Is African growth Is African growth sustainable?sustainable?

Louis KasekendeLouis KasekendeChief Economist, AFDBChief Economist, AFDB

Outline of Presentation and Key Outline of Presentation and Key MessagesMessages

1.Highlights of Macroeconomic 1.Highlights of Macroeconomic DevelopmentsDevelopments

Key Message: Economic Activity Key Message: Economic Activity continues on an Upward Trendcontinues on an Upward Trend2.Is Growth Sustainable?2.Is Growth Sustainable?

KeyKey Message: A Cautious Yes – at Message: A Cautious Yes – at least in the short term. But growth least in the short term. But growth not not high enough to attain MDGs ;other high enough to attain MDGs ;other emerging challengesemerging challenges

3. The role of AFDB and partners3. The role of AFDB and partners

1.Highlights of Macroeconomic 1.Highlights of Macroeconomic Developments Developments

IntroductionIntroduction

““Africa is ready for business” given its changed Africa is ready for business” given its changed landscape in recent years.landscape in recent years.

With sustained macroeconomic and structural With sustained macroeconomic and structural reforms, economic fundamentals are catching up reforms, economic fundamentals are catching up with other parts of the world. with other parts of the world.

Democracy is growing; conflicts have reduced Democracy is growing; conflicts have reduced significantly.significantly.

Pessimism on the continent is being replaced by Pessimism on the continent is being replaced by greater optimism - the 21greater optimism - the 21stst century will be the century will be the “African century”.“African century”.

Some Positive Developments with Some Positive Developments with Sources of Growth Sources of Growth

Progress towards Macroeconomic Progress towards Macroeconomic Stability Stability

External Conditions Favourable External Conditions Favourable Progress towards political stabilityProgress towards political stability

1) 1)

Africa: Inflation (Consumer Price Index, Percent) - 1998-2008

9.59.2

8.87.57.98.0

8.3

8.08.49.5 9.1

0.0

2.0

4.0

6.0

8.0

10.0

1998

1999

2000

2001

2002

2003

2004

2005

2006(e)

2007(p)

2008(p)

Years

Per

cen

t

Africa’s Economic Growth Rate Africa’s Economic Growth Rate continues on upward trend……continues on upward trend……

Macroeconomic management is Macroeconomic management is improving: Inflation under control improving: Inflation under control amid moderate rise; emerging varying amid moderate rise; emerging varying challenges...challenges...

GDP Growth 1998-2006

0.001.002.003.004.005.006.007.00

Africa Net Oil exporters Net Oil importers

Africa: Trade Balance (As % of GDP) - 1998-2008

-2.3

3.5

1.6

3.63.1

-1.2

1.2

4.74.3

2.3 3.1

-3.0-2.0-1.00.01.02.03.04.05.06.0

1998

1999

2000

2001

2002

2003

2004

2005

2006(e)

2007(p)

2008(p)

Years

Perc

ent

Public finance Public finance management is management is generally good and generally good and improving……. improving…….

External balances External balances are quite are quite stable……stable……

Africa: Fiscal Balance (As % of GDP) - 1998-2008

-4.1

-0.2

-2.5-1.9

0.1

2.4 2.0

-2.8

-2.8

3.22.7

-5.0-4.0-3.0-2.0-1.00.01.02.03.04.0

1998

1999

2000

2001

2002

2003

2004

2005

2006(e)

2007(p)

2008(p)

Years

Perc

ent

2.Is Growth Sustainable?2.Is Growth Sustainable?

Selected countries with real GDP growth above 5%; and Selected countries with real GDP growth above 5%; and real GDP per capita above 2%real GDP per capita above 2%

Rate of growth GDP per capita 2000-2006

0.0 5.0 10.0 15.0 20.0 25.0

Equatorial Guinea

Chad

Botswana

Sudan

Tunisia

South Africa

Nigeria

Namibia

Ethiopia

Algeria

Burkina Faso

Egypt

Rwanda

Uganda

Rate of growth GDP 2000-2006

- 5.00 10.00 15.00 20.00 25.00

Equatorial Guinea

Sierra Leone

Chad

Angola

Mozambique

Sudan

Tanzania

Botsw ana

Burkina Faso

Cape Verde

Uganda

Nigeria

Ethiopia

Rw anda

Mauritania

Ghana

FrequencyFrequency distribution distribution

Fewer countries recording negative growthFewer countries recording negative growth Increasing number growing at rates per capita above 2 % (34 Increasing number growing at rates per capita above 2 % (34

Countries) and at real rate above 5% (23 Countries)Countries) and at real rate above 5% (23 Countries) Population growth remains highPopulation growth remains high

Africa : Real GDP Growth Rates   

Africa : Real GDPper capita Growth Rates

 

(Number of Countries)       (Number of Countries)    

  1990 2000 2005 2006 a/     1990 2000 2005 2006 a/

Negative 16 9 1 1   Negative 25 20 4 8

0-3 9 16 12 12   0-1.5 10 10 13 5

3-5 13 12 13 15   1.5 to 5 12 17 29 32

Above 5 14 14 25 23   Above 2 14 17 31 34

Not available 1 2 2 2   Above 5 5 4 5 6

Total 53 53 53 53   Total 53 53 53 53

…….. African economies face major .. African economies face major development challenges and are still development challenges and are still vulnerable……vulnerable……

Meeting the MDGs – a major challenge for most African countriesMeeting the MDGs – a major challenge for most African countries Only 12% satisfactory rate towards reducing extreme poverty Only 12% satisfactory rate towards reducing extreme poverty

by halfby half

Global imbalancesGlobal imbalances Commodity prices volatility (increased oil prices, decreasing Commodity prices volatility (increased oil prices, decreasing

cotton prices…)cotton prices…) Exchange rate uncertainties: $ depreciation, euro Exchange rate uncertainties: $ depreciation, euro

appreciation, appreciation, Trade challenges: difficulties in reaching agreements on the Trade challenges: difficulties in reaching agreements on the

Doha Round; developing Africa’s capacity to trade; new Doha Round; developing Africa’s capacity to trade; new competitorscompetitors

Domestic sources of instabilityDomestic sources of instability Limited diversificationLimited diversification Unfinished reforms agendaUnfinished reforms agenda Natural Hazards – drought; locust invasionNatural Hazards – drought; locust invasion

………….Further Reforms and Policy .Further Reforms and Policy Actions Needed…….Actions Needed…….

Maintain Maintain stable macroeconomic frameworkstable macroeconomic framework Redefine sources of Growth Redefine sources of Growth Prudent use of windfall gains is essentialPrudent use of windfall gains is essential Increase momentum of structural reforms and Increase momentum of structural reforms and

improve investment climateimprove investment climate Regional cooperation and integration efforts Regional cooperation and integration efforts

need to be strengthenedneed to be strengthened More efficient use of resources for human More efficient use of resources for human

capital developmentcapital development More coordination between Development More coordination between Development

partnerspartners

3. The Role of the AfDB and 3. The Role of the AfDB and PartnersPartners

BackgroundBackground Africa’s premier financial institution, est. in 1964/AAA RatingAfrica’s premier financial institution, est. in 1964/AAA Rating Third largest source of multilateral assistance to AfricaThird largest source of multilateral assistance to Africa

Africa - Net ODA from Multilateral Donors - Ten Largest Donors, 1997-2004(As % of Net Total to Africa)

1.0

2.0

2.3

3.0

3.2

3.3

3.4

8.0

34.038.0

UNFPA

Other UN

unta

UNICEF

WFP

UNDP

UNHCR

AfDF

EC

IDA

Total Multiilateral ODA to AfricaUS $ 52.1 Billions

Strategic Orientation of the BankStrategic Orientation of the Bank Lending operations continue to focus on poverty Lending operations continue to focus on poverty

reduction and sustainable economic growth, but with a reduction and sustainable economic growth, but with a sharper focus onsharper focus on

Infrastructure Infrastructure Regional integrationRegional integration Private sectorPrivate sector GovernanceGovernance

In 2006, overall Bank Group approvals for loans, In 2006, overall Bank Group approvals for loans, grants, guarantees, equity investments and debt relief grants, guarantees, equity investments and debt relief amounted to US$3.9 billion amounted to US$3.9 billion

Fragile states: the Bank is taking a lead in engaging Fragile states: the Bank is taking a lead in engaging with fragile stateswith fragile states

The Bank is one of the prime movers in ensuring that The Bank is one of the prime movers in ensuring that key policy contours of NEPAD are clearly defined and key policy contours of NEPAD are clearly defined and implementedimplemented The Short-Term Action Plan (STAP) provides the The Short-Term Action Plan (STAP) provides the

primary basis for the Bank’s intervention in regional primary basis for the Bank’s intervention in regional infrastructure.infrastructure.

STAP is complemented with capacity building STAP is complemented with capacity building projects, infrastructure services and development and projects, infrastructure services and development and facilitation programs with investment projects worth facilitation programs with investment projects worth more than US$8 billion.more than US$8 billion.

For the medium to long term, the Bank is defining the For the medium to long term, the Bank is defining the NEPAD Infrastructure Medium to Long Term Strategic NEPAD Infrastructure Medium to Long Term Strategic Framework (MLTSF). Framework (MLTSF).

To fast track regional infrastructure project preparation a To fast track regional infrastructure project preparation a multi-donor Project Preparation facility( i.e. NEPAD multi-donor Project Preparation facility( i.e. NEPAD IPPF). Has been established.IPPF). Has been established.

By the end of 2006, funding of approximately USD 3.7 By the end of 2006, funding of approximately USD 3.7 million has been approved for the preparation of eight million has been approved for the preparation of eight physical projects.physical projects.

ConclusionConclusion

Africa doing better – due to favorable Africa doing better – due to favorable external environment but, as importantly, external environment but, as importantly, due to internal factorsdue to internal factors

Prospects for sustained improvement are Prospects for sustained improvement are goodgood

African countries need to deepen reforms African countries need to deepen reforms and carry out remaining structural reforms;and carry out remaining structural reforms;

Africa’s development partners should Africa’s development partners should maintain support in line with commitmentsmaintain support in line with commitments