ECA's Thirty-third session of the Commission/Twenty-fourth meeting of the Conference of Ministers/Seventh Conference of African Ministers of Finance
6 - 8 May 1999 Addis Ababa, Ethiopia

II. Recent Economic Performance and Prospects for Poverty Reduction

25. This section reviews the recent performance of African economies in relation to the objective of poverty reduction. It also derives macroeconomic policy targets for the medium-to-long term with respect to growth and investment requirements that are consistent with specific poverty-reduction goals. The objective is to set the stage for the discussion of the resource and policy challenges African policy makers face in moving forward with the poverty reduction agenda, through enhanced growth.

26. After about four decades of independence and numerous development assistance programmes, poverty in Africa continues to be widespread, deep and severe. It is estimated to affect the lives of 60 per cent of the population in sub-Saharan Africa, and 27 per cent in the North African subregion. While there are many important factors in the African poverty profile, poor economic performance is at the root of the problem. For two decades before the mid-1990s, Africa’s economies stagnated. Since the mid-1990s however, the continent has experienced a rise in many economic indicators. Real GDP growth accelerated to 4.5 per cent between 1995 and 1997 (compared to an average annual rate of 1.5 per cent between 1990 and 1994). Real average per capita GDP growth became positive, at 1.1 per cent annually over the same period (compared to about negative 1.9 per cent during 1990-94). Export growth doubled, from an annual average of 3.9 per cent between 1990 and 1994 to 7.8 per cent between 1995 and 1997. For changes in other key economic indicators see Appendix Table 1. The improvement in Africa’s economic performance is attributable mainly to the positive effects of the macroeconomic adjustment measures undertaken in many countries since the mid-1980s and better weather conditions, which have led to strong growth in export earnings. But this performance is fragile and research has shown that key sustainability conditions are missing in most African countries — a fact partly shown by the inability to sustain the 1995 growth rate in 1997, and even less so in 1998 in the majority of countries.

27. Besides good policies, resources are needed to build on the recent good news to sustain and accelerate development for the purpose of poverty eradication. But what levels of additional resources are needed for this purpose? A number of studies and initiatives have attempted to provide alternative estimates of the total amount of resources required by Africa to achieve the objective of sustainable growth in the medium term. Some of the estimates include: World Bank (1989), ADB (1985), and ECA (1993) and most recently, van Holst Pellekaan (World Bank, 1996) and Amoako and Ali (1998), whose estimates set the stage for the resource needs and policy response discussion throughout the rest of this paper.

28. The objectives of Amoako and Ali’s estimates are to highlight the growth rates and broad orders of magnitude of the resource needs and the policy challenges implied in the poverty reduction targets. Their estimates are based on the specific objective of reducing poverty by half by the year 2015 — a 4 per cent per annum rate of reduction of poverty levels — which is an objective adapted from the Copenhagen Summit. Two critical assumptions are made, which the authors acknowledge to be optimistic — the savings rate and the efficiency of use of capital (see footnote). They point out, however, that the economic reform programmes implemented in the region will eventually lead to improvements in these parameters.

29. Based on recent work on the dynamic behaviour of poverty, a growth elasticity of poverty of 0.76 is assumed, implying that per capita income growth of 5.2 per cent is required for poverty reduction. Assuming an average population growth rate of 2.8 per cent for the sub-Saharan African region, a GDP growth rate of 8 per cent is required to achieve the poverty-reduction objective. The comparable figure for the whole of Africa is 7 per cent, mainly because the incidence of poverty is less in North Africa. The estimates show that the average annual magnitudes of external resources (measured as a proportion of GDP) required to reduce poverty by half by the year 2015 in sub-Saharan Africa are 47 per cent during 1999-2000; 32 per cent during 2001-2005; and 10 per cent for the period 2006-2010. These magnitudes of external resources are so massive that they are not likely to be attainable, particularly if the bulk of them were expected to come from official development assistance. North Africa only needs 5 per cent of GDP in external resources, which in light of the present ODA flows averaging about 3 per cent of GDP, leaves a financing gap of about 2 per cent of GDP.

30. The key conclusion is that while macroeconomic performance of the past four years — 4.5 average annual real GDP growth, resulting in a positive per capita income rise — has laid a good foundation for growth, the job ahead is monumental. Considering the strong effort which led to the good recent performance, attaining and sustaining 8 per cent GDP growth rate in terms of resources and policy reforms is a Herculean task. The optimistic assumptions about the savings and capital output ratios as well as the estimated massive resource requirements serve to highlight the nature of the challenges facing African decision makers in an environment where resource and policy options leave little room for trade-offs.

31. In order to move forward, a comprehensive framework for concerted action and strategic interventions is needed on the part of African governments, civil society, foreign bilateral donors, multilateral institutions and private sector actors. The aim should be to implement a mix of macroeconomic and structural policies and programmes for enhancing investment, growth, poverty reduction and social development. The focus should be on the simultaneous need to increase the impact of ODA, attract more private capital, stem capital flight, raise the domestic savings effort, and to release resources from debt service for application to development and social programmes. The comprehensive approach to Africa’s development has already been advocated by major development actors, most notable among them the OECD-DAC in 1996, the UN in 1998, and more recently by the World Bank President. It is a step in the right direction.