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Africa: Economic Report 2010
AfricaFocus Bulletin
Apr 5, 2010 (100405)
(Reposted from sources cited below)
Editor's Note
"The current global economic crisis has demonstrated the
vulnerability of Africa to the fortunes of the global economy. It
has also demonstrated that Africa cannot rely on external sources
to finance its development in a sustainable way. There is therefore
a need for African countries to increase their efforts to mobilize
domestic resources to finance development. In the final analysis,
Africa's development is the responsibility of Africans, and the
argument that Africa is a poor continent that cannot finance its
own development is getting tired." - Economic Commission for
Africa, Economic Report on Africa 2010
The message is not new, the authors acknowledge. And neither are
the policy recommendations they stress, such as the need to focus
on labor-intensive investments rather than the capital-intensive
enclaves that still dominate Africa's exports, with their
vulnerability to volatile commodity prices. But, argues the new ECA
report, the global economic crisis adds new urgency and credibility
to mobilizing Africa's own resources of human and financial
capital.
This AfricaFocus Bulletin contains excerpts from the overview of
the report. The full report is available at:
http://uneca.org/eca_resources/Publications/books/era2010
For previous AfricaFocus Bulletins on economic policy issues, visit
http://www.africafocus.org/econexp.php
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Economic Report on Africa 2010
Overview
[Excerpts: full text of overview, of full report, and of previous
reports are available at
http://uneca.org/eca_resources/Publications/books/era2010]
Africa achieved relatively high growth rates in the first decade of
the twenty-first century, culminating in a continent-wide average
growth rate of 6.1 per cent in 2007. Although rates varied across
the continent, this relatively fast growth was generally shared,
with several countries experiencing growth rates that exceeded
their population growth rates, thus leading to increases in per
capita income. This rapid growth was generally due to increased
investment financed by high commodity prices, resource extraction,
foreign direct investment (FDI) and inflows of other foreign
resources, as well as macroeconomic stability and better economic
management.
This relatively rapid growth was, however, not accompanied by
growth in employment, as the rates of unemployment and
underemployment increased in most African countries. Unemployment
rates remained in double digits in a large number of African
countries. The 2008 global financial and economic crises
exacerbated the unemployment problem through their impacts on
growth, export earnings, government revenues and foreign capital
inflows into Africa.
... the Economic Report on Africa 2010 (ERA 2010) focuses on how
African countries can use the lessons provided by the recent global
economic crisis to pursue policies which will help them not only to
recover from the crisis but also to lay a foundation for
sustainable high growth that generates high-paying employment for
Africans as a way of reducing poverty. Of particular concern is how
to rapidly generate stable and high-income employment to absorb the
increasing number of unemployed among vulnerable groups - youth,
women and the physically challenged. ERA 2010 argues that the
current global economic crisis offers African countries an
opportunity to develop policies to counter the problems created by
the crisis and at the same time lay the foundation for sustainable,
employment- intensive, high-growth-rate economies that are
structurally diversified to replace the current economic structures
which rely almost exclusively on natural resource extraction to
generate economic growth.
...
Developments in the world economy and their implications for
Africa
The global financial crisis continued to have a negative effect on
the world economy in 2009, although there are signs that the world
economy has began to stabilize. The world economy contracted by 2.2
per cent, trade volume decreased by 12.4 per cent and there was a
rapid decline in FDI flows to developing countries. The contraction
was much more concentrated in the developed world, which saw a 3.5
per cent decline in GDP while the developing world recorded 1.9 per
cent growth. Associated with the economic downturn has been a sharp
increase in unemployment, with unemployment in most member
countries of the Organisation for Economic Cooperation and
Development exceeding 10 per cent. While economic activity is
expected to expand in 2010, the recovery is likely to be anaemic
(IMF, 2009a, UNDESA, 2010).
...
Africa's growth slows down, with significant variations in 2009
As a result of the global economic recession, Africa's economic
growth continued to slow in 2009 to 1.6 per cent, down from 4.9 per
cent in 2008. In spite of the fall in world commodity prices,
primary commodity exports continue to be the major driver of growth
in Africa. Although oil and other commodity prices fell generally
in the early part of 2009, they rebounded in the second half of
2009 and remained high. Thus, oil-exporting African countries grew
at 2.5 per cent compared to an average of 0.5 per cent for non-oil
African economies in 2009.
There were considerable regional variations in growth in 2009
across African regions and countries. Growth was highest in East
Africa at 3.9 per cent, followed by North Africa at 3.5 per cent,
West Africa at 2.4 per cent and Central Africa at 0.9 per cent,
while Southern Africa posted a negative growth rate of 1.6 per
cent. Of the 53 African countries, only 7 grew at 5 per cent or
more in 2009, while 29 grew at less than 3 per cent. This compares
to 25 countries growing at 5 per cent or more and 16 countries
growing at less than 3 per cent in 2008.
...
Unemployment and vulnerable unemployment rates remained very high
in 2009
... the global economic crisis exacerbated the already high
unemployment rates and vulnerable employment in Africa. North
Africa was hardest hit in terms of open unemployment, with
unemployment rising above 10 per cent in 2009. In sub-Saharan
Africa, the major employment problem was the large increase in
informal sector employment and other forms of vulnerable
employment.
Prospects for 2010: a slow and variable recovery with increased
vulnerability
Economic activity in Africa is expected to recover in 2010, with
GDP projected to grow at an average rate of 4.3 per cent. The
projected regional growth rates are 4.2 per cent for North Africa,
5.1 per cent for oil-exporting sub-Saharan Africa and 4.9 per cent
for oil-importing sub-Saharan Africa. ... Yet the expected economic
growth falls short of the 7 per cent pace required for achieving
the Millennium Development Goals. The expected GDP growth rate is
also not likely to be accompanied by increased job creation, if
historical trends are used to predict job creation. This means that
unemployment and vulnerable employment as well as working poverty
in Africa are likely to increase in 2010.
...
On the positive side, Africa has a large and growing labour force
and underutilized capacity that can be employed to increase output.
This labour force is increasingly educated, young and innovative.
The slack in economic activity means that African governments can
pursue policies to put these unemployed resources to work without
igniting inflation, if this is done with care. These policies can
also lay the foundation for structural transformation and
long-term, sustainable high-employment- generating economic growth
and poverty reduction. Africa's long-term growth prospects and
ability to sustain high rates of employment generation and broader
social development depend on success in economic diversification
(UNECA and AUC, 2007). Policies as well as institutional reforms
formulated and implemented for Africa should therefore pay
attention to this goal.
Rapid population growth with increased poverty
Africa's population increased by 2.3 per cent between 2008 and
2009, reaching about 1 billion people. Seventy per cent of the
population is aged 30 or younger, making Africa one of the youngest
continents in the world. This population provides Africa with a
large pool of labour upon which it could draw for rapid economic
growth. The rapid population increase, together with increased
rural-urban migration, creates many problems, including inadequate
provision of sanitation and social services, housing and
employment.
Although accurate data on poverty in Africa are hard to come by,
there is evidence that poverty rates are high and rising. In 2005,
the proportion of people living in extreme poverty, using the new
US$ 1.25 per day poverty line, was 51 per cent in sub-Saharan
Africa and 3 per cent in North Africa. Although a gender breakdown
is not provided, it is generally agreed that women and children are
more likely to be poor than men. The current economic crisis is
likely to exacerbate the incidence and severity of poverty in
Africa, and again women and children are likely to be the most
affected by the crisis.
Human capital formation is mixed, at best
It is generally agreed that an educated and healthy labour force is
necessary for rapid economic growth. Africa is making remarkable
progress in this direction. Net primary enrolment rates rose from
71 to 74 per cent between 2006 and 2007 in sub- Saharan Africa, and
from 91 to 96 per cent in North Africa. At the current rates,
Africa could achieve 100 per cent enrolment by 2015. However, the
quality of primary education, as well as completion rates,
especially among females, leave much to be desired. In addition,
gross enrolment ratios in secondary and tertiary education are very
low compared with those of other regions of the world, and
graduates are less trained in appropriate skills. ...
Average life expectancy in Africa was about 55 for men and 57 for
women in 2009, although levels vary enormously across the
continent. ...
Gender equity is improving, but very slowly
Twelve African countries have shown improvements in the number of
women in national parliaments as of 2009, with Rwanda achieving
gender parity (56.3 per cent) and Angola, Burundi, Mozambique,
South Africa, Uganda and the United Republic of Tanzania achieving
30 per cent representation of women. The number of women ministers
in African countries was low in 2009. On the negative side,
violence against women still remains high, although it appears to
be receiving increasing attention. While primary and secondary
school enrolment rates for girls increased in 2009, gender equity
has not been achieved.
Unemployment and vulnerable employment remains too high and rising
Unemployment rates were high even in times of rapid economic
growth. The current economic crisis has exacerbated the
unemployment problem. Official unemployment rates in 2008 were 7.6
per cent in sub-Saharan Africa and 10.1 per cent in North Africa.
While the rate of unemployment is relatively low in sub-Saharan
Africa, the proportion of workers in vulnerable employment is about
77 per cent of the labour force, and is likely to increase with the
economic recession as an increasing number of people are not able
to find jobs in the formal sector. ...
... it is the poor that bear the brunt of the crisis owing to the
lack of social safety nets. Accordingly, long-term growth and
employment strategies should pay special attention to vulnerable
groups, including women, young people and the rural poor. Indeed,
in the short run African countries should pursue countercyclical
policies that create employment for vulnerable groups.
,,,
Developments in international trade in 2009
Africa continued to play a marginal role in world trade in 2009,
with about a 3.4 per cent share of global merchandise trade and an
insignificant share in trade in services. Commodities continue to
be the major exports, and export destinations remain concentrated
in industrialized countries, although South-east Asia and Brazil
are beginning to be important destinations for African exports. The
reliance on a narrow range of commodities as well as a narrow range
of export markets makes African export earnings extremely
vulnerable to volatility in these markets. Intra-African trade
continued to be minimal, at less than 10 per cent of total trade in
2009.
...
Financing development in the context of the global economic crisis
Africa continues to face challenges in financing development, as
the global economic crisis decreased both internal and external
resources in 2009. In terms of domestic resource mobilization, the
ratio of gross domestic savings to GDP dropped from 25 per cent in
2008 to 19.3 per cent in 2009, while the ratio of tax revenues to
GDP decreased by 21 and 10 per cent in sub-Saharan Africa and North
Africa respectively. African countries made attempts to increase
government revenues through improved tax and customs
administration. These efforts should be sustained and expanded.
Trade revenues, which have been the main source of financing
development in Africa, decreased in 2009. ...
Private capital inflows to Africa reached US$ 87 billion in 2008,
but estimates by the United Nations Conference on Trade and
Development suggest that private capital inflows decreased by 67
per cent in 2009 as a result of a reduction in FDI in the mineral
extraction sector due to the collapse of world commodity prices.
Available data suggest that remittances to Africa fell by 7 per
cent in 2009 (9.2 per cent in North Africa and 3.3 per cent in
sub-Saharan Africa) owing to decreased economic activity and
increased unemployment in high-income countries. The inflow of ODA
has been an important source of development finance, especially in
the areas of infrastructure, education and health. In 2008, ODA
flows to Africa increased by 12.5 per cent over 2007. Though ODA
data for Africa are not yet available, estimates show that the
member countries of the Development Assistance Committee of the
Organisation for Economic Cooperation and Development will cut ODA
to all developing countries by US$ 22 billion in 2009, suggesting
that their aid to Africa will decrease. It was, however, hoped that
aid to Africa from non-members of the Committee increased in 2009.
Several African countries continued to benefit from debt
forgiveness under the Heavily Indebted Poor Countries initiative in
2009. However, the economic crisis increased the debt of African
countries, as the average debt-to-GDP ratio rose from 22.4 per cent
in 2008 to 25.4 per cent in 2009. The debt-service-to-export ratio
also increased, to 16.2 per cent from 15.9 per cent in 2008. If
this increased debt ratio becomes a trend, Africa may be in danger
of slipping back to the unsustainable high debt levels it recorded
before the initiative. The global financial crisis has reinforced
Africa's weakness vis-�-vis the world financial architecture, where
it is not a party to most decision-making regarding rules governing
global financial flows.
The global financial and economic crises also highlight the need
for African countries to pursue policies to use domestic resources
as the major source of development financing, as the current policy
of relying on external financing makes development dependent on
uncontrollable forces. African countries should therefore pay
serious attention to enhancing domestic resource mobilization
through the use of creative and appropriate financial and capital
market reforms, especially policies that expand the banking base to
those hitherto unbanked.
...
High unemployment hinders poverty reduction
For most people, gainful employment is the only way out of poverty.
This is especially the case for youth and other disadvantaged
groups. Unfortunately, unemployment and underemployment rates in
Africa are high and continue to rise even during rapid economic
growth, depriving people of this route out of poverty. Unemployment
remained in double digits in North Africa. ... it is clear that
African economies were not able to create enough jobs to employ the
growing labour force because the sectors that anchor economic
growth tend to be capital-intensive enclave sectors.
...
Promoting high-level sustainable growth to reduce unemployment in
Africa
...
ERA 2010 argues that the global economic crisis provides African
countries with a unique opportunity to pursue policies that will
not only counter the effects of the recession but also lay the
foundation for structural transformation and rapid and sustainable
growth based on diversified economies and, more important, rapidly
develop large and labour-absorbing sectors of African economies in
order to create jobs to employ the rapidly growing labour force.
...
The sectors that drove economic growth are generally small
resource-extractive sectors, subject to extreme volatility caused
by changes in world commodity markets, and have low employment
elasticities. These flows decreased with the global economic
crisis, leading to slow economic growth and increased unemployment.
Generating rapid employment growth will require rapid economic
growth rates above those achieved in the last decade, as well as a
structural shift of the growth- driving sectors of the economy away
from sectors which are not labour-intensive to large and expanding
highly labour-intensive sectors. In this regard, agro-industry,
labour-intensive manufacturing and services, especially service
exports, are sectors to be explored and expanded. This structural
transformation will not only decrease the boom-and-bust episodes
tied to the volatility of international commodity prices that have
characterized economic performance in Africa, but will allow
African countries to pursue effective economic policies that are
not dictated by what happens elsewhere. In addition, employment
policy should pay special attention to increasing the productivity
and incomes of the informal sector by virtue of its size and
contribution to employment.
... In the short term, African countries can pursue expansionary
countercyclical fiscal and monetary policies that focus on
expanding investment in infrastructure and human capital formation.
This investment should, however, focus on labour-intensive
activities, and employment should target vulnerable groups. Given
the slack in resource use and because of prudent fiscal policies in
the past, several African countries have the fiscal space to engage
in expansionary policies without destabilizing the macroeconomic
environment. In addition to fiscal expenditure in these areas,
African countries could use the provision of social services, such
as education, health, water and sanitation, as mechanisms for job
creation in the short run.
Long-term policies will involve structural transformation that can
be achieved through several possible means. These include investing
the rents from commodity exports in labour-intensive non-resource
sectors to expand output and increase productivity in these
sectors; making resources (e.g. financing) available to priority
sectors at reasonable rates or in an expeditious way; aggressive
efforts to attract FDI in non-resource-extraction sectors,
especially in the areas of service exports, agroindustry and
"green" industries, such as renewable energy, where Africa may have
a comparative advantage; and creating an enabling environment for
the private sector to invest and create jobs. ...
Long-term policies aimed at job creation will also involve labour
market reforms in African countries. ... general factor market
reforms to remove distortions that encourage capital-intensive
production techniques at the expense of labour-intensive ones are
necessary in African countries in order to encourage the use of
labour-absorbing technologies. One of the reasons given for slow
economic growth in Africa has been the lack of skilled labour, yet
an increasing number of university graduates are unemployed,
suggesting a mismatch between the skills African education systems
are producing and those businesses need. Long-term employment
policy should address this mismatch through appropriate curricular
and pedagogical reforms.
...
The current global economic crisis has demonstrated the
vulnerability of Africa to the fortunes of the global economy. It
has also demonstrated that Africa cannot rely on external sources
to finance its development in a sustainable way. There is therefore
a need for African countries to increase their efforts to mobilize
domestic resources to finance development. In the final analysis,
Africa's development is the responsibility of Africans, and the
argument that Africa is a poor continent that cannot finance its
own development is getting tired. If Africa can increase its
savings rate to those of East Asian countries, it will have enough
resources to finance its development needs. Innovative and
effective ways of increasing the savings rate, raising the
efficiency of tax collection and expanding the tax base should be
an important priority in Africa.
Conclusion
...
In the short run, African countries should pursue expansionary
countercyclical fiscal and monetary policies to finance investment
in infrastructure, education and health care as a way to recover
from the economic downturn. A large proportion of the projects in
this package should focus on labour-intensive projects, such as
rural roads and water projects. While these expansionary policies
may result in fiscal deficits, a large number of African countries
have the fiscal space to pursue such policies given their prudent
fiscal policies in the past; hence they can afford moderate fiscal
deficits without rekindling the macroeconomic instability of past
generations.
Long-term strategies involve investment that will transform the
structure of African economies from reliance on
low-employment-generation natural resource extraction to
high-employment labour-intensive manufacturing, agro-industry and
service provision. In addition to changing the pattern of
investment and production, it will also require not only an
increase in the quantity of human capital, but a change in the type
of human capital that will be provided. Factor markets will have to
be reformed to encourage the use of labour-intensive production
techniques, in contrast to current policies which favour
capital-intensive techniques. There is a need to pay special
attention to vulnerable groups, such as women and young people,
with special targeted employment interventions.
... Finally, Africa cannot continue to rely on the international
community to finance its development agenda. It is therefore
important for African countries to boost their efforts to increase
the mobilization of domestic resources to finance African
development through innovative programmes. Increasing the savings
rate to the levels attained by East Asian countries, will generate
substantial revenue to finance development in Africa. Financing
development from domestic resources will not only reduce the
volatility inherent in African development, but will also make
Africans "masters of their destinies".
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with
a particular focus on U.S. and international policies. AfricaFocus
Bulletin is edited by William Minter.
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