Chapter

1. Keeping the Pace

Author(s):
International Monetary Fund. African Dept.
Published Date:
October 2013
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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).

Most of the major risks to the outlook for the region stem from external factors. Large but plausible temporary international commodity price shocks would not derail average headline growth in sub-Saharan Africa, but growth and current account balances could be significantly affected in some resource-intensive countries. Other risks to the outlook include further weakening in emerging market economies (including some of sub-Saharan Africa’s new economic partners) or in advanced economies. Home-grown hazards, such as those related to weather-driven supply shocks or political events, pose important risks to individual countries and perhaps their immediate surroundings, but are less of a regional threat.

The recent widening of the current account deficit in many countries in sub-Saharan Africa reflects, in most cases, increased investment in export-oriented activities and infrastructure. To a significant extent the increased deficits are being financed by foreign direct investment (FDI) and capital transfers. Nevertheless, there are some economies in which the deficits have been accompanied by lower saving or higher external borrowing, giving rise to some concern.

Fiscal deficits have remained elevated in a large set of countries since the global crisis. Although in most countries government debt remains manageable, a few cases now need fiscal consolidation to ensure sustainability of the public finances in the medium term or to rebuild buffers. In many low-income countries, revenue mobilization remains a priority to provide resources for social and capital spending. Monetary policy settings seem appropriate in most countries, as inflation continues to moderate in an environment of benign food price dynamics.

Looking ahead, policymakers should focus on structural reforms for growth and inclusiveness, and will need to grapple with the risks of a lasting reduction in momentum in commodity prices as the world economy transitions toward a new configuration of growth drivers.

International Context

After sluggish growth in 2013, the global economy is expected to pick up in 2014. The near-term outlook for the global economy presented in the IMF’s October 2013 World Economic Outlook (WEO)—with world output growth of 2.9 percent and 3.6 percent in 2013 and 2014, respectively—is more subdued than in the April 2013 issue, which projected the world economy to grow 3.3 percent in 2013 and 4.0 percent in 2014 (Figure 1.1).2 Despite the retreat of large threats such as the U.S. fiscal cliff in 2012, volatility has risen again in the course of 2013.

Figure 1.1.World Economic Forecast Revisions

(Percent change from April 2013 World Economic Outlook forecast)

Source: IMF, World Economic Outlook database.

The global outlook reflects, in any case, a variety of prospects for the main economies:

  • The U.S. economy has continued to recover, to the point that its monetary authorities indicated in May that they would consider starting a tapering of their program of monetary stimulus beginning in 2013. However, in its September meeting, the Federal Open Market Committee decided to maintain its level of stimulus unchanged for the time being in view of renewed fiscal risks and other domestic news.

  • Although Europe appears to be finally out of its recession, it is growing more slowly than projected in April. Meanwhile, Japan seems to be responding well to policy stimulus, but could still lose momentum in 2014 as the stimulus wanes.

  • China and other emerging market economies, which have become increasingly important in the global economy and for sub-Saharan Africa in particular, have shown signs of slowing down.

Although remaining at levels above their historical norms, commodity prices have experienced large volatility in recent months, and are projected to be weaker during the next few years than had been anticipated only a few months ago. For example, the highly volatile petroleum spot price, after recovering from the postcrisis trough in 2011, hovered around US$100 a barrel for a substantial period, before rising again on geopolitical fears. By end-August, gold prices had declined by 18 percent and copper prices by 26 percent from their recent peaks—although gold and industrial metal prices recovered some ground after the postponement of tapering by the U.S. Federal Reserve. Iron ore and coal prices have been on a declining trend since late 2010. Coffee prices were hit hard by oversupply and plunged 39 percent from the peak in the second quarter of 2011. In recent months, maize prices dropped 11 percent from the peak, and wheat prices 12 percent, a positive development for many countries in sub-Saharan Africa that rely on imported food (Figure 1.2).

Figure 1.2.International Commodity Prices

Sources: IMF, Commodity Price System; and World Bank Commodity Markets database.

Against this backdrop, one of the potentially most important questions for sub-Saharan Africa pertains to the sustainability of high growth rates in emerging market economies. As noted in previous issues of the Regional Economic Outlook: Sub-Saharan Africa (REO), the gradual reorientation of sub-Saharan Africa’s trade toward new emerging market partners has been beneficial during recent years as traditional partners have struggled to recover from the effects of the Great Recession. A sustained deceleration in these economies—particularly China—could pose some challenges for sub-Saharan Africa as it attempts to sustain its own vigorous growth, especially in the context of subdued prospects for overall global growth (Box 1.1 and Figure 1.1).

Finally, tightening liquidity in global financial markets since May this year has reduced or reversed portfolio flows to most emerging and frontier markets, including in sub-Saharan Africa. Expectations that the U.S. Federal Reserve would start winding down its unconventional monetary policy led to a repricing of risks in June, triggering portfolio outflows from emerging and developing countries. Domestic and foreign currency yields rose by about 1–2 percentage points, currencies depreciated across the emerging market universe, and equity prices fell. After some respite in July, tensions in financial markets returned in August, but more selectively—to emerging markets with significant external deficits.

The Regional Outlook: Baseline Scenario

Activity is projected to remain robust, but changes in the global environment and domestic developments suggest for 2013 somewhat less buoyant growth, generally lower inflation, and higher current account and fiscal deficits than envisaged in May 2013. Growth is expected to increase in 2014.

Sub-Saharan African growth has been revised down moderately for 2013, but is expected to remain robust (Table 1.1 and Figure 1.3). The region’s economy is expected to grow on average by 5 percent this year, a rate that would be equivalent to the 70th percentile of the distribution of growth forecasts across IMF members (Figure 1.4). Growth is expected to be particularly strong in mineral-exporting and low-income countries, including Côte d’Ivoire, the Democratic Republic of the Congo, Mozambique, Rwanda, Sierra Leone, and a few others. Among the domestic factors dampening growth projections for 2013 in some oil countries are delays in budget execution in Angola, and increased oil theft in Nigeria that led to the temporary shut-down of some operations. Among fragile countries, a large contraction is expected in the Central African Republic (associated with civil unrest).

Table 1.1.Sub-Saharan Africa: Real GDP Growth(Percent change)
2004–08200920102011201220132014
Sub-Saharan Africa (Total)6.52.65.65.54.95.06.0
Of which:
Oil-exporting countries8.54.96.76.15.36.17.7
Middle-income countries15.1−0.84.04.83.43.03.6
Of which: South Africa4.9−1.53.13.52.52.02.9
Low-income countries17.35.17.16.56.26.36.9
Fragile countries2.53.34.22.47.05.47.2
Memo item:
Sub-Saharan Africa26.52.65.65.55.14.85.7
World4.6−0.45.23.93.22.93.6
Source: IMF, World Economic Outlook database.

Figure 1.3.Sub-Saharan Africa: Growth Forecast Revisions Relative to April 2013

Source: IMF, World Economic Outlook database.

Figure 1.4.Sub-Saharan Africa: Real GDP Growth and Percentile in the World Distribution of Growth

Source: IMF, World Economic Outlook database.

1Percentile of the weighted average growth rate in sub-Saharan Africa in the distribution of IMF member country growth rates.

In South Africa, the region’s largest economy, real growth in 2013 is projected at 2 percent, well below the regional average. Relatively slow growth in South Africa reflects lower potential growth than in oil exporters and low-income countries—arising from the relative maturity of South Africa’s industrial, extractive, and services sectors, and binding structural bottlenecks—as well as cyclical factors. The current slowdown in particular reflects anemic private investment resulting from the weak external environment and tense industrial relations, as well as moderate consumption owing to slowing disposable income growth and weakening consumer confidence. Spillovers from the slowdown in South Africa into sub-Saharan Africa are expected to affect mostly its immediate neighbors in the Southern African Development Community, especially those in the Southern Africa Customs Union (SACU), where trade and financial linkages are concentrated. SACU members could be affected if remittances from their nationals working in South Africa and South African trade taxes (the bulk of shared revenues in SACU) were to underperform. Beyond SACU, trade linkages to South Africa are relatively small, because that country is not a significant buyer of sub-Saharan African goods. In contrast, sub-Saharan Africa is an increasingly important export market for South African manufactures and services, facilitated in part by the ongoing expansion of South African retailing, financial, and construction firms in the region. The effect of a slowdown in South Africa on outward FDI into the rest of sub-Saharan Africa is unclear, as adverse domestic conditions can encourage some South African companies to step up their investment abroad (see October 2012 REO).

In 2014, average growth in sub-Saharan Africa is expected to pick up by about 1 percentage point (Table 1.1). The main factor behind the continuing underlying growth in most of the region is, as in previous years, strong domestic demand, especially associated with investment in infrastructure and export capacity in many countries. The improvement relative to 2013 reflects higher global growth—especially in Europe—and other expected favorable domestic conditions. For example, in Nigeria oil production is expected to increase in 2014, and electricity reform is advancing.

Inflation in the region is expected to remain moderate in 2013–14, reflecting continuing disinflation in low-income countries and benign prospects for food prices (Figure 1.5). Headline inflation in sub-Saharan Africa has been on a declining trend since early 2012, facilitated by a slowdown and occasional reversal in food price inflation and the maintenance of tight monetary policies in some previously high-inflation economies. Nevertheless, in a few countries inflation remains in double digits, reflecting a diverse set of circumstances, including transportation bottlenecks in neighboring countries (Burundi), sustained money growth (Eritrea), inertia during a gradual slowdown (Guinea), and currency depreciation (Malawi).

Box 1.1.Africa’s Rising Exposure to China: How Large Are Spillovers through Trade?

Rising linkages with China have supported growth but also expose sub-Saharan African countries to potentially negative spillovers from China if its growth slows or the composition of its demand changes. In recent years, China has become the largest single trading partner for the region and a key investor and provider of aid (see the October 2011 Regional Economic Outlook: Sub-Saharan Africa).

How large are the spillovers? Drummond and Liu (forthcoming) use panel data to analyze the way in which China’s domestic investment has affected sub-Saharan Africa’s export growth during the past 15 years. They find that a 1 percentage point increase in China’s real domestic fixed asset investment (FAI) growth has tended to increase sub-Saharan Africa’s export growth rate on average by 0.6 percentage point (see Figure 1.1.1, which shows the effect of a one standard deviation shock to FAI); but the intensity varies by country group. For example, this effect is larger for resource-rich countries in sub-Saharan Africa, especially oil exporters, which account for a large share of the region’s exports to China. Part of the effect is indirect, working through the impact of Chinese investment on global growth and commodity prices. But direct trading links are also important. For the top five resource-rich sub-Saharan African countries ranked by exports to China as a share of GDP—Angola, South Africa, the Republic of Congo, Equatorial Guinea, the Democratic Republic of the Congo—a 1 percentage point increase in China’s domestic investment growth is accompanied by a 0.8 percentage point increase in their export growth rate.

Figure 1.1.1.Impact of China’s Investment on Sub-Saharan African Countries’ Export Growth

Sources: IMF, World Economic Outlook database; and IMF staff calculations.

This box was prepared by Paulo Drummond and Estelle Xue Liu.

Figure 1.5.Sub-Saharan Africa: Food and Nonfood Inflation

Sources: IMF, African Department database; and IMF, International Financial Statistics.

Despite a continuation of prudent monetary policies, broad money is projected to increase at a somewhat faster pace in 2013 relative to 2012 on average for the region, prompted by increased money demand and an accumulation of reserves, and to slow down somewhat in 2014. Money growth decelerated in 2012, broadly reflecting prudent monetary policies and limited lending to the public sector, even as private sector credit continued to accelerate (from a generally low base) in most middle-income countries. In 2013, money growth is projected to increase in all country groups except for low-income countries, most notably in Angola (reflecting policy efforts to build up reserves and reduce dollarization under the new monetary policy framework) and Malawi (driven by private sector credit). Whereas money growth is projected to slow down somewhat in these countries in 2014, in others it is expected to accelerate, led, for example, by private sector credit (The Gambia) or credit to government (Uganda).

Fiscal deficits are expected to expand in 2013 and 2014 in many countries in the region, although debt indicators remain benign in most countries (Tables 1.2, 1.3; and Box 1.2). The deterioration of fiscal balances is mainly on account of weakening revenues relative to GDP. This is especially true among resource exporters who are facing weaker commodity prices or lower production (or both), while ambitious public investment programs are being pursued in a number of countries, for example, in oil-producing economies such as Angola and Cameroon.3

Table 1.2.Sub-Saharan Africa: Debt Indicators
Debt risk index1Public debt-to-GDP ratio (2012)Changes in public debt-to-GDP ratio in percent2External debt-to-official creditors ratio in percent of GDP (2012)Changes in external debt-to-official creditors ratio in percent of GDP2Interest payment to revenue ratio (2007)Interest payment to revenue ratio (2012)
LMHD
Sub-Saharan Africa (Total)17196233.02.69.7−2.46.46.9
Of which:
Oil-exporting countries511020.72.95.4−1.13.44.6
Middle-income countries551041.813.55.91.88.39.4
Low-income countries680034.40.922.63.16.16.1
Fragile countries (HIPC)3154039.1−61.420.8−67.613.16.4
Fragile countries (Non-HIPC)000284.6−15.460.3−13.012.46.4
Sources: IMF, World Economic Outlook database; and IMF staff estimates.Note: HIPC = Highly Indebted Poor Countries.
Table 1.3.Sub-Saharan Africa: Other Macroeconomic Indicators
2004–0820102011201220132014
(percent change)
Inflation, end-of-period8.77.110.17.96.85.8
(percent of GDP)
Fiscal balance2.0−4.0−1.3−2.8−3.1−3.0
Of which: Excluding oil-exporters−0.7−4.7−4.0−4.2−4.4−4.3
Current account balance0.5−1.4−1.4−3.0−4.0−4.0
Of which: Excluding oil-exporters−5.2−4.8−5.6−8.3−8.4−8.7
(months of imports)
Reserves coverage4.84.24.54.74.95.2
Source: IMF, World Economic Outlook database.

Some countries also exhibit rising government debt ratios. Among the middle-income group, South Africa’s fiscal deficit has not fallen as expected after the stimulus provided during the global financial crisis. Although real spending growth has been consistent with that country’s potential growth, revenue has repeatedly fallen short because of sluggish economic activity. Ghana saw its deficit surge in 2012, an election year characterized by strong economic growth and buoyant revenues, but also extraordinary growth in spending. Although a few countries in the region, such as Botswana, the Republic of Congo, and Togo, are expected to adjust their fiscal policies in 2013–14, deficits will likely remain high in many countries, resulting in public debt increases (see Box 1.2 on page 19). In most low-income countries, especially fragile states with large unmet infrastructure and social needs, containing expenditure is likely to be difficult. However, considerable scope exists to increase revenues further in most low-income countries where the average revenue-to-GDP ratio is low, at less than 20 percent.

Current account balances are projected to deteriorate in 2013–14, on average, in the region, particularly in oil-exporting countries running expansionary fiscal policies. Despite this, the region is expected to maintain the postcrisis trend toward increasing its reserves coverage in 2013–14. The current accounts of sub-Saharan African countries are examined in detail in the next section.

Developments in the financial account of the balance of payments point to increasing integration of the region with global markets, with more to come. The group of “frontier market” countries4 has continued to tap global capital markets, taking advantage of favorable global financial conditions and improved domestic economic prospects. In addition to South Africa, which is an emerging market economy, six countries have issued government or government-guaranteed bonds so far this year (Nigeria twice), and Kenya and Zambia are considering an issue before the end of 2013 (Table 1.4). As discussed in the May 2013 REO, increased access to markets offers frontier market economies an opportunity to find new sources of funding for their spending. This access, however, also raises new challenges, including risks of a sudden reversal; a possibly higher debt burden; higher refinancing, currency, and interest rate risks; and appreciation pressures on the exchange rate. In addition, the risk emerges that an increase in liquidity could spur inflation, a rally in asset prices, or an excessive increase in private sector credit. As discussed in Chapter 3, the new capital raised through portfolio inflows was absorbed mainly in a buildup of reserves, and its impact on liquidity was generally sterilized (with the exceptions of Mauritius, Zambia). However, some countries experienced an expansion in private sector credit (Ghana, Mauritius) or an increase in stock prices (Kenya, Nigeria).

Table 1.4.Sub-Saharan Africa: Bonds Issued, 2013
CountryIssuing DateAmount

($ million)
Maturity

(years)
Yield

(percent)
TanzaniaMarch 201360076.284
RwandaApril 2013400106.875
NigeriaJuly 201350055.375
NigeriaJuly 2013500106.625
GhanaJuly 20131,000107.940
Mozambique1September 201350078.500
South AfricaSeptember 20132,000126.060
Total5,5005–12
Sources: Bloomberg, L.P.; Reuters; and the Wall Street Journal.

In sub-Saharan Africa, global financial market volatility in 2013 has affected mostly South Africa and a few frontier economies (Figures 1.6 and 1.7). In South Africa, the rand depreciated by about 8 percent and domestic bond yields rose by about 170 basis points between late May and end-August, as the effects of external factors were reinforced by domestic economic vulnerabilities. These developments affected monetary conditions in the Common Monetary Area of the rand, including Lesotho, Namibia, and Swaziland.

Figure 1.6.Sub-Saharan Africa: Bond Flows to Emerging Market and Frontier Economies

(Millions of U.S. dollars, cumulative since 2004)

Source: EPFR Global Database.

Figure 1.7.Sub-Saharan Africa: Equity Flows to Emerging Market and Frontier Economies

(Millions of U.S. dollars, cumulative since 2005)

Source: EPFR Global Database.

Among frontier markets, Nigeria’s currency weakened against the U.S. dollar at the peak of the volatility, and there was some increase in government bond yields, while the Ghanaian cedi and the Kenyan shilling also lost ground. Global financial prices largely stabilized in July and August, but capital flows have remained volatile, associated with increased financial stress in some emerging markets, especially those with wide current account deficits as in South Africa. Altogether, the increase in global financial volatility had a milder impact in sub-Saharan Africa than in other regions. This may reflect the comparative shallowness of African frontier markets that attract mainly long-term, “real-money” investors who respond primarily to the fundamentals of the recipient countries. In the period ahead, continuing volatility and increasing funding costs can be expected, as monetary conditions in advanced economies gradually move away from their current unprecedented accommodative stance.

Real exchange rates have tended to appreciate in all country groups, except middle-income countries (Figure 1.8). Some countries experiencing large real exchange rate appreciation include Seychelles (15 percent) and Uganda (14 percent). Fluctuations in the rest of the region have been much less pronounced, though mostly positive. Among middle-income countries, which include the four members of the Common Monetary Area of the rand, developments were driven by the depreciation of the South African currency, which started well before the market tension of June, reflecting a change in investor sentiment toward South Africa and weakening international gold and platinum prices, among other factors. The 17 countries pegging to the euro (including the members of CEMAC and WAEMU)5 have experienced relatively stable real exchange rates, although since mid-2012 they have been on a moderate appreciating trend. Outside South Africa, the 20 countries with some degree of exchange rate flexibility have experienced real currency appreciation since end-2010, a trend that has been particularly marked for the frontier markets and oil exporters in this group. As noted, in the period following the announcement by the U.S. Federal Reserve concerning the tapering of extraordinary stimulus, in addition to South Africa, Ghana, Kenya, and Nigeria saw their currencies depreciate.

Figure 1.8.Sub-Saharan Africa: Real Exchange Rate Developments by Traditional Country Groups, 2001–13 (June)

Sources: IMF, Information Notice System database; and IMF staff estimates.

Note: Simple average. Excludes South Sudan, the Democratic Republic of the Congo, and Zimbabwe.

Are Sub-Saharan African Current Account Deficits A Source of Concern?

Large current account deficits imply a significant dependence on external saving; but the prevalence of FDI is a mitigating factor in many countries.

Current account deficits in sub-Saharan Africa have increased markedly since 2007–08 and the median current account deficit has been on a gradually rising trend since 2002. Although current account deficits changed little, or even fell slightly on average during the 2004–08 boom years, a rise in current account deficits became widespread and marked between 2008 and 2012, with the average current account deficit (not weighted by country size) rising by about 2.5 percentage points of GDP. Since the global financial crisis there has been a large and persistent increase in the number of countries with current account deficits exceeding 10 percent of GDP (Figures 1.9 and 1.10), and a reduction in the number of countries with current account surpluses.

Figure 1.9.Sub-Saharan Africa: Distribution of External Current Account Balance-to-GDP Ratio (Center Quintiles), 2000–13

Sources: IMF, World Economic Outlook database; and IMF, African Department database.

Figure 1.10.Sub-Saharan Africa: Ratio of External Current Account Balance to GDP, 2000–13

Sources: IMF, World Economic Outlook database; and IMF, African Department database.

Note: CAB = current account balance.

Important drivers of the deterioration in current account balances since 2007 have been higher imports and lower official transfers (Figure 1.11, right panels). For sub-Saharan Africa, current official transfers declined by about 2 percent of GDP compared with the period 2005–07, returning to the levels observed before the global boom that started in 2005. At the same time, imports of goods and services increased by about 4 percent of GDP, while, on average, exports edged down, driven by oil exporters. Other current account components roughly offset each other and have not changed significantly since the crisis.

Figure 1.11.Sub-Saharan Africa: Current Account Developments, by Country Groupings: 2001–13

Source: IMF, World Economic Outlook database.

Note: Simple average.

The widening in current account deficits since the onset of the global crisis reflects both lower saving rates and higher investment rates. Since the global financial crisis began, saving rates for the region as a whole have declined by 2.5 percentage points of GDP, on average, compared with 2005–07. The decline in saving rates in middle-income countries in part reflects policy stimulus that has remained in place (South Africa)—although saving in this group of countries shows an incipient recovery in the last year, as some of the previous expansion starts to be reversed. In oil-exporting countries national saving has fallen too, mainly in the public sector, as government spending capacity has caught up with the significant increase in fiscal revenue experienced in the last decade. In fact, public saving ratios in that group of countries fell with the oil price collapse of 2009, but have not increased subsequently despite the recovery in crude prices. Nevertheless, oil exporters’ aggregate saving ratios remain slightly higher than during 2000–04. In low-income countries, national saving rates have been more stable, with no clear trend in public or private saving rates. Meanwhile, total fixed capital formation has increased by about 3.5 percentage points, partly reflecting a marked increase in FDI in extractive activities and infrastructure. Although differences across country groupings exist, the common theme is that current account balances worsened on average after the global financial crisis, mainly reflecting a level increase in investment rates (Figure 1.11, left panels). Easy global financial conditions since 2008 have enabled countries in sub-Saharan Africa to expand their fixed capital stock by mobilizing external saving.

Assessing the sources of financing can be challenging in sub-Saharan Africa because of severe data limitations (Figures 1.12 and 1.13). Nevertheless, according to official data, in the past four years, more than half of the current account deficit in sub-Saharan Africa6 has been funded by FDI (including intercompany loans). Net portfolio investment flows were negative on average, and positive only in a few countries. The net accumulation of official debt explains about an additional 2 percent of GDP. Among fragile countries, the achievement of debt relief during 2006–10 created additional space for governments to borrow, including from multilateral sources. Net capital transfers have been an important source of non-debt-creating funding (2 percent of GDP, on average), mostly associated with the capital component of foreign aid. Errors and omissions are large among fragile countries, reflecting particularly severe data weaknesses (Annex 1.1).

Figure 1.12.Sub-Saharan Africa: Balance of Payments, 2009–12 Average

Source: IMF, World Economic Outlook database.

Figure 1.13.Sub-Saharan Africa: Current Account Financing, 2009–12 Average

Source: IMF, World Economic Outlook database.

The number of countries receiving net FDI inflows of more than 5 percent of GDP doubled after 2006. In nine countries, average annual FDI inflows increased by more than 5 percent of GDP in the years 2007–12, compared with the period 2000–06. During 2007–12, average annual FDI inflows exceeded 5 percent of GDP in 18 countries compared with the 9 countries in 2000–06. These reflected projects to develop energy supply and the extraction of natural resources and related activities (for example, the mega-projects to develop the production of liquefied natural gas in Mozambique and of iron ore in Sierra Leone) encouraged by strong commodity prices. In contrast, FDI has been relatively lower in South Africa, where portfolio flows have been prominent.

Nevertheless, several countries experienced large current account deficits since 2007 even after netting out FDI-related flows. These include Burundi, Cape Verde, The Gambia, Guinea, Liberia, Mauritius, Rwanda, Togo, and Zimbabwe, among others. These deficits were largely financed through net external borrowing, although in some countries (including Guinea, Liberia, and Togo) the stock of debt actually declined as a result of debt relief.

Looking forward, current account balances are expected to improve in the medium term (Figure 1.14). The median current account balance is expected to improve by about 4 percentage points of GDP between 2012 and 2018, partly as ongoing projects funded by FDI mature and export capacity increases. These effects are expected to be partially offset by profit repatriation by foreign investors. The non-FDI-funded current account deficits are also expected to improve during this period, undoing to a significant degree the deterioration observed since 2007. Nevertheless, in a large number of countries, the deficit is still projected to exceed 5 percent of GDP, and some countries (including Burundi, Côte d’Ivoire, Gabon, Guinea, and Mozambique) are expected to experience significant current account deterioration in the near term.

Figure 1.14.Sub-Saharan Africa: External Current Account Balance-to-GDP Ratio, 2012–18

Sources: IMF, World Economic Outlook database; and IMF, African Department database.

Note: CAB = current account balance.

Where the deficits are financed primarily by FDI, risks are contained because the bulk of the funding sources do not create debt and have proved to be very resilient in trying times. Dependence on portfolio flows carries additional risks; this type of financing is especially important for South Africa, which has been subject to volatile financing for its current account deficit, especially since June of this year. Despite large and pervasive current account deficits in sub-Saharan Africa, debt-to-GDP ratios remain fairly low on average. The stock of external debt is expected to exceed 50 percent of GDP at end-2013 in only six sub-Saharan African countries (Figures 1.15 and 1.16). However, despite some recent accumulation, reserve buffers remain low in low-income and fragile states; and in some countries (Cape Verde, Madagascar, Mauritius, Namibia, Niger, Tanzania), external debt levels have increased significantly as a result of the worsening of the current account deficit between 2008 and 2012.

Figure 1.15.Sub-Saharan Africa: Distribution of External Debt-to-GDP Ratio (Center Quintiles), 2000–13

Sources: IMF, World Economic Outlook database; and IMF, African Department database.

Figure 1.16.Sub-Saharan Africa: External Debt-to-GDP Ratio, 2000–13

Sources: IMF, World Economic Outlook database; and IMF, African Department database.

Note: ED = external debt.

Nevertheless, FDI-financed deficits carry risks of their own. Countries are exposed to the risk of a reversal in domestic demand—with adverse consequences on employment and economic activity—should future investment flows (and associated construction activity) decline in response to a tightening of global financing conditions or a reassessment of the economic viability of the projects.

Where the deficits are financed by borrowing from external sources, there could be a risk for countries that already bear some risk of debt distress, particularly where borrowing is not contracted on concessional terms. Attention should also be paid to the quality and economic viability of debt-financed investment, with careful selection and prioritization of projects.

Scenario Analysis: Commodity Price Variations

In this section, two scenarios are constructed—downside and upside—to examine the implications of temporary commodity price shocks (Table 1.5). These are partial equilibrium exercises, and neither case explicitly considers the cause of the commodity price shock, nor is a complete set of assumptions for growth in other regions developed. The effects of commodity price shocks on output growth, inflation, the current account balance, and foreign reserves are considered.

Table 1.5.Scenario Assumptions
BaselineDownsideUpside
201320142015201320142015201320142015
Petroleum price (U.S. dollars per barrel)11029893987470106115110
Metals price index (Index, 2005 = 100)2182171172175132131191215218
Copper price (U.S. dollars per metric tonne)7,1856,8556,9216,8915,2415,2217,5218,6948,859
Gold price (U.S. dollars per troy ounce)1,3861,2511,2671,3339789771,4451,5571,589
Food price index (Index, 2005 = 100)3174162159166119115179188185
Coffee, other mild Arabicas (U.S. cents per pound)138133141133106112146176189
Sources: IMF, World Economic Outlook database; and IMF staff calculations.

The commodity price assumptions in the two scenarios (Table 1.5) reflect market assessments of the risks around expected future prices.7 In the downside scenario, commodity prices drop significantly relative to the baseline starting in the second half of 2013, but affect more importantly the 2014 forecast. Specifically, the commodity price level in 2014 is lower than the baseline by about 26 percent, on average, across major commodities in this scenario—a level chosen because derivative markets priced in a 10 percent probability of prices falling this low or lower. The upside scenario assumes commodity prices 19 percent higher in 2014 than in the baseline on average—with markets assessing a 10 percent probability of prices rising this high or higher. As in previous issues of the REO, separate macroeconomic projections under the alternative scenarios are developed for 14 of the largest economies in the region.8 Although the price reductions in the downside scenario are substantial, commodity prices would still be high by historical standards.

The impact on external balances would be significant. The downside scenario would worsen the current account balance by about 2 percent of GDP each year, on average, in the region. While the cost of imports would decrease (by 1.1 percent of GDP in 2014), especially in oil-importing countries such as Kenya, Senegal, and Tanzania, the value of exports would fall by 3.8 percent of GDP in 2014, especially among exporters of oil and metals. Some of the largest adverse effects would be felt in Angola, the Democratic Republic of the Congo, and Zambia. Considering that the average trade balance in sub-Saharan Africa deteriorated by 5.5 percent of GDP, on average, in 2009, and that foreign reserves have, on average, more than recovered since the crisis, a shock of the magnitude assumed in this scenario would be manageable with the current level of external buffers in nearly all countries. That is, foreign reserves only decrease, on average, by 0.6 months of imports in the downside scenario compared with the baseline. However, some resource-rich countries would be placed in a difficult situation given their dependence on export revenues from a few commodities. Even some of the better-prepared countries might run through a significant fraction of their buffers in this scenario.

In both scenarios, the impact on output growth would be relatively moderate, on average, for the region, but large in some resource-dependent countries (Figure 1.17). On average, real GDP growth in the region (proxied by the sample of 14 countries) would be lower by about 0.5 percentage point each year in the downside scenario, whereas growth would be higher by about the same margin in the upside scenario. The magnitude of the impact on growth would be much larger in Angola and the Democratic Republic of the Congo. In all cases, however, growth would remain positive. As one might expect, nonresource-exporting countries are generally isolated from these developments, and should register negligible changes in their growth rates (for example, Ethiopia, Uganda).

Figure 1.17.Sub-Saharan Africa: Commodity Price Scenarios

Sources: IMF, World Economic Outlook database; and IMF staff estimates.

Note: CPI = consumer price index.

The effect of the commodity price shocks on inflation would be rather modest on average. Consumer price index inflation in the upside scenario would be higher than under the baseline by 1.2 percentage points in 2014, with the effect waning by 2015. However, countries that have recently experienced bouts of high inflation, such as Tanzania and Uganda, appear more sensitive to the upside shock scenario. Inflation rates in these countries could temporarily reach double digits. Although lower commodity prices would ease inflationary pressures in almost all cases, the opposite effect could materialize in some countries if the drop in export prices were to result in large currency depreciation or in the monetization of large government deficits arising from the loss of resource revenues.

The results provide a lower bound for the effects of these shocks. One reason is that if the downside scenario were to materialize, it would likely be in conjunction with other adverse circumstances, including the underlying drivers of commodity price changes, such as an investment slowdown in China (see Box 1.1), which have not been modeled here. Another reason is that the scenario described here corresponds to a negative shock of limited duration (fewer than 18 months).

On this point, commodity prices have undergone what has often been called a “super cycle” since 2000—a long-term upward trend in prices driven by the secular rise of the emerging market economies, notably China and India, reinforced by abundant liquidity around the world. With emerging market economies appearing to decelerate and the development of new supply sources for some of these commodities, there is the distinct possibility that price trends will change significantly and may even reverse. From today’s perspective, this is still a low-probability risk. However, this uncertainty may affect the development of projects and investment. For resource-intensive countries, this underscores the need to improve their macro-fiscal frameworks, which need to become more forward looking, and to continue efforts at structural reform to foster the nonresource sectors.

Risks, Policy Challenges, and Recommendations

Addressing near-term risks

Three main near-term risks threaten the economic outlook for the region:

  • Further global economic slowdown. A further deceleration in global growth (which remains subdued and subject to significant downside risks), especially in China, could weaken exports (mainly through lower commodity prices) and reduce inflows of aid and FDI. A sharp or protracted decline in oil and other commodity prices would hurt commodity exporters that do not yet have sufficient fiscal buffers (Angola, the Democratic Republic of the Congo), but would benefit oil importers.

  • Capital flow reversal. South Africa and some frontier markets, such as Ghana and Nigeria, could also be vulnerable to a persistent, broad-based and protracted reversal of financial capital flows that could follow a possible tightening of global monetary condition, as U.S. monetary policy begins to normalize. It is possible that a tightening of U.S. monetary conditions (or a new change in expectations) could lead to renewed strains in financial markets that would reverberate on financing conditions of the most financially integrated African countries, some of which are planning to issue new bonds in the coming months.

  • Homegrown risks. Risks of domestic unrest remain elevated, particularly in the Sahel, and could become exacerbated in an environment of subdued growth. Although the political situation in Mali has progressively stabilized, spillovers from that conflict to neighboring countries are still possible. Emerging security problems in northern Nigeria, while so far geographically contained, are a threat. In the Central African Republic, continuing political instability has seriously affected economic activity.

Macroeconomic and financial policies should focus on preserving stability. For some countries, the focus would be on rebuilding any depleted buffers. For others, it would mean renewing efforts to keep inflation under control. For all, the focus should be on encouraging productive private investment. Policy prescriptions made in previous issues of this publication generally remain valid.

  • Fiscal policy. Although most countries in the region are not constrained from financing deficits by high debt levels, many could find it difficult to raise financing for larger deficits in a downturn. This underscores the need for rebuilding fiscal buffers in a number of countries, especially those facing unfavorable debt dynamics and those particularly vulnerable to commodity price shocks. In most cases, fiscal buffers will need to be rebuilt through a combination of expenditure restraint and revenue mobilization. In some middle-income countries, including South Africa and Ghana, the need to contain rapid debt accumulation entails delivering on the planned fiscal consolidation. In most low-income and fragile countries, the focus should be on widening domestic tax bases to finance investment and address social needs, while making up for less dynamic foreign aid. On the expenditure side, the focus should be on containing the relative size of the public wage bill and rationalizing energy and other untargeted subsidies, while continuing to improve project selection and execution capacity.

  • Monetary and exchange rate policies. Monetary policy frameworks remain generally appropriate and inflation pressures are contained in most countries. In the countries where inflation remains high, such as Malawi, tight monetary policies are needed. Countries facing balance of payment pressures arising from declining commodity prices and capital flow reversals should let their currencies adjust where feasible. Some monetary authorities may need to consider foreign exchange intervention to prevent disorderly market conditions.

  • Investment climate. To continue to attract foreign capital for the development of the countries’ productive capacity and infrastructure, authorities in sub-Saharan Africa should step up efforts to further improve the domestic business climate (also tapping technical assistance from the international community), including through appropriate reforms in tax policy and administration and by streamlining regulations and red tape.

Meeting medium- and long-term policy challenges

In many countries large current account deficits largely reflect high FDI, typically in export-oriented sectors. In such cases, the vulnerability to a change in the external financing environment is reduced because no significant debt liabilities are being incurred. However, tighter global financing could affect the ability of foreign investors to execute projects, and a reversal of investment flows could still produce an adverse impact on domestic demand and production capacity in host countries. Most notably, during their early stages, these projects are subject to significant risks of delays and rescaling. During their operating phases, they will necessarily increase the exposure of host countries to swings in commodity prices, necessitating the establishment of policy frameworks designed to manage this volatility.

Nevertheless, in a small set of countries with rising debt ratios, weaker domestic savings, or both, current account deficits need closer attention, and fiscal adjustments may be needed. In particular, rapidly growing low-income countries will need to diversify their sources of funding for capital infrastructure, because capital transfers may wane as a result of tightening financial conditions in donor countries and increased reluctance to provide support as recipient countries continue to develop. Fiscal policies could help establish more reliable sources of financing by mobilizing domestic savings and attracting foreign risk capital in public-private partnerships. Finally, continued efforts to improve the quality of balance of payments statistics are needed to better gauge external risks in the region.

During the near and medium terms, there could be threats to investment plans. Countries benefiting from large FDI flows are exposed to the risk that less favorable prospects for commodity prices, tighter global financing conditions, or general increased uncertainty about global growth prospects could induce investors to scale down or postpone some projects. This could result in reduced job opportunities and domestic demand as construction activity slows, and in slower-than-projected growth in production and exports in the medium term.

To offset this risk, structural policies aimed at improving productivity and promoting economic diversification should be implemented with renewed vigor. Addressing infrastructure bottlenecks is particularly important, especially energy shortages and poor transport networks. Insufficient capacity in electricity generation is a binding constraint to growth in the vast majority of countries.

Growth in sub-Saharan Africa has helped reduce poverty levels. The headcount poverty ratio (the percentage of people living on less than US$1.25 a day) has fallen significantly in middle- and low-income countries, although average improvements in the region are being pulled down by slow progress in fragile and oil-exporting countries. However, despite considerable progress in a number of areas, such as reducing maternal and child mortality, sub-Saharan Africa appears to be falling short of achieving most Millennium Development Goals (MDGs) by 2015, including that of halving poverty (Box 1.3).

Achieving the MDGs will require additional work, and countries should take action to make growth more inclusive. There is evidence that the fairly robust growth seen in most countries in the region in the past decade has in many cases been accompanied by rising income inequality (Box 1.4). The evidence collected by various studies suggests that policies should aim to provide targeted support in key areas, including the agricultural sector.

Concluding Remarks

Sub-Saharan Africa is projected to grow vigorously in the medium term, as it has for much of the past decade. Export activities and related investment have been important drivers of growth in many countries, and will remain so. As a side effect of investment, current account deficits have grown in many cases. However, it is expected that these will moderate as projects come into production.

As Chapter 2 explains, this does not mean that the growth story of sub-Saharan Africa can be reduced to the development of export-oriented extractive sectors. Growth has also been strong in many nonresource-intensive countries, and has generally been based on improved macroeconomic policies and institutions, leading to better business environments, as has been noted in previous issues of the REO. Growth can benefit from policy strategies that pay attention to the continued improvement of the domestic economic environment, support productivity in agriculture, and prioritize the health and skills of the population. The achievements in these areas should be preserved and furthered.

Looking ahead, the region’s economies will operate in a global environment presenting new challenges and opportunities for policymakers. More economies in the region are becoming able to tap international capital markets, increasing the range of their funding options, but also exposing them to the characteristic volatility of portfolio flows. The expected unwinding of the monetary stimulus in advanced economies is likely to cause tensions in global financial markets in the period ahead. As a growing number of countries in the region become more closely integrated in international capital markets, these developments will be increasingly relevant (see Chapter 3).

Box 1.2.Government Debt: Old and New Risks

The May 2013 issue of the Regional Economic Outlook: Sub-Saharan Africa presented a brief overview of government debt trends in sub-Saharan African countries. A number of countries have been taking advantage of the borrowing space created by debt relief in the past decade. Consequently, debt ratios have been rising rapidly, with six countries1 experiencing increases in their debt-to-GDP ratios of at least 5 percentage points since they obtained debt relief as well as having debt-to-GDP ratios of 40 percent or higher.

Some of the new borrowing has been on nonconcessional terms, reflecting the emergence of new donors and creditors and increased interest in these countries from international investors. Under IMF debt policies, such borrowing can take place in IMF-supported programs if neither debt sustainability nor government capacity is a major concern. Access to this new source of financing made it possible for governments to, among other things, accelerate investments in infrastructure. But it also exposed governments to new risks (in particular, higher interest rates and rollover risks).

To assess the significance of these risks for debt sustainability, two of the six countries—Ghana and Senegal—are examined more closely. Their recent debt dynamics have been driven by a rising fiscal deficit. In Senegal, this reflected a combination of a trend increase in investment in infrastructure and a countercyclical policy response to the 2008–09 financial crisis; in Ghana, higher current spending, particularly on wages and subsidies, was critical. Four alternative risk scenarios are examined, reflecting both new risk factors (higher global interest rates and rollover risks) and “traditional” ones (higher fiscal deficits and lower growth).

In Senegal, the scenario analysis suggests that growth and fiscal performance remain the key factors affecting debt sustainability (Figure 1.2.1). Significantly lower growth than currently projected or absence of fiscal consolidation, which is assumed in the baseline, would lead to unsustainable debt dynamics. These results are consistent with earlier debt sustainability analyses and explain the focus of the authorities’ program on reducing the fiscal deficit and sustainably raising growth. The new risk factors (scenarios 1 and 2) also have a destabilizing impact, but to a lesser degree because Senegal’s reliance on external nonconcessional financing has been limited so far.

Figure 1.2.1.Senegal: Present Value of Public Debt

Source: IMF staff calculations.

These risks, however, could increase in the medium term because Senegal’s recourse to market financing (either on international or regional markets) is likely to increase. From this perspective, prudent fiscal management and a further strengthening of debt management capacity remain highly desirable.

In Ghana, fiscal consolidation during the next several years is required (and assumed in the baseline); without it, public sector debt could move onto an unsustainable path (scenario 3; Figure 1.2.2). In addition, higher global interest rates would increase the debt-servicing burden, while a longer-lasting loss of global appetite for “frontier market” debt could create significant challenges. Under that scenario, a shift to domestic borrowing, to compensate for the loss of external financing, would further raise domestic interest rates, and the associated crowding out of private investment would lower growth. Assuming no international market access (including no rollover of domestic paper) for three years—an extreme scenario—and no offsetting policy measures, the shock would cut official reserves to about one month of import cover in the medium term; public debt would rise to more than 70 percent of GDP. Even though this scenario describes a low-probability event that would normally trigger remedial policy actions, it illustrates how the growing reliance on private capital flows exposes Ghana to new risks.

Figure 1.2.2.Ghana: Present Value of Public Debt

Source: IMF staff calculations.

Thus, while access to nonconcessional debt has proven valuable to many sub-Saharan African countries, it is also exposing them to new and potentially significant risks. Governments should assess these risks carefully and build cushions to help deal with them should they occur.

This box was prepared by John Wakeman-Linn and Borislava Mircheva.1 The Gambia, Ghana, Malawi, São Tomé and Príncipe, Senegal, and Tanzania, at end-2012.

Box 1.3.Sub-Saharan Africa’s Progress in Achieving the Millennium Development Goals (MDGs)

As the 2015 deadline approaches, sub-Saharan Africa risks being the only major developing region of the world unlikely to meet most of the MDG targets (Figure 1.3.1). In particular, while the goal of reducing extreme poverty by half has already been met globally owing to fast progress in East Asia and the Pacific, Latin America and the Caribbean, and the Middle East and North Africa regions, sub-Saharan Africa lags well behind. However, in some target areas, sub-Saharan Africa has made significant progress, along with the rest of the world, including in gender parity and increased access to potable water and improved sanitation.

Figure 1.3.1.Regional Progress toward MDGs, 2010–11

(Percent of countries in region)

Sources: World Bank Development Indicators; and IMF staff estimates.

Progress on indicators related to health and education in sub-Saharan Africa has been slower than needed to reach the 2015 targets. The goal of universal completion of primary schooling is unlikely to be met (with more than 55 percent of sub-Saharan African countries currently off track). Although in recent years sub-Saharan African countries have made significant progress in reducing child and maternal mortality rates (57 percent and 68 percent of countries, respectively, are either on track or partially on track to meet these two goals), the remaining distance to these goals requires significant resource mobilization and gains in efficiency from health and education expenditure.

Sub-Saharan Africa’s progress toward the MDGs has been uneven across goals, country groups, and individual countries (Figures 1.3.2 and 1.3.3). Overall, the rate of progress has been increasing steadily, and the number of countries in the region that have made significant progress on at least five out of the seven goals rose from six in 2010 to ten in 2012. Reflecting in part their different starting points, the rate of progress among the sub-Saharan Africa middle-income and larger countries has slowed while the rate of progress among the low-income and nonresource-dependent countries has accelerated, doubling their ranks among the region’s best performers from four (Burkina Faso, Ethiopia, The Gambia, Uganda) to eight (Benin, Burkina Faso, Ethiopia, The Gambia, Malawi, Mali, Rwanda, Uganda).

Figure 1.3.2.Sub-Saharan Africa: Starting and 2010/11 Millenium Development Goal Positions

Sources: World Bank, World Development Indicators; and IMF staff estimates.

Figure 1.3.3.Sub-Saharan Africa: Countries Ranked by Millenium Development Goal Progress Score, 2012

Sources: World Bank, World Development Indicators; Center for Global Development; and IMF staff estimates.

Note: MDG Progress Score is a summary measure of a country’s rate of progress toward seven MDGs. Specifically, it is a sum across goals (whose theoretical values range from 0 to 7, maximum progress), where each goal is assigned one of the three possible index values of 0, 0.5, and 1 based on actual progress against required achievement trajectories.

Different starting points, diverse growth performance, and quality of institutions have resulted in a unique trajectory for each country to reach specific goals. Higher initial per capita GDP in 1990 and stronger and more balanced growth in the subsequent years have generally been associated with better overall progress toward the MDGs. In particular, better quality of policies and institutions (measured by the World Bank Country Policy and Institutional Assessment score) together with greater expenditure allocation to the social sector have proven crucial for the progress on education- and health-related MDGs.

Faster and more inclusive growth is needed to reduce poverty more decidedly. Overall in the region, nearly half of the population was still living on less than $1.25 a day in 2011, despite faster growth than in the previous decade. Only about 19 of the 45 countries in sub-Saharan African are at least partially on track to reduce extreme poverty by half by 2015. This suggests that growth in many countries, notably some oil exporters (Gabon, the Republic of Congo, Chad) and fragile states (Burundi, the Democratic Republic of the Congo, Zimbabwe), needs to be both more inclusive and faster.

This box was prepared by Dalmacio Benicio.

Box 1.4.Has Growth in Sub-Saharan Africa Been Inclusive?

One recurrent question about sub-Saharan Africa’s growth acceleration since the mid-1990s is to what extent it has been inclusive, improving living standards for the majority of the population and particularly the poor. The October 2011 Regional Economic Outlook: Sub-Saharan Africa examined the experience of six countries (Cameroon, Ghana, Mozambique, Tanzania, Uganda, Zambia), finding that growth had benefited the poorest quartile of the population in all countries except Zambia, although more recent evidence suggests that there have been improvements in the 2006–10 period in Zambia too. Growth benefited the poorest quartile more than the population in general in Cameroon, Uganda, and Zambia in the more recent period (green bar higher than blue bar in Figure 1.4.1).

Figure 1.4.1.Sub-Saharan Africa: Comparison of Inclusive Growth

Sources: Country household surveys; and World Bank, World Development Indicators.

Inclusiveness has featured increasingly in IMF policy discussions with sub-Saharan Africa country authorities. By July 2013, 23 IMF country teams had conducted diagnostic analyses, mainly based on household surveys, of how inclusive growth has been in individual sub-Saharan African countries, identifying remaining obstacles, and offering tailored advice to enhance the inclusiveness of growth. These are some examples:

  • In the oil-producing Republic of Congo, growth has not been very inclusive. Despite significant oil revenues (about $1,000 per capita) and sustained growth at about 4 percent per year for the past 15 years, more than half of the population continues to live in poverty, and a large share is excluded from participation in income-earning activities. The oil sector, by its nature, is not inclusive, and diversification is hindered by a difficult business climate. Moreover, the existing infrastructure (roads, energy, water) remains very limited. A labor skills mismatch, resulting from a poor education system, leads to high un- and underemployment. Policies should aim to address these shortcomings by prioritizing investment in infrastructure and enhancing investment capacity, improving the business climate, and fostering the development of labor-intensive sectors that do not depend on exhaustible resources.

  • In Botswana, Namibia, and Mauritius, three established middle-income countries, growth has recently become less inclusive for various reasons. In Botswana and Namibia, expanding the number of welfare programs and their beneficiaries had led to a significant decline in poverty and income inequality in the 1990s. However, in the 2000s, government programs became relatively less focused on the very poor, and the consumption growth of the lowest quartile flattened out. In Mauritius, richer households’ real expenditure per capita grew faster than for all other groups during the period 2001–06, reversing previous trends. This loss of inclusiveness in a relative sense was associated with structural changes in the economy, including the loss of trade preferences for textiles, which lowered the demand for low-skilled labor. In all three countries, policies should aim to address inequality by investing in health and education, as well as supporting financial inclusion. The poorest and most vulnerable segments of the population should be targeted directly, for example, through cash transfer programs.

  • In Mali, a low-income country, growth was inclusive in a relative sense, benefiting the poorest the most between 2001 and 2010. This inclusiveness was related to high growth in the agricultural sector, generating employment for the lower-skilled segments of the population.

Two general points that emerge from the IMF country team exercises are that growth has been accompanied by increasing inequality in a large number of countries, even when poverty has fallen; and that the extent to which growth was inclusive seems to depend on the magnitude of the increase in employment in the agricultural sector.

This box was prepared by Isabell Adenauer, Javier Arze del Granado, Rodrigo Garcia-Verdu, and Alun Thomas.
Annex 1.1. Statistical Challenges for Africa and the Way Forward

Good quality data engender numerous benefits, especially in helping to inform good policy decisions and in evaluating their impact. For example, a more accurate assessment of output and its components can improve the calculation of various tax ratios and propel countries to take a closer look at tax burdens and tax policy. Similarly, the production of reliable high-frequency indicators is a condition for improving monetary policy frameworks. Sound data can also help identify resource constraints and pinpoint the need for policy action in specific areas.

In the wake of the impressive growth of the region in the last decade, interest in the economic structure of sub-Saharan African countries has blossomed in recent years. This has stimulated increased demand for sub-Saharan African statistics from many sources. Unfortunately, the availability and quality of economic data in sub-Saharan Africa often do not measure up, as some commentators have recently emphasized (Devarajan and others, 2013; Devarajan 2012, Jerven, 2013). Indeed, in terms of quality, the World Bank’s Statistical Capacity Indicator puts sub-Saharan Africa below the average for developing countries (see Figure 1.18). African data exhibit deficiencies in accuracy, periodicity, and timeliness.

Figure 1.18.Statistical Capacity Indicator

(Simple average of the overall score)

Source: World Bank, Bulletin Board on Statistical Capacity.

The basic problem afflicting sub-Saharan African statistics remains one of poor data sources. The countries conducting a general population census in the last 10 years account for only about 65 percent of the sub-Saharan African population, and among those, some countries were conducting a census for the first time (Ethiopia). Household surveys, which remain the bedrock for estimating the large informal sector in sub-Saharan Africa, were conducted in 11 out of 45 countries during the 2008–13 period (compared with 26 out of 37 countries in the Asia and Pacific region, see Table 1.6).1 Infrequent updates of both household and establishment surveys, a lack of adequate surveys for national accounting needs, and delays in processing and releasing data all made it difficult to update national accounts base years on a regular basis. Only four sub-Saharan African countries have updated their base years to 2007 or a more recent year (Cape Verde, Malawi, Mauritius, and South Africa), compared with 6 out of 27 in the Western Hemisphere region. As noted in the May 2013 issue of the REO, infrequent updates of years can have significant implication for the measurement of output levels, but their impact on the estimates of growth rates is less clear-cut.

Table 1.6.Selected Regions: Percentage of Countries Meeting Specific Benchmarks
Sub-Saharan AfricaNon-Sub-Saharan AfricaAsia and PacificEuropeWestern HemisphereMiddle East and Central Asia
Benchmark
Household survey since 200824.466.970.367.685.244.8
GDP base year 2007+8.910.813.52.722.26.9
Agricultural survey since 200831.157.745.986.540.751.7
Consumer price index base year 2007+35.642.351.427.051.941.4
Number of countries4513037372729
Source: IMF Statistics Department.

A major reason for the slow speed of base year updates for GDP is that agricultural surveys are generally far out of date. Agriculture accounts for more than 30 percent of GDP, on average, among sub-Saharan African countries, but 14 sub-Saharan African countries have conducted an agricultural survey since 2008 (compared with 15 out of 29 countries in the Middle East region). For price statistics, base year updates are more recent: about half of sub-Saharan African countries have adopted a base year for the consumer price index that is within the last six years (AfDB, 2013), which is about average for other regions too.

Many reasons exist for the poor compilation and dissemination of statistics in sub-Saharan Africa:

  • Weak capacity in many countries. The average number of national accountants per country is eight, and more than half of African countries have fewer than six professional staff working in the national accounts departments of their respective national statistics offices (Sanga, 2013). In addition, low salaries, unattractive career paths, and lack of recognition lead to high turnover. For example, in Rwanda, because of budget constraints, only two staff members currently compile national accounts. In Zimbabwe, the head of the national accounts unit is the sole statistician permanently engaged in the compilation of GDP, requiring the national statistics office to divert staff temporarily from other units.

  • Inadequate funding and multiple sources of finance. Funding of statistical agencies in Africa from regular domestic budgetary resources is often inadequate. Therefore, compilers rely on projects funded by donors that may have different objectives and financial commitments from national authorities. Donors also work on project cycles and may not provide the reliable, continuous budget required for maintaining capacity in statistics. In Tanzania, for example, a conscious decision was made in the 2007 Household Business Survey to collect only data on total income for nonagriculture household businesses to save costs, resulting in significant data gaps in the “supply and uses” table for 2007.

  • Relatively low priority. Initiatives to improve economic statistics compete for limited pools of funding and management time against other projects, which may enjoy preference at the margin. Focus on the Millennium Development Goals and the need for statistics to monitor poverty reduction strategies has diverted resources away from economic statistics.

  • Uncertainty about who is in charge of statistical services. The Minister of Planning is often responsible for this service, but when a large share of financial support for statistics improvement comes from donors, the accountability for quality between the donors and national agencies becomes blurred.

  • Insufficient traction outside government. Without a proper understanding of the importance of statistics collection, and credible commitments to impartiality and confidentiality, the motivation for the private sector to complete surveys is low, as evidenced by a low response rate. In Botswana, for example, the average response rate in the last economic census was about 45–50 percent.

There is general recognition of the need to make improvements in the quality of statistics in sub-Saharan Africa, and a number of initiatives have been launched:

  • The International Comparison Program (ICP) for Africa was launched in 2002 as a collaborative effort between the African Development Bank (AfDB), the UN Economic Commission for Africa, and the World Bank to help produce comparable indicators of price levels and economic aggregates in real terms. The most recent project began in 2010, together with a Statistical Capacity Building Program, and covers price statistics and national accounts activities. ICP results are expected to be released by end 2013.

  • The International Household Survey Network was established in 2004 to foster improvement in the availability, accessibility, and quality of survey data in developing countries. A related Accelerated Data Program (ADP) was developed to make better use of existing data and align survey programs with priority data needs (27 sub-Saharan African countries have joined the ADP).

  • The AfDB open data platform is being implemented in 54 African countries and provides user-friendly access to data, query tools, and dashboards.

  • The Global Strategy to Improve Agricultural and Rural Statistics was endorsed in February 2010 by the UN Statistical Commission to provide a framework for improving the quality of national food and agricultural statistics. This is a long-term project (with a horizon of more than 15 years), but country data assessments are currently being compiled and should be available by end-2013.

A frequently voiced concern is that these initiatives are not well coordinated, making it difficult to properly support the general improvement in the quality of statistics. This view is underscored by the time profile of the World Bank’s Statistical Capacity Index, showing little change over time in the quality of sub-Saharan Africa statistics. As Figure 1.18 shows, the failure to improve statistical capacity is not specific to sub-Saharan Africa, but Africa scores consistently lower than the rest of the developing world.

Only two countries in sub-Saharan Africa have subscribed to the IMF’s Special Data Dissemination Standard (SDDS), the lowest participation rate of any region. However, most African countries participate in the IMF’s General Data Dissemination System (GDDS), which focuses on assisting countries that do not meet SDDS requirements to formulate comprehensive, but prioritized, plans for improvement in data compilation and dissemination practices.

The IMF’s Statistical Department helps countries in sub-Saharan Africa diagnose and address deficiencies in their data quality and methodology. Every year it fields about 200 technical assistance and training visits to these countries to help improve the methodology of macroeconomic statistics (national accounts, prices, balance of payments, government finance statistics, monetary and financial statistics) (see Table 1.7). The missions are implemented from IMF headquarters or one of the IMF Regional Technical Assistance Centers in Africa (AFRITACs). About 20 countries are expected to revise their base years, with the assistance of the AFRITACs, before end-2014 (see the May 2013 REO).

Table 1.7.IMF Statistics Department Technical Assistance Missions in Sub-Saharan Africa
Technical Assistance MissionsFiscal

Year

2011/12
Fiscal

Year

2012/13
Fiscal

Year

2013/14

(planned)
National accounts and price statistics92107108
Balance of payments182223
Government finance statistics312321
Monetary and financial statistics161517
Data dissemination117
Multi-sector statistics010
Total158169176
TrainingFiscal

Year

2011/12
Fiscal

Year

2012/13
Fiscal

Year

2013/14

(planned)
National accounts and price statistics91115
Balance of payments312
Government finance statistics233
Monetary and financial statistics438
Data dissemination001
Total181829
Source: IMF Statistics Department.

Despite the difficulties mentioned, there are promising signs. Senior officials are demonstrating more interest in economic statistics. A number of countries are on the verge of initiating new agricultural surveys this year (Mozambique, Rwanda), and donors are trying to better coordinate among themselves. In Mali, donors meet each month and plan to establish a Statistical Fund that will centralize all donors’ contributions for statistical operations. In Uganda, capital flows surveys are being initiated, which will help improve the estimation of the income and transfers component of the current account balance in the national accounts.

Improving capacity in statistics compilation is a long-term process and it will take time to see durable improvements in the quality and consistency of statistics from the region. However, more national authorities now recognize the importance of reliable macroeconomic data and understand that consistent data collection and frequent surveys are prerequisites. They are encouraged to devote more resources to make this endeavor a reality. Better data will help improve economic policy and support the view that the rapid growth shown by many sub-Saharan African countries during the past 15 years is being manifested in durable improvements in the standard of living.

In the present edition, all regional aggregates include South Sudan.

The July 2013 World Economic Outlook update already revised these forecasts down to 3.1 and 3.8 percent, respectively.

The group of resource exporters includes Angola, Botswana, Burkina Faso, Cameroon, the Central African Republic, Chad, the Democratic Republic of the Congo, Republic of Congo, Equatorial Guinea, Gabon, Ghana, Guinea, Mali, Namibia, Niger, Nigeria, Sierra Leone, South Africa, Tanzania, Zambia, and Zimbabwe. See the April 2012, Regional Economic Outlook: Sub-Saharan Africa for a discussion of the criteria for membership in this group.

The group of “frontier market” countries includes Ghana, Kenya, Mauritius, Mozambique, Nigeria, Senegal, and Tanzania, which are covered in Chapter 3. Other sub-Saharan African countries that could be considered in this group are Côte d’Ivoire, Namibia, and Rwanda, which have issued sovereign bonds (see Chapter 3 of the May 2013 REO).

CEMAC is the Economic and Monetary Community of Central Africa; WAEMU is the West African Economic and Monetary Union.

Unweighted average of 45 countries.

These assumptions are derived from the prices of commodity futures and option contracts, as of end-July. They are not exactly the same as in the October 2013 World Economic Outlook risk scenario.

Angola, Burkina Faso, Cameroon, Côte d’Ivoire, the Democratic Republic of the Congo, Ethiopia, Ghana, Kenya, Nigeria, Senegal, South Africa, Tanzania, Uganda, and Zambia. This group accounts for more than 80 percent of regional output and includes a number of countries significantly exposed to commodity price risk.

This Annex was prepared by Jens Reinke and Alun Thomas.

Botswana, Côte d’Ivoire, Ethiopia, Mauritius, Mozambique, Nigeria, Rwanda, São Tomé and Príncipe, South Africa, Uganda, and Zambia.

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