Sub-Saharan Africa’s Economies Have Best Performance in 30 Years

COUNTRY BRIEFING - FROM THE ECONOMIST INTELLIGENCE UNIT

Largely on the back of buoyant energy and other primary commodity prices, GDP growth in Sub-Saharan Africa (SSA) is set to reach 5.8% this year--the highest level in more than three decades. According to the IMF’s World Economic Outlook, released in April, average inflation in the Sub-Saharan region will be 10.7%, fractionally higher than in 2005, while the region’s current-account balance will remain healthy and both external debt and foreign debt-service costs will fall. Indeed, if the IMF is right--and the Fund itself concedes that its forecasts tend to be some one percentage point higher than actual performance--no fewer than 18 of the 47 Sub-Saharan countries for which forecasts are given will grow by 5% or more in 2006. In comparison only eight countries managed average annual increases of 5% or more during the 1988-97 period.

In recent years there have been some striking changes in the regional pattern of growth as long-standing leaders have faltered. While Botswana’s growth rate averaged 7% between 1988 and 2003, economic expansion is not expected to reach 4% a year over the 2004-07 period. Similarly Mauritius, whose growth rate averaged more than 6% a year between 1988 and 2001, is now growing at less than half that rate (2.9% annually since 2002).

The current batch of good performers is a mixed group. The fastest-growing African economies will, unsurprisingly, be the oil exporters, led by Angola--with GDP expansion of a remarkable 26%--followed by Mauritania (18.4%) and Sudan (13%). The GDP of the continent’s largest oil producer, Nigeria, will grow by 6.2%. Economic reformers also feature strongly. For example, Uganda’s long-term growth rate since 1988 averages 5.6% a year (including projections for 2006/07). Ghana’s 20-year average growth rate since 1988 is 4.8%, while the Tanzanian rate has accelerated from 3.4% annually (1988-97) to a forecast 6% for the 1998-2007 period. Mozambique, which grew 4.6% annually until 1997, has subsequently achieved an average growth of 8% annually. These much improved performances justify IMF and World Bank optimism that their structural adjustment and reform programmes are at long last paying off.

There ought to be a lesson in this for both states that are not pressing ahead with reforms (or are doing so only slowly) and oil exporters, which should be using the current period of high oil prices to diversify their economies in readiness for tougher times ahead. There are lessons too for economies like Côte d’Ivoire, the Democratic Republic of Congo (DRC), Seychelles and Zimbabwe. Despite its dismal political record the DRC is currently growing at 6.75% annually, compared with an annual contraction of more than 5% between 1988 and 1997. This is the result of buoyant commodity prices and a rebound following a protracted period of falling real incomes, but far-reaching governance and economic reforms will be required if growth is to be maintained over the medium term. There is little reason to believe that the existing Congolese administration has either the political will or the administrative capability to deliver such reforms, meaning that growth is highly fragile and heavily dependent on buoyant commodity prices. Recovery in Côte d’Ivoire and Zimbabwe, meanwhile, is dependent on finding a durable political solution, which does not look imminent in either case.

In the Maghreb region growth in Algeria will be underpinned by increased oil exports and prices, and higher activity in the construction sector. Meanwhile annual growth is expected to exceed 5% in both Morocco and Tunisia. The expiry of textile quotas appears to have had less impact than was widely expected, but this could simply be a matter of timing. It seems, therefore, that in 2006-07 both countries will be vulnerable to oil price increases and to the delayed effects of the abolition of quotas on clothing and textile exports.

For Africa as a whole, the trick now is to convert the short-term commodity boom into long-term growth of at least 5% a year. For this to happen, countries must diversify and reduce their reliance on primary commodity exports. The danger is that they will be content to ride the commodity boom rather than making the tough decisions needed for structural change to their economies.