participating in the economy as
productive agents, people will continue to benefit only sparsely to
whatever growth is actually achieved," said Augustin Fosu, the
director of ECA's Economic and Social Policy Division which
prepared the report.
And the record growth rate is still not enough. For a significant
reduction in poverty, it must climb still further to over 7 percent
a year on average.
"The volatility of growth has added to the vulnerability of the
poor," said Fosu. "Only a few countries in Africa have sustained
growth over the years, though many have reformed and are on the
right track."
"And sustained growth is precisely what is necessary in order to
increase employment and reduce poverty," he added.
The report focuses on four key challenges for Africa in the fight
against unemployment and poverty: structural transformation to
break away from the under-utilization of rural labour, addressing
widespread youth unemployment, harnessing globalization to create
decent jobs, and creating an enabling environment for the fast
expansion of private sector jobs through increased investments.
The report stresses that it is up to governments to transform
African economies, particularly by taking advantage of
opportunities presented by globalization. It says the key to this
turnaround is political leadership, prioritizing broad-based job
creation in national development programmes.
But with little data to engage the cause, planning bodies lack the
evidence to support the urgency of placing employment at the core
of poverty reduction strategies and development policies.
Furthermore, labour absorption has been low in the fast-growing
sectors, such as oil and other extractive industries. Most people
are employed in sectors such as agriculture, which provide only
seasonal temporary employment, and rarely lead to income security.
The distribution of opportunities created by economic growth is
also slim. Poor people lack the capacity to meaningfully
participate in the economy, either as producers of goods and
services or as suppliers of labour.
So in many cases, poverty is deepening, while education and
healthcare are deteriorating.
The onus is now on governments to prioritize income generation
programmes and extensive education campaigns, in order to bring
Africans into the playing field, transforming them into
participants of their own economic success.
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with
a particular focus on U.S. and international policies. AfricaFocus
Bulletin is edited by William Minter.
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