[Back to index] [To Volume11#3 -- full graphics]

From Africa Recovery, Vol.11#3 (February 1998), page 1

Faster growth cautiously forecast for 1998

Fourth year of positive growth in Africa

By Henk-Jan Brinkman and Carl Gray*

Showing further signs of recovery, Africa's economic output rose for the fourth consecutive year in 1997, growing by 3 per cent, although slower than the 4.4 per cent recorded in 1996. It was also the second consecutive year of growth in per capita gross domestic product (GDP) as the population increased by 2.6 per cent. But alongside strong performances by some individual countries, there are also deep problems in others and the international environment remains very difficult for the continent.

For now, growth is forecast to rebound to around 4 per cent this year. However, certain factors could weaken Africa's growth prospects. These include civil strife and political instability in some countries. The emergence of El Niño (see article Africa braces for El Niño's impact) could also hit food and export crop production. This would increase the prospects of higher inflation, larger import costs and wider fiscal deficits. The currency crisis and economic slowdown in some Asian countries could also affect their investment in Africa, and lower their demand for African exports. Some had become African countries' fastest-growing trading partners in recent years. For example, South African exports to Indonesia, Malaysia and the Republic of Korea rose from negligible in 1990 to almost $2 bn in 1996.

Data on overall performance in 1997 in 38 countries regularly monitored by the UN Department of Economic and Social Affairs show all but one country (Morocco) registering positive economic growth. Fifteen of the 38 achieved GDP growth of at least 5 per cent. Among them, 11 countries reached 6 per cent or higher and the top performers, with growth rates above 7 per cent, were Angola, Ethiopia, Rwanda and Uganda. Meanwhile, the continent's growth rate was slower than in 1996 partly because South Africa in particular, and others such as Kenya, Malawi, Tanzania, Tunisia, Zambia and Zimbabwe, performed less well than in recent years.

The two most significant factors behind the relatively high growth of 1996 -- high oil prices and improved agricultural output -- contributed much less in 1997. Oil prices declined, as did agricultural production in many countries, including Ethiopia, South Africa and Zambia where bumper crops had driven agricultural output to record levels in 1996.

Drought and poor rains were especially severe in northern, eastern and central Africa. Crops were below normal in most northern African countries, with Morocco particularly hard hit: its GDP fell -- by 2.2 per cent -- for the fourth time in the last six years. Even though Morocco's cereal imports rose along with food prices, the average inflation rate declined in 1997. In eastern and central Africa, drought led to famine and urgent appeals for international food aid in parts of Ethiopia -- which had achieved food self-sufficiency in 1996 -- and in Rwanda, Sudan and Tanzania. Severe food shortages also occurred in Burundi, the Congo Republic, the Democratic Republic of Congo, Eritrea, Kenya and Uganda due to poor rains. In contrast, heavy rains or flooding in Malawi, Somalia and Zambia caused widespread damage to food crops and depressed agricultural output and GDP growth.

Critical need for investment

Thus, while Africa remains vulnerable to exogenous shocks, such as bad weather or falling commodity prices, it appears that many countries have entered a period of higher underlying, sustainable growth rates, perhaps between 5 and 6 per cent. But in order to reach even higher levels of growth and significantly reduce pervasive poverty and unemployment, Africa will need more investment in such areas as human resources, infrastructure and institutions. Indeed, at 4 per cent growth of GDP (and a population growth rate of 2.6 per cent), it will take about 12 years more just to recover the GDP per capita level of 1980.

One structural concern is that the higher growth achieved in some countries in recent years is to some extent driven by the energy and mining sectors. These are relatively isolated from the rest of the economy and thus have little direct effect on living standards of the majority of the population. Examples include Angola, and Equatorial Guinea (which began exporting oil in 1992). The double-digit growth expected this year in Mozambique is also partly driven by exports of electricity to South Africa and Zimbabwe. Whether benefits will reach larger segments of the population partly depends on how the increased government revenues are spent.

Higher export earnings was the most important factor behind the growth in GDP in several countries in 1997. Strong exporters included Botswana, Côte d'Ivoire, Egypt, Morocco, Namibia, South Africa, Tunisia, Uganda and Zimbabwe, in particular. The volume of exports increased by 6.6 per cent in 1997, down from 9.4 per cent in 1996 but still rather robust. Strong demand in developed countries for Africa's exports, an improvement in non-oil commodity prices (particularly coffee prices, which rose by over 35 per cent, and moderate increases for most minerals and metals) and larger volumes were the main factors in export growth. Most fuel exporters compensated for the fall in oil prices by increasing the volume of production. Expansion of non-traditional exports or revenues from tourism partly compensated Ghana and Zambia for lower export revenues from traditional sources.

In South Africa, steady growth in exports, driven by a weak exchange rate and recent investments in capacity, particularly in the processing of minerals, prevented slow growth from deteriorating into a recession. With such constraints as lower agricultural production, high interest rates and a

fall in gold prices, South Africa's GDP growth was around 2 per cent in 1997 compared with 3.1 per cent in 1996. But its investment and trade with regional economies contributed to the dynamism of the Southern African Development Community (SADC) where GDP growth of its member countries (excluding South Africa) averaged over 5 per cent.

Africa's fuel exporters all registered similar or lower GDP growth in 1997 compared to 1996. Nigeria's output grew by about 3.5 per cent but economic activity continued to be hampered by frequent power failures and severe fuel shortages caused by lack of maintenance of oil refineries. Angola's expansion of offshore oil production provided the only source of growth as recovery in other sectors was harmed by slow progress in the peace process.

High average for inflation

Aiming to improve macroeconomic balance, African countries generally continued to adhere to strict monetary and fiscal policies, and financial sector reforms deepened in several countries. New legislation gave the central bank greater autonomy in Kenya, and the banking sector was restructured in Mozambique, Tanzania and Zimbabwe.

Despite such efforts, Africa's inflation rate in 1997 was 47 per cent compared to 34 per cent in 1996. Notable causes for this high average included hyperinflation in Angola and the Democratic Republic of Congo, continued high inflation in Burundi -- where economic sanctions by neighbouring countries led to widespread scarcities -- and in Sudan, where civil unrest and political instability have disrupted economic activity. Higher food prices drove up inflation in countries that suffered from drought and food-production deficits. Inflation also crept up to the highest levels in recent years in Kenya and Uganda, two countries that had reduced inflation to single digits. Wage increases helped push up inflation rates in countries such as Benin and Zimbabwe. In contrast, lower inflation rates in Algeria, Egypt, Namibia and South Africa led to an easing of monetary policy through lower interest rates.

Domestic investment, as well as slightly improved inflows of foreign direct investment, were important contributors to GDP growth in some countries in 1997. Foreign investment responded in part to opportunities created by steadily expanding privatization programmes in such countries as Cape Verde, Côte d'Ivoire, Egypt, Morocco, Mozambique, Senegal, South Africa, Tunisia, Uganda and Zambia. Similar programmes were initiated in Botswana, Eritrea and Lesotho, while Zimbabwe concluded its first privatization with the sale of Dairibord Zimbabwe. Other countries which took specific measures to promote investment included Algeria and Gabon, while Egypt liberalized trade and passed a new investment law. This offers, among other things, new tax incentives, protection of property rights, freedom of money transfers, and easier conditions for new investment.

Since the devaluation of the CFA franc in 1994, and with the exception of Cameroon and the Congo Republic, investment ratios (at constant prices) have risen in Franc Zone countries from the low levels of the early 1990s. In South Africa, however, a period of rapid growth of investment ended after a number of large projects was completed and capacity utilization rates fell in 1996.

In another area of resource flows, rocky relations with multilateral financial institutions led to suspended or delayed disbursements for three countries. Last July, the International Monetary Fund (IMF) cancelled remaining disbursements of a $205 mn enhanced structural adjustment facility (ESAF) loan to Kenya and suspended the entire programme. While the Kenyan government complained of being subjected to political conditionality, the IMF said there had been a technical breach of one of the agreements and that government efforts to root out public sector corruption and fraud were inadequate. In October, the IMF similarly suspended the release of the first tranche of the second-year allotment of a $115 mn ESAF loan to Ethiopia. The IMF wanted faster liberalization of trade, and of interest and exchange rates, while the Ethiopians held out for a more cautious approach in the three-year programme. Zimbabwe suffered a similar fate in October when the World Bank withheld over $65 mn in balance of payments support. This came shortly after the Bank had announced the lifting of a freeze on such aid to Zimbabwe which had been in effect since 1995. The Bank wanted to know how the government planned to finance a package of gratuities and monthly pensions for independence war veterans which was hastily approved after street protests by veterans' groups and their supporters.

[Back to index] [To Volume11#3 -- full graphics]

Material from this article may be freely reproduced, with attribution to "Africa Recovery, United Nations".
We would appreciate a copy of the reproduction.

Africa Recovery
Room S-931
United Nations
New York, NY 10017 USA

Tel: (212) 963-6857
Fax: (212) 963-4556
Email: africa_recovery@un.org

Website: www.africarecovery.org
Contact us by email: africa_recovery@un.org