Survey of Economic and Social Conditions in Africa 2004-2005

1. Survey of Economic and Social Conditions in Africa 2004-2005 For presentation at the Conference of African Ministers of Finance, Planning and Economic Development, 11-13 May 2005, Abuja, Nigeria by Prof. Augustin Fosu Director, Economic and Social Policy Division, ECA

2. Outline • Recent Economic performance • Growth performance by subregions • Fastest & slowest performers • Implications for the MDGs • Sources of growth • Internal • External • Some areas of concern • Medium-term prospects • Trends in poverty • Progress towards the MDGs targets • Policy interventions

3. African economic performance improves

4. Underlying factors for improved performance in 2004 • High international oil prices coupled with high oil production benefited most African oil exporters • Strong global recovery increased the demand for oil and most non-oil commodities • Better performance in agriculture across the continent though locust invasion adversely affected this sector in Mauritania, Mali, Niger and Senegal • Continued sound macroeconomic management • Improved political situation in many countries • Increased donor support in the form of aid and debt relief • Rising FDI, expansion in the industrial sector and growth in the tourism sector

5. Better performance in 3 of the 5 sub-regions Central Africa led subregional performance in 2004, followed by East Africa, North Africa, West Africa and, then,Southern Africa

6. Sub regional performance explained by… • Rising oil prices for North and Central Africa • Increased agricultural production, coupled with rising commodity prices for East and West Africa • Strong global and domestic demand for South Africa, partly due to its low interest rate, benefited Southern African sub region

7. Fastest and slowest performers in Africa • The fastest growing African countries in 2004 were Chad, Equatorial Guinea, Liberia, Ethiopia, Angola and Mozambique • Chad, Equatorial Guinea & Angola – oil • Ethiopia – recovery in agricultural sector • Liberia • post-conflict economy • substantial external aid in support of its rebuilding efforts Cont’d

8. Fastest and slowest performers… Cont’d • The slowest growing economies in Africa were Zimbabwe, Seychelles, Cote d’Ivoire, Central African Republic and Gabon • Zimbabwe - performance was hampered by drought and an adverse political environment • Cote d’Ivoire - continuing political turmoil • Gabon -despite the discovery of new oil fields & higher oil prices, a decline in oil production due to limited investments in upgrading existing fields

9. Real GDP growth rates, top 10 & bottom 5 African countries, 2004 (%)

10. Growth and MDGs • Achieving growth required to meet the MDGs remains a challenge for Africa • For instance, based on the recent 2000-2004 period, only four countries achieved the estimated 7% average annual growth rate required to meet MDG1: Equatorial Guinea, Chad, Mozambique, & Angola • However, 14 African countries have achieved an average annual growth rate of 5% or higher since 2000 • Equatorial Guinea, Chad, Mozambique, Angola, Sudan, Ethiopia, Rwanda, Liberia, Uganda, Burkina Faso, Mauritius, Senegal, Tanzania, & Botswana • Improved income distribution helps

11. Considerable gains by oil exporters

12. Internal Sources of Growth • Macroeconomic stability • Inflation declined • Fiscal deficits eased • Current account improved • Tourism on the rise • Good weather prevailed

13. External Sources of Growth • Strong global economic recovery • Rising export prices & volumes of most African commodities • ODA on the rise • FDI flows are up

14. ODA hit a new peak of US$26.3 Billion in 2003

15. FDI inflows to Africa …rebounding • Due to • High prices of most key commodities • Enhanced investor perceptions • But concentrated in natural resource sectors

16. Some areas of concern • Risk of currency appreciation • Low domestic savings • Weak domestic investment • Growth has so far not been translated into employment creation or poverty reduction

17. Medium-term outlook is positive Africa is projected to grow at 5% in 2005—highest in a decade

18. Upside factors • Improved agricultural production, assuming continued good weather conditions • Continued macroeconomic stability • Vibrant growth in the tourism and mining sub-sectors • Continuing strong oil sector • ODA, FDI and remittances are expected to increase • Continuing improving political stability in many African countries

19. Downside risks • Global growth is expected to slow down (mainly b/c of high oil prices) • High oil prices adversely affect oil importers by pushing up inflation • Continuing political tension (instability) in Cote d’Ivoire, Zimbabwe & Sudan

20. Has Africa’s growth translated into unemployment or poverty reduction? • As employment is a source of income for the poor, increasing employment opportunities is a critical element of poverty reduction initiatives • However, Africa’s growth has so far not been translated to employment creation or poverty reduction

21. Trends in poverty • SSA had the highest poverty rate in 2003 • With the exception of SSA, the poverty rate decreased substantially between 1980 & 2003 for all regions • SSA was the only region where the proportion of the “working poor” increased during 1980-2003 • Therefore, GDP growth in SSA has been barely enough to absorb population growth

22. Progress towards the MDGs targets • Unsatisfactory performance of SSA in creating jobs and reducing poverty puts doubts on achieving the overall targets of the MDGs • In fact, SSA’s overall performance (during 1990-2000) w.r.t. achieving the MDG targets has been disappointing (details later in the Issues Paper)

23. Policy Interventions • To achieve high & sustainable growth and proper distribution in Africa, policy interventions will be required at different levels: • economic • social • political

24. At the economic level, priority must be given to • minimizing dependency on the vagaries of the climate • reducing exposure to commodity price shocks via export diversification • consolidating macroeconomic stability • mobilizing domestic savings to finance investments • maximizing job creation by minimizing constraints to private sector investments and growth • minimizing the unpredictability of ODA flows • accelerating efforts at regional cooperation

25. At social level, interventions must be guided by • maximizing physical and financial access to health systems by the poor • addressing the adverse effects of major diseases • investing in education & training • addressing reproductive health & other gender-related issues • On the political front, the overriding objectives should be • securing peace and security • improving governance • making special provisions for the least-developed countries and post-conflict economies • optimizing global partnerships

26. Thank you!