African economic forecasts are brighter

But estimates vary and uncertainties abound
From Africa Renewal: 
page 20

Africa’s economic performance over the last three decades has been mixed, with the 1980s often referred to as a “lost decade,” while the mid-1990s brought the beginnings of a recovery. Since then, growth in sub-Saharan Africa has averaged well above 3 per cent a year, compared with just 1 per cent annually during the first half of the 1990s.

In their latest reports, various development agencies and international financial institutions provide scenarios for Africa’s economic prospects. While generally up-beat, their forecasts diverge (see table). For example, the World Bank predicts that Africa’s gross domestic product (GDP) will grow by 3.6 per cent this year, while the International Monetary Fund (IMF) forecasts 5.4 per cent growth.

In part, such disparities exist because these institutions employ different assumptions about world economic growth, oil and commodity prices, aid flows and other economic and geopolitical variables. Their data coverage and methods of calculation also vary, contributing to discrepancies in both estimates of past performance and predictions about the future. Countries often send a different data set to each institution, depending on its specific requirements. Moreover, some inconsistencies can result from the use of different base years for estimating GDP at constant prices.

As far as the country projections are concerned, the weight given to certain factors considered to be important for the future can dramatically affect forecasts. For instance, for countries deemed to be better integrated into the world economy, external factors such as world economic growth or exchange rate fluctuations are given more weight. Finally, data from Africa are not always reliable. Most of the time they are estimates, not actual values.

Weather and commodity prices

According to the 2004 World Economic and Social Survey, issued by the UN Department of Economic and Social Affairs (DESA), growth in Africa will continue in 2004 and 2005, reflecting mainly an increase in both agricultural and industrial production in many African countries. A substantial increase in exports of manufactured products to the European Union and the US, as a result of improved market access agreements as well as a boom in non-oil commodity exports, should also improve the near-term economic outlook. The report adds, however, that poor weather could disrupt agricultural output, while further increases in fuel prices would seriously affect oil-importing countries.

The UN Economic Commission for Africa (ECA), in its Economic Report on Africa 2004, forecast average GDP growth in Africa to increase to 4.4 per cent in 2004, up from 3.8 per cent the year before. Like DESA, it sees an increase in agricultural output due to improved weather, combined with a rise in world market prices for African metals and mineral exports, as contributing factors.

Without providing a specific growth figure for 2005, the ECA argues that the continent’s short-term development prospects have been strengthened by sound political and economic reforms. In addition, some countries have moved from conflict to peace, placing themselves in a good position to reap the benefits of greater aid and domestic and foreign investment.

Africa: real GDP growth (annual percentage change)
Institution
2002
2003
2004
2005
DESA
3.4
4.4
4.5
4.7
ECA
3.2
3.8
4.4
--
IMF
3.5
4.3
4.5
5.4
OECD-ADB
2.7
3.6
3.6
4.0
World Bank
3.1
3.0
3.2
3.6
Sources: DESA, ECA, IMF, OECD-ADB and World Bank.

 

According to the IMF’s latest World Economic Outlook, Africa’s improved performance reflects a combination of factors. These include improvements in macroeconomic stability, global economic recovery, higher demand for primary commodities (mainly in 2004), more favourable weather conditions in some countries, the reduction of Africa’s external debt burdens and relatively easier access to markets in developed countries.

Persistent ‘development gap’

According to Mr. Raghuram Rajan, the IMF’s economic counselor and research director, these gains remain fragile. He adds that current growth rates are not enough to halve poverty by 2015, the target set by the Millennium Development Goals. The challenge for Africa, he says, is to achieve sustained strong growth.

The 2004 African Economic Outlook, produced jointly by the industrialized countries’ Organization for Economic Cooperation and Development (OECD) and the African Development Bank (ADB), attributes its forecast of a slight rise in growth in 2005 to three main elements: favourable international commodity prices, higher levels of international aid and improved security in key countries. But it warns that the recovery could be short-lived if sluggish economic growth persists in the euro zone, the destination for about half of Africa’s exports.

The World Bank’s 2005 Global Economic Prospects and the Developing Countries also predicts higher growth rates for 2004 and 2005, in part based on assumptions of revived economic activity in Europe. But while oil-producing countries will enjoy increased demand, Africa’s oil-importing economies will remain vulnerable. The World Bank’s chief economist, Mr. François Bourguignon, points out that despite substantially improved performance, growth in Africa will still lag behind the rest of the world. The result, he says, will be a widening “development gap.”


*David Mehdi Hamam is a senior economic affairs officer
in the UN’s Office of the Special Adviser on Afr