- International Monetary Fund. African Dept.
- Published Date:
- April 2008
© 2008 International Monetary Fund
Chapter 4 ©2008 World Bank
Regional economic outlook : Sub-Saharan Africa – [Washington, D.C.] : International Monetary Fund, 2008.
p. cm. – (World economic and financial surveys)
Includes bibliographical references.
1. Monetary policy – Africa, Sub-Saharan. 2. Foreign exchange rates – Africa, Sub-Saharan. 3. Capital movements – Africa, Sub-Saharan. 4. Power resources – Africa, Sub-Saharan. 5. Africa, Sub-Saharan – Economic conditions – 1960- 4. Africa, Sub-Saharan – Economic policy. I. Title: REO. II. International Monetary Fund. III. Series (World economic and financial surveys) HC800 .R445 2008
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The following conventions are used in this publication:
In tables, a blank cell indicates “not applicable” and 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, 2005–06 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).
Africa Infrastructure Country Diagnostic
Annual Report on Exchange Arrangements and Exchange Restrictions
Association of South East Asian Nations
Bank of Tanzania
Central African Power Pool
Central African Economic and Monetary Community
Collective Investment Schemes
Common Market of Eastern and Southern Africa
Consumer price index
East African Community
East Asia and Pacific
East African Power Pool
Europe and Central Asia
Economic Community Of West African States
Economic Partnership Agreement
Foreign Private Capital Capacity-Building Program
Foreign direct investment
Global Competitiveness Index
Global Emerging Markets
Global Trade Analysis Project
Heavily indebted poor countries
Latin America and Caribbean
Millennium Development Goal
Multilateral Debt Relief Initiative
Middle East and North Africa
Net domestic assets
New Partnership for African Development
Official development assistance
Organization for Economic Cooperation and Development
Public financial management
Private Participation in Infrastructure
Purchasing power parity
Poverty Reduction and Growth Facility
Policy Support Instrument
Reserve Bank of Zimbabwe
Real effective exchange rate
Southern African Development Community
Southern African Power Pool
West African Economic and Monetary Union
West Africa Power Pool
The economic expansion in sub-Saharan Africa is expected to continue, but risks are tilted to the downside. Growth in sub-Saharan Africa should again average about 6½ percent this year, driven by oil exporters, while growth in other countries is slowing somewhat. Inflation is projected at about 8½ percent this year.
The external environment has become less favorable. The global economy is slowing down, oil prices have risen to record-high levels, and global financial markets are unsettled. This marks a shift from recent years, when demand for sub-Saharan African exports was healthy and nonfuel commodity prices were growing at double digits. Rising oil and food prices pose increasing challenges to many countries and threaten the inflation outlook. If high oil prices are accompanied by a pronounced slowdown in the global economy—bringing weaker non-oil commodity prices—the exports of sub-Saharan Africa will be harmed. In addition, while African markets have so far shown limited reaction to continuing turbulence in global financial markets, a reversal of portfolio flows would reduce external financing and hurt growth in a few countries. In light of these risks, there is about a one-in-five chance that in 2008 growth in sub-Saharan Africa will fall to less than 5 percent.
The Gleneagles commitment of the G-8 heads of state in 2005 to double aid to Africa by 2010 seems increasingly unlikely to materialize, as aid disbursements have so far not shown any significant increase.
Internal risks have increased in some regions. Postelection violence in Kenya led to shortages and price hikes not only in Kenya but also in neighboring countries. Despite the recent political progress, uncertainty remains about the extent of growth slowdown and the pace of recovery. The unrest in Chad has implications for neighboring countries as well. Careful management of the political and security situation and appropriate policy responses can help sustain the current expansion.
This Regional Economic Outlook: Sub-Saharan Africa has three analytical chapters:
Many African economies are adapting their monetary frameworks to preserve hard-won stabilization gains, anchor expectations, and adapt to shocks (Chapter 2). In countries with managed float regimes, the post-stabilization environment calls for a move, in many cases gradual, toward frameworks that place less weight on intermediate targets—notably money—and more on a broad range of indicators of expected inflation. In many of these countries, the nominal exchange rate plays a complex and often constructive role, but sustained efforts to use monetary policy to target the real exchange rate are likely to be counterproductive.
Private capital flows have overtaken official aid as the main source of external finance for sub-Saharan Africa (Chapter 3). This investor interest brings tremendous opportunities, but policymakers also face particular challenges in managing the inflows. Sound macroeconomic management, transparent capital account policies, and financial sector reforms will be essential both to encourage inflows and to ensure that these inflows go to productive uses while avoiding macroeconomic instability and the buildup of vulnerabilities. Countries need to quickly improve their capacity to monitor the inflows so they can design an appropriate policy response to the increased inflows and assess their economic impact.
The power sector in sub-Saharan Africa requires urgent attention (Chapter 4). Action on three major fronts is required: first, improving the effectiveness of power utilities; second, scaling up generation capacity; and third, expanding access to electricity. Simultaneous action will be required on all three fronts to improve energy supply, which is a bottleneck to growth in many countries.