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Africa: Economic Outlook

AfricaFocus Bulletin
Jan 15, 2011 (110115)
(Reposted from sources cited below)

Editor's Note

According to the World Bank's Global Economic Prospects 2011, released on January 13, the GDP growth rate for Sub-Saharan Africa is projected at 4.7% for 2010, from a 1.7% low in 2009, increasing to 5.3% in 2011 and 5.5% in 2012. This compares to negative growth for the United States in 2009 (-2.6%) and weak recovery in 2010-2012 (2.8%, 2.8%, and 2.9%).

Equally notably, the best growth rates were for countries other than the region's largest economic power South Africa. Rates for South Africa, with a negative rate of -1.8% in 2009, are projected at 2.7% for 2010, 3.5% in 2011, and 4.1% in 2012. Other countries in the Sub-Saharan region, by contrast, grew an average of 5.8% in 2010, with 6.4% and 6.2% rates projected for 2011 and 2012 respectively.

The World Bank notes that the recovery is due in large part to trends in commodity prices, particularly for metals and minerals as well as for oil. But it also stresses the significance of domestic demand and of expanding investment in the region, including in manufacturing and telecommunications service.

As readers of AfricaFocus Bulletin are well aware, growth in GDP is hardly an adequate measure of sustainable economic advance and even less of equitable human development. Nor does the growth trend extend to all countries. But, the World Bank report notes, the growth trend extends to quite a few countries, including Nigeria, Angola, Kenya, the Republic of Congo, Ethiopia, Mozambique, Botswana, Zambia, Malawi, and Tanzania.

This AfricaFocus Bulletin contains excerpts from the report's regional annex on Sub-Saharan Africa. For the full text and other resources on Global Economic Prospects 2011, see http://www.worldbank.org/globaloutlook

For previous AfricaFocus Bulletins on economic issues, visit http://www.africafocus.org/econexp.php


Additional Note

Remember to visit the AfricaFocus Facebook page for more frequent updates on a variety of subjects. Recent links posted include articles on South Africa joining the BRIC group, and a background analysis on Tunisia from Al Jazeera, which has played a critical role in covering the events there.

Go to: http://www.facebook.com/pages/AfricaFocus/101867576407


Announcement

Books by AfricaFocus Editor now available as Google E-Books, at modest prices

Apartheid's Contras: An Inquiry into the Roots of War in Angola and Mozambique, 1994
http://books.google.com/books?id=iq970FthE0IC

Imperial Network and External Dependency: The Case of Angola, 1972
http://books.google.com/books?id=iDk1XRE7oNAC

King Solomon's Mines Revisited: Western Interests and the Burdened History of Southern Africa, 1986
http://books.google.com/books?id=hInY3fym7IkC

Operation Timber: Pages from the Savimbi Dossier, 1988
http://books.google.com/books?id=LY2LnKwXdcoC

Portuguese Africa and the West, 1974
http://books.google.com/books?id=6JH9Ix3qfLcC

No Easy Victories: African Liberation and American Activists over a Half Century, 1950-2000
Not yet available as e-book, but excerpts are available and print edition available at discount through
http://www.noeasyvictories.org

++++++++++++++++++++++end editor's note++++++++++++++++++++

Global Economic Prospects January 2011: Regional Annex

Sub-Saharan Africa

World Bank

January 13, 2011

[Excerpts: for full report, including tables and figures, visit http://www.worldbank.org/globaloutlook]

Recent developments

GDP in Sub-Saharan Africa is estimated to have expanded by 4.7 percent in 2010, up from 1.7 percent in 2009. Excluding the region's largest economy, South Africa, growth in the region is estimated at 5.8 percent in 2010, up from 3.8 percent in 2009.

While a resilient demand environment supported growth during 2009, the recovery in 2010 was bolstered by the external sector, through stronger export volumes, rising commodity prices, higher foreign direct investment and a recovery in tourism.

After falling sharply, regional export volumes rebounded during the second half of 2009 and into the first half of 2010, peaking in March 2010 at 13.6 percent above pre-crisis volumes. In line with the global slowing in trade, exports declined toward the middle of the year and as of July 2010, export volumes were only 2.2 percent above their pre-crisis levels. Excluding South Africa, whose exports were affected by the rand appreciation and labor strikes, export volumes in the rest of the region were 10 percent above pre-crisis levels in July.

Export volumes rebounded most strongly for metal and mineral exporters (up 34.7 percent, 18.2 percent for oil exporters and only 5.8 percent for agricultural commodity exporters. Partly as a result, growth in 2010 was strongest among mineral and metals exporters (6.5 percent), somewhat less strong among oil exporters (5.9 percent), and a weaker but nevertheless robust 5.7 percent among agricultural exporters.

Notwithstanding the rebounding in volumes the value of regional exports remains 26 percent below its August 2008 levels, because as they are yet to regain the extraordinary high levels of 2008. However, this mainly reflects weaker oil prices, as metals and mineral prices have recovered much of the declines endured during the crisis. As a result, while oil exporters revenues are off 40 percent, agricultural exporters were at their August 2008 level, and metal and mineral exporters were 4.8 percent above that benchmark.

Foreign earnings were also boosted by South Africa's hosting of the FIFA World Cup. Partly as a result, Sub-Saharan Africa, the only region to have experienced an increase in tourist arrivals in 2009, sustained that growth trajectory with a 16 percent increase in international arrivals during the first half of 2010 (UN World Tourism Organization, 2010). Tourism revenues were also up in major tourist destinations in the region (Cape Verde, Kenya Mauritius, Seychelles, and Tanzania).

Foreign direct investment is the most important source of private capital flows to sub-Saharan Africa. After declining by 12.3 percent in 2009, FDI recovered by 6 percent to $32bn in 2010. Indeed, foreign direct investment to the region has risen in six of the past eight years, reflecting increased investment interest in the region (UNCTAD estimates that the rate of return of FDI in Africa is the highest globally).

The bulk of this investment (40 percent) went to the three largest economies: South Africa, Angola and Nigeria. Nonetheless, over 50 percent of FDI goes to the smaller countries in the region, in marked contrast with portfolio flows, 90 percent of which go to the region's largest economies. Supported by the rise in metal and energy prices in recent years most of these flows went to the extractive industries sector. Beneficiaries of these flows cover a diverse range of countries including middle income (Congo, Ghana), low income (Mozambique, Zambia, Niger), post-conflict (Liberia, Sierra Leone) as well conflict countries (Guinea).

However, although most of the dollar value of FDI goes to the extractive sector, the manufacturing sector accounted for 41 per cent of the total number of greenfield investment projects during 2003-2009, including, for example, metals (9 per cent of the total), transport equipment (7 per cent) and food and beverage (6 per cent) (UNCTAD, 2009). Besides manufacturing the services sector is also another large recipient, particularly telecommunications, transportation and banking services. In June 2010, for instance, Bharti Airtel, an Indian company, completed the acquisition of Zain's mobile operations in Africa for $10.7bn, one of the largest acquisitions in 2010. Even though developed countries are the main source of foreign direct investment to the region, developing countries (including from elsewhere within Africa) are increasing their share of foreign direct investment within Africa.

...

Economic ties between Sub-Sahara Africa and Asia have been strengthening in recent years, and as a result, a number of African countries have benefitted from access to loans from Asian countries. Though overall totals are not available, some notable deals include: a September 2010 framework agreement between the Government of Ghana and the Chinese Development Bank and Chinese Exim Bank amounting to over $13bn; a loan between the Democratic Republic of Congo of up to $6bn with China in 2010. The majority of these loans were towards the financing of infrastructure-related projects such as roads, railways, power plants and economic zones. The Forum on Chinese and Africa Co-operation reports that since 2000 Chinese companies have built 60,000km of road and 3.5 million kw in generating capacity of power plants in Sub-Saharan Africa.

By the end of October portfolio flows to South Africa, the most liquid market in the region, had more than doubled to $6bn. They have supported a recovery in share prices and with it underpinned household consumption due to the increased wealth effect. The inflows have also accounted for the appreciation of the rand (8 percent against the dollar between January and December 2010, and 30% real effective appreciation since January 2009). The appreciation, while moderating domestic price increases has also reduced the competitiveness of South Africa's exports, in particular the manufacturing sector.

Thanks to the ongoing recovery in the U.S and in Europe, remittance flows to Sub-Saharan Africa, which remained nearly flat during the crisis, registered a modest 1 percent gain in 2010 to reach $21 billion. Remittance flows are important in supporting household consumption in a number of Sub-Saharan African countries, accounting for up to 22 percent of GDP in Lesotho and about 10 percent in Cape Verde, Senegal and Togo.

Improving domestic conditions also supported the rebound.

Despite improved external conditions, strong domestic demand - partly reflecting improved incomes due to higher commodity prices - meant that imports increased faster than exports and the contribution of net exports to GDP growth was negative in most Sub-Saharan countries, subtracting some 0.8 percent from aggregate 2010 GDP growth. However, the rebound is not a simple commodity story. Between 2000 and 2008 less than one third of Sub-Saharan African GDP growth was due to natural resources, with the bulk reflecting the rapid expansion of wholesale and retail trade, transportation, telecommunications, and manufacturing.

Part of the recent resilience reflects the implementation of countercyclical domestic demand policies in a number of countries. Many countries with adequate fiscal space (e.g. Kenya, Nigeria and Tanzania) went ahead with infrastructure programs despite the crisis in part because of multilateral and bilateral budgetary support and in part because good macroeconomic management and earlier debt relief meant that they had the fiscal space to pursue these plans despite the global recession. Indeed, though shut out from international capital markets, during the recession, many sub Saharan African governments were able to borrow from their domestic securities market to finance their fiscal plans.

As a result fiscal deficits in the region surged to 5.5 percent of GDP in 2009 from a surplus of 1 percent in 2008. Since then, the ongoing recovery is helping to bring down fiscal deficits. In 2010 fiscal deficits are estimated to have declined to 4.3 percent of GDP, with the decline being most marked among oil exporting countries (a fall from 6.8 percent in 2009 to 3.0 percent in 2010). Favorable weather conditions in Eastern and Southern Africa supported bumper harvest in a number of countries in the region, thereby providing support to household incomes as the agricultural sector remains the largest employer in most countries. For a number of countries in the region (e.g. Malawi and Zambia) the extension in farmer coverage of government input support programs contributed to favorable maize harvests. In West Africa, floods destroyed agricultural output in Benin, Togo and parts of Nigeria. On the other hand, a severe drought across the Sahel left many households in Niger insecure as crop yields failed.

...

With over 40 countries in the region it is a challenge to categorize growth performances within income groupings, regional blocks, and resource content of exports since performances remain heterogeneous even across each of these sub groupings. The following section will focus on recent growth performances among the largest and the fastest growing economies in the region.

In South Africa, the largest economy in the region, output in first, second and third quarters expanded at seasonally adjusted annualized rates of 1.7 percent and 3.1 percent and 2.6 percent respectively. Growth for 2010 is forecast at 2.7 percent, supported by a firming in domestic demand, reflected in the pick-up in wholesale and retail trade, and the recovery in house prices. ...

Nigeria's economy has continued on its robust growth path. This strong performance continued into 2010, with the first and second quarters registering 7.4 percent and 7.7 percent annualized growth. Growth in 2010 is expected at 7.6%. Though the rebound in the global economy helped, domestic developments were major factors. The relative peace in the Niger Delta region has boosted crude oil and natural gas production, while the non-oil sector has continued to grow strongly (contributing 70 percent of growth in 2009 for example). ...

Angola's GDP is estimated to have increased 3.0 percent in 2010, up from the 0.7 percent growth recorded in 2009. With oil accounting for over 50 percent of the Angolan economy, increased incomes from the stronger oil prices has underpinned the acceleration. However, large government payment arrears to the private sector had strong negative spillover effects in the non-oil economy, limiting economic growth in 2010. ...

The Kenyan economy returned to higher growth, thanks to a rebound in the agricultural and industrial sectors. The Kenyan economy is estimated to have grown 5.0 percent in 2010. The rebound in the agriculture sector has been supported by favorable weather conditions and an increase in the area under irrigation. Agriculture exports, particularly tea (up 50 percent in volume terms), has supported the upturn - although horticultural exports were hampered by the weak recovery in Europe and the Iceland volcanic ash crisis in April 2010 - which cut into time-sensitive deliveries.

Counter cyclical fiscal policy helped firm domestic demand in 2010, with government investing heavily in domestic infrastructure. The passing of the new constitution and the strengthening of regional integration efforts in East Africa has created new opportunities for businesses in Kenya. Remittance flows rose to $1.8bn in 2010. This amount was higher than each of the traditional foreign exchange earners: tourism, tea and horticulture. Kenya continues to benefit from the productivity gains that growth in its dynamic information and communications technology sector brings to its economy (e.g. banking, trade and health services etc). The ICT sector alone is estimated to have accounted for 13 percent of growth in Kenya's economy over the past decade.

Boosted by increased oil production and recovery in international oil prices, GDP growth for 2010 in the Republic of Congo is estimated at 10.3 percent, making it the fastest growing economy in sub-Saharan Africa in 2010. ...

Unlike other fast growing Sub-Saharan African economies, where growth has been supported by the minerals sector, Ethiopia's robust growth performance over the past couple of years, including a 9 percent increase in GDP during 2010, has been driven by the agricultural sector. The sector has benefitted from continuing government investment in roads, power projects and marketing networks, which has helped bring more small-holder farmers into the market. Generous incentives have also supported large scale commercial agriculture ventures, including in agro-processing. ...

Thanks to the recovery in exports, increased inflows of foreign direct investment and continuing donor support Mozambique's economy is estimated to have grown 7.8 percent in 2010. Export proceeds for the first six months of 2010 were up by 11 percent compared with the same period in 2009. This was mostly due to
an increase in world market prices for aluminum, which accounts for 56 percent of Mozambique's exports. ... high-inflation has cut into private consumption spending, as has currency depreciation viz-a-viz the rand (South Africa being a major source of imports (particularly food imports). In September the government reversed an earlier decision to increase the price of bread, other basic goods and utilities due to riots.

Botswana was one of the middle income countries in sub Saharan Africa that was severely hit by the crisis in 2009, due to the fall in diamond prices, its principal exports. The recovery in diamond prices has spurred a strong rebound in mining activity, which accounts for some 36% of GDP. Growth in 2010 is estimated at 7.8% in 2010. ...

A rebound in copper prices, bumper harvests, inflows of foreign direct investment and a strengthening services sector contributed to the robust 6.4 percent growth in Zambia for 2010. With the dollar price of copper rising 54 percent during the period January-November 2010 versus the same period in 2009, copper output increased to 720,000 metric tons the highest level recorded since the 1970's. Overall exports values increased by 28 percent for the first half of 2010. Further, thanks to a government fertilizer and seed subsidy program and favorable weather, maize harvest increased 42.1 percent in the 2009/10 season. ...

In spite of the slowdown in tobacco production, the main foreign exchange earner, the Malawian economy is estimated to have grown by 6.8 percent in 2010 on account of bumper maize harvests, aid inflows and rising uranium exports. Subsidies on fertilizers and hybrid seeds to farmers supported the boost in maize harvests. Prudent macroeconomic policies have also kept a lid on inflation, despite depreciation pressures.

Tanzania is expected to record a solid 7.0 percent growth in 2010, thanks to favorable developments in the services and minerals sector. With the recovery in the global economy, merchandise trade and tourism rebounded. Supported by developments in the gold sector, by August 2010, merchandise exports had reached $3.4bn up from the $2.5bn recorded in the same period in 2009. ...

Medium-term outlook

Sub-Saharan Africa is projected to grow at 5.3 percent and 5.5 percent in 2011 and 2012 respectively. Excluding South Africa, growth is projected at 6.4 percent and 6.2 percent for 2011 and 2012 respectively, making sit one of the fastest growing developing regions. Growth is expected to be driven by continued recovery in the global economy. Developments in domestic demand will continue to play a dominant role in supporting the growth process particularly through productivity spillovers from ongoing investments in telecommunications, banking, energy and transportation services. These projects are being financed through foreign and domestic sources. Over the forecast horizon an increasing number of Sub-Saharan African countries are likely to raise finance in international capital markets. Countries that have indicated an interest in doing
so over the forecast horizon include Nigeria, Angola, Kenya, Senegal, Tanzania, and Zambia.

...

The dollar value of remittances into Africa are expected to grow by 4.5 percent and 6.7 percent in 2011 and 2012 supporting the strengthening of household consumption.

Individual growth performances will vary across countries. Among the larger economies, South Africa should benefit from an improving global economy, ongoing public investment and firming up in consumer demand. South Africa's economy is projected to expand by 3.5 percent and 4.1 percent in 2011 and 2012 respectively. With R811bn (rands) targeted to improve infrastructure over the next three years, public investment is likely to provide support to the economy, including employment. However, higher growth levels would likely be needed to significantly reduce the high levels of unemployment (25.3 percent).

Nigeria is expected to continue its strong growth performance in 2011, with GDP expanding 7.1 percent before moderating in 2012 to 6.2 percent closer to its medium term trend growth rate. The non-oil sector should be a major driver of growth, benefitting from new offshore developments and an improved security situation in the Niger Delta area. The scaling-up of government spending on infrastructure will also reinforce growth prospects. However, the upcoming elections may however lead investors to hold-off investments until a peaceful transition is in place.

Notwithstanding efforts to diversify the economy from the oil sector, growth prospects over the forecast horizon in Angola will continue to be tied to developments in the oil sector. With oil prices projected to be broadly stable over the forecast horizon, the fiscal policy should cease to be a drag on growth. As a result, GDP is expected to expand by 6.7 and 7.5 percent in 2011 and 2012, respectively - potentially resulting in increased inflationary pressures.

Supported by increasing intra-regional trade and productivity benefits of ongoing infrastructure investments, Kenya's outlook remains favorable, with growth projected above trend at 5.2 and 5.5 percent in 2011 and 2012. However, droughts could hinder growth in the agriculture sector and private investment spending may also slow in the run-up to the 2012 election.

As oil production begins, Ghana is projected to be the fastest growing economy in sub-Sahara Africa, with a growth rate of 13.4 percent in 2011 and 10 percent in 2012. A recent revision to Ghanaian GDP data has raised estimates of its income 60 percent, suggesting that it is now a lower-middle-income country. Outside the oil sector Ghana's economy will still register strong growth, particularly in construction services as large infrastructure projects are carried out. The inflows from the oil sector, if not managed prudently, could discourage the incentive structure for agricultural exports.

Risks to the outlook

The main downside risk to the growth prospects of Sub-Saharan African countries stems from a possible faltering in the global economic recovery. Most countries have depleted the fiscal space they had created during the pre-crisis period, and have not had time to rebuild it. As a result, few would be able to conduct the kind of counter-cyclical policies that helped limit disruption during the past crisis should there be an early faltering of the recovery process.

...

With the agriculture sector being the largest employer in the region and contributing a large share of GDP in many countries in the region, unfavorable weather conditions, such as wide spread droughts, could threaten growth prospects by reducing output as well as dampening domestic demand, as food prices rise. A related risk is a spike in the prices of agricultural food products on international markets. Though many staples in the region are non-traded and their markets are mainly domestic in nature, some key commodities such as rice, flour, sugar and vegetable oil are imported in large quantities. As a result, a significant rise in the local currency cost of these internationally traded commodities could have a significant effect on the incidence of poverty and on growth prospects. Similarly, for oil importing countries, a spike in oil prices could lead to macroeconomic instability with its deleterious consequences on economic growth.

Over the forecast horizon, elections are scheduled to be carried out in at least a third of Sub-Saharan African countries. Though the past decade has seen an increase in the smooth transition of power in many countries in the region, there still remain a number of instances where the political developments leading to the elections and in its aftermath have been a deterrent to economic activity. In 2010 for instance, growth prospects in Madagascar, Comoros, Cote d'Ivoire and Guinea were severely dented by political unrest. Hence the evolution of the political cycle over the forecast horizon will be consequential to individual country growth outcomes.

...


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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