This paper finds that the economic outlook for sub-Saharan Africa is better today than it has been for a long time. The external environment is finally becoming somewhat more favorable for most countries, notably the cotton and coffee producers. More important, the far-reaching adjustments in relative prices and in trade and payments practices in many countries are paying off and are being powerfully reinforced by policy adjustments in the CFA countries. There remain, however, major difficulties, including an insufficient level of domestic savings in most countries, a high rate of inflation in many, and an inclination to revert to restrictive policies in some.
Despite the brighter outlook, the paper notes that the region’s total real GDP growth will continue to be low--on the order of 2-2 1/2 percent in 1994. Growth will benefit from increased non-oil exports and from a pickup in capital formation. “investment could rise by 1 percentage point, to 17 percent of GDP in 1994; on average, that level remains likely to be lower than necessary to sustain positive real income growth per capita over the medium term, suggesting a need for higher savings and, in many cases, for greater efficiency of investment. A more significant pickup in the region’s growth zones could be expected in 1995.
The paper highlights differences in performance and in structural characteristics between country groups. Three groups are identified: the CFA countries, Nigeria, and a group of “other” countries. The first group is notably characterized by a weaker output performance over the medium term and by the stability of its real exchange rate, which contrasts with the fall in its terms of trade. The other groups have achieved a better balance between terms of trade and real effective exchange rate developments and a better growth record. In this context, the recent devaluation of the CFA franc represents a major adjustment, which, as the paper indicates, is supported by policies that aim at increasing substantially the domestic savings ratio and the investment ratio.
An important focus of the paper is the discussion of progress in liberalizing exchange and trade systems. The paper reviews in some detail recent experience in this regard, describing the typical sequence of steps followed by the countries; it sums up the results in showing that spreads between official and parallel exchange markets have been narrowed very significantly.
Finally, the paper discusses current developments in regional integration. It describes the steps taken in the CFA region, in the wake of the devaluation of the currency, to move on from monetary to economic integration. The paper also provides an overview of the arrangements for economic cooperation in the Southern Africa region.