Softening and increasingly volatile global economic conditions are expected to have only a moderate downward impact on sub-Saharan Africa this year and next. Growth is projected to remain robust at about 5 percent in 2013 and 6 percent in 2014, backed by continuing investment in infrastructure and productive capacity. This outlook is not as strong as portrayed in the May 2013 edition of this publication,1 reflecting, in part, a more adverse external environment—characterized by rising financing costs, less dynamic emerging market economies, and less favorable commodity prices—as well as diverse domestic factors. However, the magnitude of the revisions is modest (–0.7 percent of GDP on average in 2013 and −0.1 percent in 2014).
Africa’s growth takeoff since the mid-1990s is more than a commodity story. Several countries have achieved sustained high growth rates without that growth being driven by the exploitation of natural resource wealth. Reviewing the experiences of the six nonresource-intensive low-income countries (LICs) that registered the highest growth rates over the period 1995–2010 reveals a number of common characteristics that accompanied this growth success. Many of these characteristics have been previously identified as critical in the growth literature and help generate a virtuous circle of growth: improved macroeconomic management, stronger institutions, increased aid, and higher investment in both physical and human capital. Given that these countries started their growth takeoffs with similar or worse initial conditions than the group of low-growth, nonresource-intensive LICs and even some of the countries currently classified as fragile, their success holds important lessons for the rest of the region.
Throughout the past three years, the frontier market economies of sub-Saharan Africa have received growing amounts of portfolio capital flows.1 During the 2000s, sub-Saharan African frontier markets garnered growing interest from foreign investors, but heightened risk aversion from the Great Recession temporarily caused investors to retreat. Since 2010, continued positive macroeconomic performance, coupled with unprecedented accommodative monetary policies in advanced economies, renewed foreign investors’ interest on a much larger scale, resulting in sub-Saharan African frontier markets becoming more integrated with international capital markets. The number of sub-Saharan African countries with international credit ratings has increased, a large number of countries issued sovereign bonds—many of them for the first time—and foreign investors have become active players in some domestic bond and equity markets.
The financial system in the WAEMU remains largely bank-based. The banking sector comprises 106 banks and 13 financial institutions, which together hold more than 90 percent of the financial system’s assets (about 54 percent of GDP at end-2011). Five banks account for 50 percent of banking assets. The ownership structure of the sector is changing fast, with the rapid rise of foreign-owned (pan-African) banks. This contributes to higher competition but also rising heterogeneity in the banking system, with large and profitable cross-country groups competing with often weaker country-based (and sometime government-owned) banks. Nonbank financial institutions are developing quickly, notably insurance companies, but remain overall small. This paper presents a detailed analysis of the banking system.
International Monetary Fund. External Relations Dept.
Crisis Stalls Globalization: Reshaping the World Economy" examines the multiple facets of the recession-from the impact on individual economies to the effect on the global payments imbalances that were partially at the root of the crisis-and offers a variety of suggestions for supporting a recovery and averting future crises. Several IMF studies shed light on the depth of the crisis-including a survey of the sharp drop in trade finance, along with quantitative findings about the direct and indirect costs of the financial turbulence-and debate what is to be done from several angles, including the redesign of the regulatory framework and ways to plug large data gaps to prevent future crises and aid in the creation of early warning systems. Opinion pieces discuss the shifting boundaries between the state and markets, the agenda for financial sector reform, and the governance of global financial markets. The issue also includes a historical perspective to see when restructuring the global financial architecture actually succeeds. "People in Economics" profiles Nouriel Roubini; "Back to Basics" looks at what makes a recession; and "Data Spotlight" examines Latin America's debt.
The progress of 32 sub-Saharan African countries, from independence through December 1997, in liberalizing their financial sectors is the subject of IMF Occasional Paper 169, Financial Sector Development in Sub-Saharan African Countries, published in September 1998 (see IMF Survey, November 16, 1998, page 365). The paper also recommended how these countries could sustain and accelerate the modernization that is under way in many of them. Since the release of the Occasional Paper, the countries of the West African Economic and Monetary Union (WAEMU) (Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo) have implemented a number of measures that modify the overall picture of financial sector development.
For the third year in a row, sub-Saharan Africa (SSA) recorded growth in the 5-6 percent range (Chapter II). In 2006 economic growth was over 5 percent, and for 2007 a pick-up to 6-7 percent is expected, mainly due to higher production in the oil-producing countries (OPCs). Growth was equally strong in OPCs and non-oil-producing countries; more than half of non-oil-producing countries grew at 5 percent or more in 2006, and almost two-thirds are projected to do so in 2007. Nevertheless, some non-oil countries—including in the WAEMU (West African Economic and Monetary Union) zone and postconflict countries—failed to catch up to the regional average. The higher growth in the region is attributable both to positive external developments, such as strong foreign demand, and to strong domestic investment and productivity gains supported by sound economic policies in most countries.