AFRICA ECONOMIC OUTLOOK

Africa was the second fastest growing developing region in 2003 behind Eastern and Southern Asia. The continent’s performance was underpinned by rising prices of oil and other commodities, an increase in foreign direct investment (FDI) and good macroeconomic fundamentals, backed up by improved weather conditions. As a result, real GDP grew at 3.8% in 2003 compared to 3.2% in 2002.

These signs of progress are encouraging, although they fall short of the continent’s urgent need for much more rapid growth. Unfortunately, Africa is still a long way from achieving the 7% growth that is required to meet the principal Millennium Development Goal (MDG) of halving poverty by 2015:

• Only five countries – Angola, Burkina Faso, Chad, Equatorial Guinea and Mozambique – reached the 7% or higher growth rate in 2003.
• Out of 52 countries for which data are available, 16 registered growth of less than 4% while 7 recorded negative growth.
• The latter group consists of Zimbabwe (-11.2%), Ethiopia (-3.8%), Seychelles (-2.8%), Côte d’Ivoire (-2.3%), Guinea-Bissau (-1.8%), Central African Republic (-0.7%), and Burundi (-0.3%).
• The largest economies in the continent did, however, greatly improve their 2003 performance over that of 2002, with the single exception of South Africa.
• North African countries recovered from their severe droughts in 2002 and achieved a record-level growth rate of 4.8% in 2003, on the back of a combination of good weather, high oil prices and production, increased worker remittances and a recovery in tourism.
• Nigeria registered real GDP growth of 4.5% compared to 2.6% in 2002; this resulted from the Government’s expansionary fiscal stance, higher oil prices and production, bumper crops and the expanding benefits of the country’s political transition.
• The South African economy’s real GDP growth slowed to 2% in 2003 from 3% in 2002, reflecting the impact of a tight monetary policy and the currency’s appreciation, which eroded the international competitiveness of some products.

It was highly reassuring that Africa, overall, continued to exhibit better macroeconomic fundamentals in 2003:

•  Fiscal deficits were largely kept under control, despite the challenge faced by many countries of balancing increased spending for poverty reduction with the requirements of macroeconomic stability.
• Inflation rose slightly to 10.6% from 9.3% in 2002, reflecting higher food prices caused by poor weather conditions in some parts of Africa, increased oil-import prices and currency depreciation in several countries.
• The regional current account deficit fell from 1.6% of GDP in 2002 to 0.7% of GDP in 2003, thanks to robust oil and commodity prices, as well as high worker remittances.
• Out of the 44 African countries for which data are available, 10 had current account surpluses while 34 registered deficits in 2003. Of the deficit countries, 21 had deficits of over just 5% of GDP, down from 23 in 2002.

During 2003 there were significant improvements in several spots of political instability:

• Liberia pushed ex-President Charles Taylor into exile, raising hope that civil wars in neighbouring countries may now abate.
• In November, the Burundi Government signed a peace agreement with the main rebel group to end the country’s civil war and took steps to integrate former rebels into the democratic political process.
• Uganda and Rwanda withdrew from the DRC, setting the stage for reconciliation.
• Peaceful political transitions in Angola and the DRC were beginning to pay on. Angola attracted substantial FDI during the year with more to come in 2004 and grew by over 12%. The DRC is on a steady path to macroeconomic stability, with single-digit inflation in 2003 (down from more than 500% as recently as 2000), economic growth at over 5% and the benefits of debt relief under the Highly Indebted Poor Countries (HIPC) initiative.
• Continuing political instability in both Zimbabwe and Côte d’Ivoire is worrisome. In Zimbabwe, macroeconomic stability continued to deteriorate with inflation rising to 420% in 2003, the fiscal deficit reaching 7.1% of GDP and the economy contracting sharply for the fifth consecutive year.

The regional outlook for 2004 is again broadly positive and Africa’s overall growth is forecast to accelerate to 4.4%:

• This should be helped by an expected increase in agricultural output and the likely rise in commodity prices, including metals and minerals, because of higher demand spurred by global recovery.
• FDI inflows to Africa are expected to continue their upward swing, although they will most likely be concentrated in South Africa and in the oil-producing countries of the region.
• Many poorer countries can, meanwhile, hope for a boost in their economic activities from innovative debt relief mechanisms and more expeditious delivery of donor financial commitments under HIPC initiative.

However, downside risks remain:

• The recovery in the global economy is marred by significant international imbalances, in terms of the large current account deficit of the United States and the matching surplus concentrated in very few countries. Adjustment through sharp depreciation in the US dollar could lead to a drastic decline in consumption, import demand and investment in the US, which could seriously damage the momentum of global economic recovery.
• Moreover, the large current account deficit has spurred protectionist sentiments in the US. Africa has already felt the repercussions of the large cotton subsidies granted by the US and other Organization of Economic Co-operation and Development (OECD) countries. These have damaged the economic prospects of cotton-producing West African countries – costing Mali 1.7% of its annual GDP, Benin 1.4%, and Burkina Faso 1%.
• The failure of the Cancun trade talks during 2003 thwarted Africa’s hopes of better market access to industrial countries to help it trade its way out of poverty, and any further protectionist measures by developed countries could seriously harm Africa’s medium-term prospects.

Source. United Nations ECA