| African
Economic Report 1998
Source: ECA Secretariat 4. The slowdown in regional
economic growth was due to the decline in subregional growth, which will be explained
later. Given the significance of agriculture in the African economies, smaller harvests
had adverse consequences on income, consumption and on the performance of the processing
industries. Poor rainfall and drought in Morocco reduced its GDP growth for the fourth
time in the last six years and necessitated higher cereal imports. The El Nino-induced
weather condition in Southern and parts of East Africa provoked critical food shortages,
eliciting urgent calls for international food aid in some countries such as Ethiopia -
which had achieved food self-sufficiency in 1996 - Eritrea, Somalia, Rwanda, the Sudan,
Tanzania and Uganda. Modest growth was nevertheless recorded in West and Central Africa
although severe food shortages were reported in Burundi, the Republic of Congo and the
Democratic Republic of Congo. I.A.1. Growth of Agricultural Output 10. The strong recovery of agricultural output in 1996 was not sustained in 1997. For the African region as a whole, agricultural production growth decelerated to 1.7 per cent in 1997, after bumper crops had raised output by a record 5.2 per cent in 1996. This was essentially due to weather conditions that affected production in major producer nations. The production of the major export commodities fell in 1997 below their 1996 levels and this decline was particularly noticeable in the case of cocoa and coffee. 11. In the food sub-sector, regional production in 1997 was adversely affected by the erratic changes in weather conditions, mainly because most countries depend overwhelmingly on rain-fed agriculture. Civil strife also played a significant part in accentuating the region's food-supply difficulties. According to data from the United Nations Food and Agricultural Organization (FAO), cereal production fell by about 10.5 per cent from 126 million metric tons in 1996 to 113 million metric tons in 1997. Fruits, jute and vegetable production was slightly lower than in 1996, while the production of pulses increased. 12. Due to poor performance, difficulties are emerging in the eastern and north-eastern parts of the region. In Tanzania, for example, the 1997 cereal crop declined by one-third. In Rwanda and Burundi, although production has been recovering, it remained well below pre-crisis level. In Ethiopia and Eritrea food production fell drastically. Stocks were exhausted in an effort to make up for the shortfall and this required an urgent call for assistance to the international community to contain an impending disaster. Table 1.3: Performance of Food Crops in Africa, 1994-1997 (Million Tons)
Source: FAOSTAT Database 13. In West Africa, the performance of agriculture was mixed, but the already precarious food situation in some countries such as Sierra Leone continued to deteriorate as a result of the negative impact of civil strife. Improvement was achieved in Liberia following the conclusion of the civil war and the installation of the democratically elected government. 14. The generally negative or poor record of 1997 points to serious gaps in food supply for the majority of African countries. Again this is likely to lead to a sharp decline in the stock-to-utilisation ratio in 1998, pushing it below the minimum level necessary to safeguard regional food security. Of the 31 countries projected by the FAO to face critical food deficits, 20 are located in Africa. The replenishment of stocks might be suspended by low-income countries and the resumption of such efforts will require sizeable improvements in production techniques and increases in actual production in the coming year otherwise these countries will revert to long-term dependence on food aid. 15. Among the subregions, the most drastic falls in cereal production were recorded in North Africa, where production declined by 50-60 per cent in Algeria, Morocco and Tunisia, and by about 30 per cent n the subregion as a whole. Performance was poor in Central Africa and mixed in West, East and Southern Africa. 16. Shortfalls in the production of cereals and other food crops triggered an increase in food prices and required significantly larger imports, particularly wheat. Preliminary estimates by the FAO put the 1997/1998 wheat imports by African countries at a record 21 millions tons, with imports by Algeria, Egypt, Morocco and Tunisia forecast to exceed 14 million tons. 17. Major commercial crops did not do well in 1997, again as a result of adverse weather conditions. The cocoa bean harvest declined by 9 per cent. Most of the shortfall came from Côte d'Ivoire, which reported climatic disruptions during the planting and harvesting seasons. Similarly, tea and sugar production declined by 7.8 per cent and 0.48 per cent respectively, in 1997. The region's negative tea output resulted mainly from a poor harvest in Kenya. 18. The production of green coffee was much lower in 1997 than in 1996 in Kenya, Madagascar, Rwanda, Tanzania and Uganda as well as in Côte d'Ivoire. Ethiopia managed to increase production by some 7.8 per cent, but the prevailing adverse conditions in Kenya and Uganda resulted in a 21- and 25.8-per cent fall in the two countries respectively. In consequence, the regional output of coffee fell by 7 per cent from about 1.2 million metric tons in 1996 to about 1.1 million metric tons in 1997. The generic decline in commercial-crop production was equally evident in other crops, with total seed cotton production declining by 1.4 per cent. I.A.2. Growth in the Industrial Sector 19. The output of the industrial sector (broadly defined to include non-agricultural commodity production) increased by 3.3 per cent in 1997, well below the 1996 rate of 5.4 per cent, due mainly to the slowdown in the mining subsector (3.3 per cent in 1997 as against 6.5 per cent in 1996). Manufacturing industries maintained their growth rate of 2.5 per cent. The booming industrial activities in 1997 as in the previous years, were construction (5.4 per cent) and energy and water (3.1 per cent). 20. Performance indicators of the African mining industry in 1997 were similar to those for 1996 despite the surge in investment. The production results of the 15 main minerals representing over 90 per cent of the sector's total output show that, with few exceptions, output either declined or stagnated in 1997. The overall mining-production index (excluding oil) remained virtually unchanged in 1997, increasing marginally by 0.6 per cent over 1996. 21. In Ghana, gold production in the first half of 1997 increased by 10 per cent at the Ashanti Goldfield at Obuasi, the country's largest. Despite this early surge in output, production was estimated to have remained unchanged at 44.4 tons for 1997 due to considerable slowdown during the second half of the year. 22. In South Africa, most mines continued to face significant productivity problems associated with working conditions, dwindling reserves and slender profit margins. Output in the sector fell by 0.5 per cent in the first quarter of 1997. Gold production was particularly affected due to the declining quality and quantity of the ore milled. Production in 1997 was estimated at 484 tons, down from 495 tons in 1996. The increase in copper production in Zambia was overshadowed by a steep decline in production in the Democratic Republic of Congo. 23. The oil sector continued to pursue dynamic development in 1997. The favourable conditions under which African countries offer concessions to the oil companies, coupled with low exploration and production costs, due to technological developments, have continued to attract investment to the continent. Important new oil discoveries were reported, particularly in Algeria, Angola, Egypt and Equatorial Guinea, and exploration and drilling activities have been booming across the continent. 24. Crude oil production in Africa increased from 368.4 million tons in 1996 to 378.4 million tons in 1997. Production from members of the Organization of Petroleum Exporting Countries (OPEC) increased marginally to 252.10 million tons, 2.8 per cent more than in 1996, due to the quota system imposed on member countries by the organization. Production from non-OPEC oil-producing countries rose to 126.30 million tons in 1997 from 123.24 millions tons in 1996. Table 1.4: Crude Oil Production in Africa, 1993-1997 (Millions of tons)
25. In 1997, the manufacturing industry maintained its previous year's growth at 2.5 per cent. The sector continues to be constrained by a host of structural and demand constraints. With the exception of the North African countries, where capacity utilization and expansion remained buoyant, performance remained subdued in the rest of the continent. In South Africa where the industrial infrastructure is most advanced, depressed demand entailed capacity under-utilization. 26. The services sector continued to grow at a higher rate than commodity production, increasing by 4 per cent in 1997. The liberalization of financial services and trade is the main factor driving its growth. The high rate of expansion of the sector had a positive spillover effect on the demand for and subsequent growth in energy, water and construction activities which, as pointed out earlier, are booming. 27. While the formal services are growing at high rate, this may not accurately reflect the actual size and dynamics of the sector since it may not capture the informal services, which seem to be growing much faster than the formal ones. 28. Gross domestic investment has remained very low compared to the volume required to accelerate the rate of economic growth as well as in comparison with the high-performing areas in Southeast Asia. In the last two years, the volume of investment as a proportion of GDP stabilized at 21 per cent, a considerable improvement over the 19 per cent of the 1990-1995 period. One major reason behind the low volume of investment is the low mobilization of resources from both domestic and external sources. 29. Table 1.5 contains statistics on the volume of saving and investment as well as the resource gap as a proportion of GDP from 1975 to 1997. 30. First, gross domestic savings (GDS) defined as GDP less total consumption expenditure has been consistently declining. In 1975-84, African countries saved a quarter of their GDP, but this fell to 20 per cent during the second half of the 1980s and to 16 per cent for the 1990-97 period. Compared to the 1975-1984 period, gross domestic savings in Africa declined by 34 per cent during the first half of the 1990s. The fall was most severe for the North African countries, where it amounted to 45 per cent (from 34 per cent to 19 per cent of GDP) while for Sub-Saharan Africa, the fall was around 25 per cent. The decline in saving was relatively harsh for the SSA countries, excluding the two dominant economies of Nigeria and South Africa. Starting from a low base of 15 per cent of GDP or 63 per cent of the regional GDS in the 1974-84 period, it declined by 28 percent to 11 per cent in 1990-97. Table 1.5: Savings and Investment in Africa 1975-97:periodical average (as % of GDP)
Source: IMF, World Economic Outlook, May 1997 31. Gross national savings (GNS), defined as the sum of GDS, net factor income and net private and public transfers from abroad, tells an even more daunting story. Between 1975-84 and 1990-97, GNS declined by 42 per cent for Africa as a whole, by 50 per cent for North Africa and by 39 per cent for SSA. GNS in SSA excluding South Africa and Nigeria fell by 60 per cent. 32. During the same period, the net transfer of resources from Africa averaged 3.9 per cent of GDP per annum. Net transfers abroad as the difference between gross domestic savings and gross national savings increased from 3.3 per cent of GDP in 1975-84 to an annual average of 4.6 per cent during the mid-1980s and then decreased to 3.8 per cent in 1990-1997. 33. The decline in GNS has had important repercussions on gross investment in Africa in two major respects. The first is the negative impact of declining GNS on investment. The correspondence and correlation between the proportion of GDP saved and invested and between the latter and GDP is very robust. Hence, as GNS declined so did the volume of investment and growth. The second is the increased dependence of these countries on external resources. 34. Between 1975 and 1997, the resource gap (defined as the difference between GDI and GNS) averaged 5.9 per cent of GDP per annum. In the North African countries, the difference between the two parameters increased from 0.6 per cent of GDP in 1975-84 to 10 per cent of GDP in 1985-89, before decreasing to 9 per cent during the first half of the 1990s. The corresponding figures for the SSA countries were 5, 4 and 6 per cent of GDP respectively. If South Africa and Nigeria are excluded from the SSA aggregates, these figures become 8, 4 and 5 per cent of GDP. These statistics strongly suggest that African countries need to redouble their efforts to increase the volume of investable resources they are to mobilise from domestic as well as external sources.
Table 1.6: Balance of Payments 1995-1997 (US$ Billions)
Source: Compiled from IMF's, WEO, IFS, and DOT. 36. The volume of oil exports increased as a result of growth in production, particularly by the non-OPEC countries. Other minerals maintained their previous year's volume of exports. Despite unfavourable weather conditions and the decline in the output of agricultural exportables, export volume increased as a result of a depletion of stock held over from previous years. 37. The trade balance remained positive at US$8.3 billion in 1997, comprising a surplus of US$32.9 billion for the oil exporters and a deficit of US$24.6 billion for the non-oil countries. 38. Despite the region's positive trade balance, the current account deficit increased from US$8.6 billion in 1996 to US$9.5 billion in 1997. The persistent current account deficit is due mainly to the balance of services, made up of interest payments on the external debt, trade-related financial services (banking and insurance) and transport (mainly shipping) services. I.A.5. The Debt Burden Remains Unsustainable 39. The external debt of African countries rose from US$340 billion in 1996 to US$349 billion in 1997, an increase of nearly 3 per cent. The debt service amounted to US$33 billion, up from US$ 31 billion in 1996, absorbing 21.3 per cent of earnings from the export of goods and services. Table 1.7: External Debt and Debt Related Statistics (billion of US$ and percentage)
Source: World Bank, National Sources. 40. There is a general consensus that the debt overhang continues to be a major obstacle to recovery and to the sustainability of high economic growth, particularly in the highly indebted poor countries. The difficulties in meeting debt- service obligations are reflected in the accumulation of arrears and the strong demand for their rescheduling. 41. Uganda and Burkina Faso are to become beneficiaries of the HIPC initiative in 1998. Accordingly, the debt stock is expected to be reduced by 15-20 per cent. For example, Uganda is expected to receive assistance equivalent to US$ 340 million (in April 1998 US dollars), which represents a 20percent reduction of its debt. Côte d'Ivoire and Mozambique are also expected to be beneficiaries. 42. The alleviation of the debt burden remains a major item on the agenda of the African policymakers and their development partners for at least two reasons. Firstly, recent empirical evidence suggests that the burden of the debt overhang deters investment or causes investors to opt to wait, due to the increased uncertainty and risk of committing huge investments. Secondly, HIPCs (Heavily Indebted Poor Countries), most of which are in SSA, have continued to find it increasingly difficult to meet their external debt-service obligations. The HIPC Initiative is a welcome development as it is expected to reduce the burden of the 32 poorest highly indebted African countries. I.A.6. The HIPC Initiative: An Update 43. The HIPC Initiative is a framework developed in September 1996 by the Bretton Woods Institutions (IMF and the World Bank) to address the external debt problems of the heavily indebted poor countries (41 eligible nations), nearly 85 per cent of which (34 countries) are in Africa. The initiative has been developed around the following criteria:
44. Four African countries (Benin, Burkina Faso, Mali and Uganda) have agreed on stock-of-debt operations on Naples terms with Paris Club creditors and can be considered to have established the first three-year track record required under the initiative. The staff of the Bretton Woods institutions have been working on DSAs with the country authorities. On April 22 and 23, 1997, the executive boards of the World Bank and the IMF approved Uganda's eligibility for assistance under the HIPC initiative. They agreed to an NPV debt-to-exports target of 202 per cent and set April 1998 as completion point. Moreover, the executive boards of the World Bank and the IMF agreed on April 24, 1997 to consider on a case-by-case basis an NPV debt-to-exports target below 200 per cent at the completion point of open economies, provided that the country concerned meet two criteria at the decision point: an export-to-GDP ratio of at least 40 per cent and a minimum threshold of fiscal revenue in relation to GDP of 20 per cent. For countries meeting these thresholds, the NPV debt-to-exports target will be set at a level that achieves a 280 per cent ratio of the NPV of debt to revenue at the completion point. Cote d'Ivoire would potentially benefit from such treatment. 45. Recent analysis of the multilateral debt initiative for HIPCs suggests that the debt burden faced by the African HIPCs has strongly and negatively affected economic growth since the second half of the 1980s, threatened the sustainability of reforms, and prevented the development of a capable and functional state, due to the fiscal crisis that ensued. However, a comparison of three groupings -- unstainable HIPCs, possibly stressed HIPCs and non-HIPCs -- reveals the following features in the 1990s: • external debt burden (stock of external debt to GDP and to exports, debt- service ratios to exports and to fiscal revenue) is much higher in HIPCs than in non-HIPCs; • External debt-based HIPCs are also the most indebted in terms of documented debt; • HIPCs as a group have higher fiscal-deficit ratios and lower public and aggregate investment ratios; • the set of "unsustainable" HIPCs is found to be much larger (2-4 times) than indicated by the Breton Woods institutions' classification; • a comparison of the sustainability ratios to the thresholds set by the multilateral debt initiative (based on the above-mentioned debt-to-exports and debt service-to-exports ratios) suggests that the initiative appears adequate as a framework for addressing the HIPCs' external-debt problem; • despite the adequacy of the guidelines, the multilateral debt initiative may, in effect, end up being inadequate for propelling Africa onto the minimum growth path (about 5 per cent annually) required to reverse its current economic decline. 46. Recognizing the fact that this initiative is not a panacea for all the economic problems of the African HIPCs, it is fair to conclude from the above findings that the implementation of this initiative appears to be conservative, not only compared to other approaches, but also with regard to broader development for Africa. I.B. Subregional Growth Performance 47. In 1997, all Africa's subregions recorded lower growth rates than in 1996. Growth was lowest in Southern Africa (2.4 per cent) and North Africa (2.8 per cent) and highest in Central Africa (3.8 per cent) followed by West Africa (3.7 per cent) and East Africa (3.5 per cent). The largest decline was in North Africa (from 4.4 per cent to 2.8 per cent, a fall of 36 per cent) followed by Southern Africa, where growth in 1997 was 80 per cent of what it was in 1996. Table 1.8: Subregional Growth Rates (% p.a.) 1993-97*
Source: ECA Secretariat * Weighted Average 48. The major factor behind the steep decline in Southern and North Africa was unfavourable weather, which drastically reduced agricultural output.
51. In North Africa, with the exception of the Sudan, where output increased by nearly 10 per cent, all the countries of the subregion experienced a conspicuous economic decline. The manufacturing sector registered mixed performances across the subregion with steep increases in Morocco, Tunisia and Egypt, marginal recovery in the Sudan and marked declines in Algeria and Libyan Arab Jamahiriya. 52. The performance of the manufacturing sector has been affected by outturns in the external environment as well as domestic developments. The Libyan Arab Jamahiriyan Arab Jamahirya and the Sudan operate under an unfavourable external environment which has constrained orderly access to inputs and inhibited outlets to markets because of sanctions. The Sudan is making headway in mending its relationship with the IMF by paying its arrears. Morocco, Tunisia and Egypt are taking advantage of their proximity to markets in Europe and the Middle East and are diversifying fast and expanding their industrial base. 53. In West Africa the marginal decline in GDP reflects the slowdown in the larger economies of the subregion (Côte d'Ivoire, Ghana and Nigeria) while the smaller economies, particularly those of Benin, Burkina Faso and Mali, posted respectable growth. In Liberia, the economy is on the road to recovery following the end of the civil war and the election of a new government. Agricultural production in some of the subregion's countries, particularly Nigeria, Senegal, Gambia and Mauritania, declined significantly. 54. Industrial performance in the West African subregion was subdued. Declining prices for oil and gold spilled over to the manufacturing sector constraining its ability to acquire inputs, while competition from imports continued to put pressure on domestic producers. Capacity utilization in the manufacturing industries has remained very low, averaging 40 per cent, although the mining industries are expanding fast. In Cote d'Ivoire, oil has graduated to the status of the second most important source of foreign exchange. 55. The decline in GDP growth in Central Africa was due mainly to the political instability and civil unrest. In Burundi and the Republic of Congo, GDP declined as a result of sanctions and civil war respectively, while in the Democratic Republic of Congo positive growth was achieved despite the recent upheaval. The Central African Republic, Angola and Equatorial Guinea continued to enjoy high GDP growth. 56. In East Africa GDP growth declined from 4.2 per cent in 1996 to 3.9 per cent in 1997. The favourable weather that spearheaded the strong recovery in 1996 was followed by inauspicious weather that caused an economic slowdown. The heavy, untimely rainfall during the third and last quarter of the year destroyed crops and damaged transport and communication infrastructure in Somalia, Kenya and Uganda. 57. However, the negative impact of the slowdown in agriculture was tempered by manufacturing industries and even more by the vibrancy of the services sector. I.C. Policy Development in 1997 58. As is probably well known, the major thrust of economic policymaking on the continent has been informed for the last decade or so by the core policy content of adjustment programmes (of the type supported by the IMF and the World Bank). 59. The comprehensive programme of reform being carried out is geared to bring about economic growth by improving revenue performance, rationalizing and improving the efficiency of the taxation system, improving and reorganizing public administration, developing and improving the financial sector as well as strengthening bank supervision, encouraging private sector development and working towards sustainable agricultural development. 60. These and other adjustment measures are expected to improve and strengthen a country's balance of payments position and enhance its growth. As of 31 December 1997, there were 22 African countries with active extended Structural Adjustment Facility (ESAF) agreements with the IMF. The main policies pursued in 1997 and during the "medium-term strategy " to achieve macroeconomic objectives remained those belonging to the core set of reform policies and they included the following: financial policies (fiscal and monetary), structural reforms and social policies. 61. Policy Objectives:- Almost all 22 countries had enhancing real GDP growth, reducing the inflation rate, increasing gross official international reserves and reducing the current-account deficit as their objectives. The countries involved include Burkina Faso, [targets: increase GDP growth to more than 6%, decrease inflation to 3% and contain the current-account deficit to 10.5% of GDP]; Cameroon [5%, 2%, 2%]; Guinea [5%, 5%, 8%]; Guinea-Bissau [5%, 10%, 18%]; Mali [6%, 3.5%, 11.1%]; Malawi [5%, 8%, 7.6%]; Madagascar [3%, 7%, 7.2%]; Mozambique [6%, 14%]; Niger [4.5%, 3%, 11.1%]; Senegal [4.5%, 2.5%, 6.7%]; Sierra Leone [1.5%, 2%, 4.5%]; Tanzania [4.7%, 13%, 14.4%] and Uganda [7.5%, 5%, 7%]). 62. Financial policies: In order to achieve the above objectives, countries set themselves the target of consolidating fiscal /monetary policy during 1997 and in the medium term. To this end, governments implemented a tight monetary policy and adopted a cautious expenditure policy. Countries committed to these reforms include Burkina Faso, Cameroon, Guinea-Bissau, Guinea, Morocco, Niger, Mozambique, Tanzania, Senegal and Uganda. Some countries such as Burkina Faso and Guinea-Bissau, plan to continue tightening domestic credit to curb the inflation expected in the medium term. 63. Tax reforms: On the revenue side, countries are introducing reforms to their taxation systems. A number of countries such as Burkina Faso, Cameroon, Madagascar and Tanzania have introduced Value Added Tax (VAT). Guinea-Bissau is reforming the general tax system by introducing external-tariff reforms, reducing export taxes and revising excise taxes especially on petroleum, while Rwanda plans to broaden the tax base. 64. Structural reforms: Other than the main structural reforms of the financial sector and tax system mentioned above, the structural reforms under the programme have focused mainly on the following: taking measures to promote privatization; removing obstacles to private sector development; reforming the agricultural sector and encouraging sustainable agricultural development; export diversification; enhancing the role of the private sector in agriculture, fisheries and forestry; (Guinea-Bissau); improving and streamlining the civil service (Guinea-Bissau, Niger); increasing the efficiency of the energy sector; rationalizing legal requirements for foreign and domestic investment (Sierra Leone). Except where countries are mentioned as special cases, those listed below have adopted most of the structural reforms mentioned above. (Burkina Faso, Cameroon, Guinea, Guinea-Bissau, Madagascar, Malawi, Mali, Mozambique, Niger, Senegal, Sierra Leone, Tanzania and Uganda). A number of other non-ESAF countries are reported to have pursued the above structural reform policies. These include Botswana, Egypt, Morocco, Nigeria, Rwanda and Tunisia, which is also involved in labour-market reforms. 65. Social Sector: Almost all countries that have developed programmes targeting social needs have focused on combating poverty by increasing social sector spending to improve the supply of basic health services through the provision of preventive health care and expanding primary education (Burkina Faso, Guinea, Niger, Mali, Mozambique, Rwanda, Sierra Leone and Senegal). Senegal and Burkina Faso have put special emphasis on the female population in both cases. Senegal also has policies aimed at reducing the rate of population growth. 66. Despite the abovementioned general thrust of economic policy in 1997, and due to internal conflict situations on the continent, at least two countries are reported to have had special features distinguishing their economic policy. These are:
II. The Social Situation in 1997 67. The year 1997 witnessed a further exacerbation of some of Africa's perennial problems. Slightly more than 350 million people (More than half the population of Sub-Saharan Africa) continue to live in poverty. Malnutrition and hunger, disease, ill health and lack of shelter are widespread. A sizeable number of adult Africans are not productively employed and as such, they are unable to meet their basic needs. Millions of lives have been lost and families disintegrated through armed conflicts. The refugee problem has become more complicated and the number of people involved is high. Also, in many African countries a crisis of governance encompassing such well-known shortcomings as the near absence of democratic structures and popular participation persists. Access to social services, particularly | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||