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Author(s):
International Monetary Fund
Published Date:
October 2014
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    ©2014 International Monetary Fund

    Cataloging-in-Publication Data

    Regional economic outlook. Sub-Saharan Africa. — Washington, D.C.: International

    Monetary Fund, 2003– v. ; cm. — (World economic and financial surveys, 0258-7440)

    Twice a year.

    Began in 2003.

    Some issues have thematic titles.

    1. Economic forecasting — Africa, Sub-Saharan — Periodicals. 2. Africa, Sub-Saharan — Economic conditions — 1960 — Periodicals. 3. Economic development — Africa, Sub-Saharan — Periodicals. I. Title: Sub-Saharan Africa. II. International Monetary Fund. III. Series: World economic and financial surveys.

    HC800.A1 R445

    ISBN-13: 978-1-49838-645-6 (paper)

    ISBN-13: 978-1-48439-230-0 (Web PDF)

    The Regional Economic Outlook: Sub-Saharan Africa is published twice a year, in the spring and fall, to review developments in sub-Saharan Africa. Both projections and policy considerations are those of the IMF staff and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

    Publication orders may be placed online, by fax, or through the mail:

    International Monetary Fund, Publication Services

    P.O. Box 92780, Washington, DC 20090 (U.S.A.)

    Tel.: (202) 623-7430

    Telefax: (202) 623-7201

    E-mail : publications@imf.org

    www.imf.org

    www.elibrary.imf.org

    Contents

    Editor’s note

    (October 20, 2014)

    Figure 2.6 on page 29 has been replaced; the new version includes panel titles that were inadvertently omitted from the original version.

    Abbreviations

    ADA

    Austrian Development Agency

    ADB

    Asian Development Bank

    AfDB

    African Development Bank

    AIDI

    Infrastructure Development Index

    BOT

    build-operate-transfer

    CPIA

    Country Policy and Institutional Assessment

    DAC

    Development Assistance Committee

    DFID

    United Kingdom Department for International Development

    DGIS

    Dutch Ministry of Foreign Affairs

    ECA

    Economic Commission for Africa

    EIB

    European Investment Bank

    EU

    European Union

    FDI

    foreign direct investment

    GDP

    gross domestic product

    G7

    Group of Seven

    HIPC

    Heavily Indebted Poor Countries

    ICT

    information communications technology

    IDA

    International Development Association

    IFC

    International Finance Corporation

    IMF

    International Monetary Fund

    KfW

    Kreditanstalt für Wideraufbau

    MDB

    multidonor budget

    MDGs

    Millennium Development Goals

    MDI

    multilateral development institution

    MDRI

    Multilateral Debt Relief Initiative

    MIGA

    Multilateral Guarantee Investment Agency

    MTEF

    medium-term expenditure framework

    NEPAD

    New Partnership for Africa’s Development

    NPV

    net present value

    OECD

    Organisation for Economic Co-operation and Development

    PAP

    Priority Action Plan

    PCG

    partial credit guarantee

    PFM

    public financial management

    PIDA

    Programme for Infrastructure Development in Africa

    PIDG

    Private Investment Development Group

    PPP

    purchasing power parity

    PPIs

    private participation in infrastructure

    PPPs

    public private partnerships

    PRSP

    Poverty Reduction Strategy Papers

    PSC

    public sector comparator

    PSI

    policy support instrument

    REO

    Regional Economic Outlook

    SECO

    Swiss State Secretariat for Economic Affairs

    Sida

    Swedish International Development Cooperation Agency

    SSA

    Sub-Saharan Africa

    WEO

    World Economic Outlook

    Acknowledgments

    This October 2014 issue of the Regional Economic Outlook: Sub-Saharan Africa (REO) was prepared by a team led by Céline Allard under the direction of Abebe Aemro Selassie.

    The team included Isabell Adenauer, Abdelrahmi Bessaha, Jorge Iván Canales Kriljenko, Juan Sebastian Corrales, Corinne Delechat, Ejona Fuli, Rodrigo Garcia-Verdu, Enrique Gelbard, Jesus Gonzalez-Garcia, Cheikh Anta Gueye, Farayi Gwenhamo, Cleary Haines, Mumtaz Hussain, Ulrich Jacoby, Emmanouil Kitsios, Rodolfo Maino, Daniela Marchettini, Mauro Mecagni, Bhaswar Mukhopadhyay, Dafina Mulaj, Marco Pani, Natalie Pouakam, Gustavo Ramirez, Francisco Roch, George Rooney, Juan Treviño, Rui Xu, and Etienne B. Yehoue.

    Specific contribution was made by Moataz El Said. Natasha Minges was responsible for document production, with typesetting assistance from Charlotte Vazquez. The editing and production were overseen by Joanne Johnson of the Communications Department with assistance from Martha Bonilla.

    The following conventions are used in this publication:

    • In tables, a blank cell indicates “not applicable,” ellipsis points (. . .) indicate “not available,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrepancies between sums of constituent figures and totals are due to rounding.

    • An en dash (–) between years or months (for example, 2009–10 or January–June) indicates the years or months covered, including the beginning and ending years or months; a slash or virgule (/) between years or months (for example, 2005/06) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY2006).

    • “Billion” means a thousand million; “trillion” means a thousand billion.

    • “Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).

    Executive Summary

    Staying the Course

    Growth in sub-Saharan Africa is expected to remain strong, at about 5 percent in 2014 and 5¾ percent in 2015. Solid growth will continue in the lion’s share of the region’s countries, driven by sustained infrastructure investment, buoyant services sectors, and strong agricultural production, even as oil-related activities provide less support. This overall positive outlook is, however, overshadowed by the dire situation in Guinea, Liberia, and Sierra Leone, where the Ebola outbreak is exacting a heavy human and economic toll. In a few countries, activity is facing headwinds from domestic policies, including in South Africa, where growth is held back by electricity bottlenecks, difficult labor relations, and low business confidence; and in Ghana and, until recently, Zambia, where large macroeconomic imbalances have led to pressures on the exchange rate and inflation.

    This baseline scenario of solid growth is nonetheless predicated on a number of increasingly potent downside risks being lifted.

    • Ebola outbreak. The Ebola outbreak could have much larger regional spillovers, especially if it is more protracted or spreads to other countries—with trade, tourism, and investment confidence severely affected. In addition, the security situation continues to be difficult in Central African Republic and South Sudan, and remains precarious in Northern Mali, Northern Nigeria, and the coast of Kenya.

    • Homegrown fiscal vulnerabilities in a few countries. Fiscal policy remains on an expansionary footing. In many countries, this reflects a time-bound increase to finance infrastructure and other development spending, at appropriately concessional terms. But in a few cases, particularly some frontier economies, wide fiscal deficits have been driven by rising recurrent expenditures. The risk is that the fiscal vulnerabilities that have emerged will eventually push these countries into a sharp and disorderly adjustment.

    • External risks. A marked slowdown in emerging markets would weaken demand for commodity exports from the region, with immediate negative effects on external and fiscal positions. The ensuing decline in activity prospects may lead to reduced appetite for investment, with more long-term implications on the growth momentum. Relatedly, a faster-than-expected tightening of global financial conditions could trigger a new bout of volatility. Risk aversion from foreign investors may lead to a reversal of sentiment toward the region and capital outflows, putting pressure on countries with large external financing needs, and forcing abrupt macroeconomic adjustments.

    Against this backdrop, the overriding policy objective remains sustaining high growth, but fiscal imbalances also need to be addressed in a few countries. As policymakers pursue development objectives to facilitate employment creation and inclusive growth, it will be important to pay heed to macroeconomic constraints. Increasingly, this will require striking the right balance between scaling up public investment in human capital and physical infrastructure and maintaining debt sustainability. Meanwhile, monetary policies should continue to focus on consolidating the reduction in inflation achieved in recent years, including by tightening in countries where there is rapid growth and persistent high inflation. In the few countries with acute macroeconomic imbalances, fiscal consolidation is necessary, but should avoid overly adverse consequences on the poor and vulnerable groups. In Ebola-affected countries, fiscal accounts are likely to deteriorate, and, where public debt is manageable, fiscal deficits should be allowed to widen temporarily.

    Building Resilience in Fragile States in Sub-Saharan Africa

    The second chapter in this report focuses on the complex process of transition out of state fragility. About a billion people, a third of them in Africa, live in fragile states—countries in which the government is impaired to deliver basic public services to the population and promote security and development. These countries have high poverty rates and often find themselves in a vicious circle of political instability or conflict, underdevelopment, and low capacity. Yet countries can, and indeed have, escaped from these conditions and built resilience, although the process was neither linear nor short.

    The chapter distills lessons from recent transition experiences in selected sub-Saharan African countries. Focusing on data for 26 countries and four case studies, it finds that some countries deemed fragile in the 1990s have made progress, while others have faced more severe difficulties or even regressed. Overcoming fragility requires a focus on a set of well-prioritized actions, namely a political settlement and improvements in economic conditions sufficient to prevent instability, strong leadership, and reforms centered on increased governance and transparency. International stakeholders should be prepared to engage with fragile countries on a long-term basis, both to provide aid and to support capacity building as needed. Finally, resource-rich countries face the urgent need to use commodity-based revenue to improve the delivery of basic services, invest wisely in infrastructure, set up an effective system of checks and balances, and promote an inclusive pattern of growth.

    Addressing the Infrastructure Deficit in Sub-Saharan Africa

    The third chapter seeks to identify policy options to close the significant infrastructure deficit in the region. Continued infrastructure development is critical to raise potential growth, accelerate economic diversification, and foster structural transformation. Unreliable electricity supply, in particular, is hampering the transition to higher productivity activities. While many countries have managed to sustain infrastructure investment levels, financed by a mix of domestic resources and external financing, outcomes have not always improved accordingly, suggesting limited investment efficiency. Regulatory and capacity constraints in project development and implementation are also important obstacles to boosting the quality of infrastructure investment and outcomes.

    Going forward, the policy challenge is to take advantage of the growing menu of financing modalities while controlling fiscal risks and maintaining debt sustainability. All three broad modalities for infrastructure financing—public investment, public-private partnerships, and purely private investment—come with advantages and pitfalls. As policymakers complement public investment efforts financed by taxation and debt instruments with support for more private participation in infrastructure, the potential resource envelope increases, but so does the institutional capacity requirement to mitigate potential fiscal risks. Overall, countries should seek to upgrade their investment planning and execution capacity, and overhaul regulatory agencies and policies.

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