Economic Report on Africa 1997

UNITED NATIONS ECONOMIC COMMISSION FOR AFRICA

ZERO DRAFT (i)

ECONOMIC REPORT ON AFRICA 1997

I: The African Economy in 1996

A. Regional Output Performance 2

A. 1 GDP Growth Recovers Furthers 2

A.2 Improved Performance in Agriculture 17

A.3 Good Recovery in the Mining Sector 19

A.4 Disappointing Performance in the Manufacturing Sector 22 A.5 Africa and the International Economic Environment 23

(a) Africa in the Global Economy 23

(b) Africa and the World Trade Organization (WTO) 24

(c) Development in Africa's External Trade 25

A.6 Unsustainable Debt Levels Persist ... 29

A.7 Benefits from Private Capital Flows 35

A.8 Social Development: Focus on Policy Challences and Programmes 38

(a) High Population Growth and Fertility Rates 38

(b) Conflicts, Refugees and Population Displacement 40

(c) New Hope for Improving the Health Situation 41

; (d) Reconstructing African Educational Systems is a Priority 44 1 (e) Policy Framework for Social Development in Africa 46

t i

B. Subregional Economic Performance 52

Overview: Subregional Income Differentiation 52

\(i) Oil Exporters 52

£ii) Non-Oil Exporters and Non-LDCs 52

(iii) African LDCs 53

B.2 Growth Performance in the Subregions and Individual Countries 54

t (i) North Africa 55

- (ii) West Africa 52.

l: ~ (i

(iv) East Africa 64

(v) Southern Africa 67

II: Medium-Term Outlook and Policy Challenges

A. Prospects for 1997 75

B. Major Policy Challenges 79

B.I The Imperative of Designing a New Policy Paradigm 79

B.2 Deepening Ongoing Economic Policy Reforms 80

B.3 Encouraging Domestic Savings and national investment 84 B.4 The Need for Economic Diversification Policies 87

-The Reasons for the Need 87

-The Strategy 88

-Constraining Factors 89

-Country Illustration of the Problem 90

-Potentials for Diversification 93

-Future Policy Directions 94

B.5 Policies to Strengthen the Private Sector and Foreign Direct

Investment 99

(a) Privatization 99

(b) Foreign Direct Investment 101

(c) Commercialization of Public Enterprises 105

B.6 Institutional, Structural and Governance-related Measures 110

— o —

I: The African Economy in 1996

A.I GDF Growth Recovers Further

Preliminary estimates of the economic growth in the African region indicate that the gross domestic product (GDP) for the region as a whole recorded an increase of 3.96 per cent in 19961, against the revised figure of 2.74 per cent in 1995. It is important to note, however, that this positive economic growth in Africa as a whole, although it varied across regions and countries, is a departure from negative rates in the 1980s and the first half of the 1990s. For the first time in this decade, GDP growth rate is above the population growth rate of about 2.8 per cent, herehence resulting in a 1.4 per cent per capita GDP growth rate in the region. Although this growth is broadly based, some countries succeeded in achieving the UN-NADAF growth target of over 6 per cent, while in others the performance continue to deteriorate, particularly those faced with political unrest and armed conflict. The forecast for 1997, however, is now that regional output would grow by 4.2 per cent slightly higher than in 1996.

Table I.I compares African growth performance with that of the world and developing countries in general in terms of GDP, investment, savings and capital productivity (ICOR), during the period 1991-1996. According to the International Monetary Fund (IMF), the world economy is estimated to have realized a growth rate of 3.8 per cent in 1996 and 4.1 per cent in 1997 against 3.5 per cent in 1995, with inflation rate of 2.3 per cent in 1996, an interest rate of 5.6 per cent (real Labour), a 6.2 per cent growth rate in the volume of world trade2. This growth achievement was largely due to a strong economic growth in developing countries. During the same period, performance in the developing world as a whole has been much better, with growth accelerating from 5.1 per cent in 1991 to 6.3 per cent in 1996, achieving herehence a positive growth in per capita income. This was boosted mostly by the growth in East Asian countries where output is

1 Our growth estimates for 53 member-states are close to those of UN-DESIPA/LINK whioh puts Africa's growth rate at 4.0 per cent in 1996 against 2.2 per cent in 1995 and this does not include South Africa. See Project Link World Outlook, Summary, UN. New York, Nov. 1996.

economy seems to be considerably higher than the forecast made by other international institutions {DESiPA/LINK, OECD, UNCTAD), owing to the higher weight given by the Fund to fast-growing economies in Asia as a result of its use of purchasing-power-parity exchange rates instead of market-based rates to convert national currency GDP to a common numerary (LINK}. But the trend remains the same; the difference is in the magnitude.

performance in the developing world as a whole has been much better, with growth accelerating from 5.1 per cent in 1991 to 6.3 per cent in 1996, achieving herehence a positive growth in per capita income. This was boosted mostly by the growth in East Asian countries where output is reported to have grown at 8 per cent in 1996, as a result of increased exports and investment.

Indicators GDP growth*

Africa**

Developing Countries World

Investment-GDP ratio Africa

Developing Countries World

Saving-GDP ratio Africa

Developing Countries World

Capital

Productivity ICOR Africa

Developing Countries World

1991

3.0 5.1 1.5 19.5 23.0 20.0

22.0 23.0 21.0

6.6 6.1 9.1

1992

-O.5 6.4 2.4 19.0 24.0 19.5

18.0 24.0 23.0

-38.0 5.3 4.3

1993

0.7 6.3 2.4 18.8 23.0 20.0

17.0 23.0 21.0

26.9 3.9 6.7

1994

2.1 6.6 3.7 19.7 22.5 21.0 16.5 21.5 21.0

9.4 3.8 8.1

1995

2.3 5.9 3.5

20.3 23.0 22.0 16.0 22.0 22.0

8.8 4.5 9.5

1996,

3.9 6.3 3.8

21.3 28.0 23.6 19.8 24.9 23.8

5.4 4.4 6.2

1997P

4.2 6.2 4.1

24.0

20.5

Data Source:

e=

UNECA Economic Report on Africa IMF, International finance Statistics in constant prices

ECA's estimates for 52 member-states estimates

projection

, Addis-AbabafEthiopia), July 1995 and estimates for 1996-1997: World Bank, World Tables 1996; IMF, World Economic Outlook, October 1996

Major factors that contributed to the good output growth performance in Africa this year include: (a) the introduction of economic reforms and the adoption of market oriented policies in an iineFeaang=nlmbeF6Fn^mfe-^0ttnteest-(BpfavoSSle"weafeei^eoffltioRS-^i^Fsffiegionsi-^- a, significant rise in oil revenues of most of oil exporting countries; and (d) the increase in the demand of African exports by the OECD countries.

On the domestic front, stronger adjustment efforts have fostered macroeconomic stability, and the currency realignments and liberalization of exchange and trade regimes have helped to restore external competitiveness and improve the investment climate. This stems from the implementation of structural reforms and stabilization programs in a number of countries. Although the sharp increase in prices of certain export commodities, especially coffee, witnessed in 1995 have been largely reversed, with activity in the industrial countries - the major trading partners - likely to recover at a relatively slow pace, many African countries are expected to reap the benefits of fiscal consolidation, reduced inflation rates, greater private sector participation in the economy, liberalization of trade and exchange rate systems, and more realistic exchange rates.

Countries of the CFA franc zone, for example, are expected to register increasing exports benefits from favourable investment opportunities emanating from their currency adjustment in early 1994 and the accompanying reform efforts. The overall growth among African countries that had undertook those reforms indeed is positive, averaging about 5.3 per cent in 1996, reflecting increased private investment and strengthening consumer and business confidence. In Cote d'lvoire, the deterioration of terms of trade has been offset by a strong increase in oil production, leading to overall growth in output of about 6 per cent in 1996. The inflation rate was reduced to about 7 per cent thanks to the reduction of fiscal deficits along with a restrained credit stance. Growth rate of GDP in Senegal is estimated to have reached 5 per cent in 1996 due to a favourable crop season and continued expansion of export-oriented activities.

The improvement of policy stand has, in turn, contributed to increase investment efforts and the efficiency of resource utilization. In some countries, particularly the oil exporting countries, the marginal propensity to consume increased sharply due to the increase in the oil revenue, while in non-oil exporting countries it generally decreased due to the measures taken by governments to contain consumption expenditures. The rate of saving which was lower during the first half of the 1990s started to recover' from 22.0 per cent in 1991, 16.0 per cent in 1995 and 19.6 per cent in 1996 and it is projected to reach 20.5 per cent in 1997.

The ratio of gross^ investment to GDP which decreased from an average of 27 per cent in 1985-1990 to 19.5 per cpnt in 1991-95 recovered to 21.3 per cent 1996 and is projected to recover

further to 24 per cent in\l997. Although this investment rate is still lower than the average for all

realized rate is still high Considering the level of income and the absorption capacity of countries.

The problem is not essentially one of under-investment but also of productivity of investment.

i

\

5 (TABLE 1.3)

GDP growth-Africa

Agricultural Production FAO index 1979-1981 = 100)

Oil production (million tons)

Mining production index (1990 « 100)

Consumer price index (1990=100)

Oil prices, Brent crude (Sper barrel)

Export prices index (1900=100)

Import prices index (1900=108)

Terms of trade index (1990=100)

Exports (Sbiilion)

Imports (Sbillion)

Current account (S billion)

1990

0.7

127.9

321.4

1.0

16.6

24.0

12.4

4.5

7.5

99.2

91.6

-0.1

1991

1.5

13.59

336.4

-4.0

31.5

20.0

-9.4

-0.1

-9.3

95.0

90.1

-1.7

1992

0.22

134.0

345.46

-7.6

44.9

19.3

-0.2

3.4

-3.4

9E.3

93.6

-5.4

1993

-0.05

139.9

338.11

-6.7

37.2

17.0

-5.2 -0.8

-4.5

87.3

92.7

-8.5

1994

2.02

143.1

335.35

-1.2

60.0

15.8

5.3

4.1

1.2

94.3

98.3

-12.0

1995

2.74

143.0

353.33

0.1

43.4

17.1

6.E

5.2

1.5

107.9

116.1

17.4

1996

3.96

368.58

0.1

20.65

4.7

0.9

4.6

116.1

125.1

20.7 Source: EGA secretariat

The efficiency in the use of these scarce resources, already low in the first and second half of the eighties and in the early 1990s as illustrated by the rise in the incremental ^capital-output ratio (ICOR) is projected to improve substantially for the period 1996-1997 to average around 5.4:1 as against 8.8:1 in 1995. In gross terms, the ICOR stood at an average of 15.0\during the period 1993-1995, meaning that a gross investment of over US$ 15.0 was required in order to permanently increase GDP by one dollar; whereas, during the same period, the average value of the ICOR in developing world was about one third of that of the African region. Genepliy speaking, the ICORs were not only high but also rising steeply in some African countries. Th£se trends in ICORs reflect major declines in the utilization of capacity, resulting in most cases from a*i assortment of factors

^ astructuratgaps^

levels of economic management, organization and control, inappropriate technology, lack of adequate sectoral linkages as well as failure to obtain adequate imported inputs and spare parts due

to lack of foreign exchanges. :

6

The strong regional output is also a reflection of good rains this year in most parts of the region, combined with a reflection of farmers' responsiveness to food policies and corrected incentives brought about by various African governments. From the information available, it can also be said that there is not only a strong general supply response to price and other incentives, but also a pronounced move towards greater diversification in agricultural production. Given these facts, food crop production picked up tremendously, with cereal production increasing from 99.2 million tons in 1995 to 120.8 million tons in 1996, a 21.8 peer cent increase.

Over the period 1995-1996, commodity producing sectors (i.e., agriculture, mining and manufacturing) would account for about half of fixed capital formation. Although fixed capital formation by kind of economic activity varies from one country to another depending on its specific circumstances, data available for some countries in 1996 suggests that manufacturing and mining sectors received the bigger share ranging from 17.2 per cent in Kenya to over 25 per cent in Egypt and Zimbabwe. Accordingly, the strong recovery in regional output in 1996 was mostly associated with the good performance in the mining sector2 of 6.6 per cent in 1996 against -0.3 per cent in

1995 was attributed to capacity expansion, following extensive reform and renovation and an upturn in world prices, while growth in agricultural value added of 5.2 per cent in 1996 against 1.5 per cent in 1995 was due mainly to tood weather conditions. Manufacturing sector faced demand problems due to right competition in the world market and its growth rate decelerated from 4.6 per cent in 1996 to 2.5 per cent in 1996.

The impact of the oil prices increase on the overall economic performance of the region in 1996 is evident. In 1996, the average price per barrel increased by 17.5 per cent over 1995: from,

US$ 16.86 per barrel to around US$ 20 per barrel. In fact, oil prices in 1996 were the highest.7

factors were behind the sudden increase. Chief among them have been the unexpected rise in the\

demand to replenish oil inventories; the decline in oil production by some non-OPEC countries; and\

the postponement of the implementation of Security Council resolution 986 (1995), which allows;.

Iraq to export US$ 2.0 billion worth of oil every six months. This oil increase has benefited ) African oil exporters. African oil exporters (i.e., Algeria) have gained as much as 30 per cent of extra-revenue in 1996. In Nigeria, growth in 1996 reached 3.3 per cent against 2.2 per cent in 1995 and 1.3 per cent in 1994, despite a stagnant petroleum sector, while inflation has started to decline.

2 This was partly realized by a strong recovery in South Africafs mining sector which grew by 7.3 per cent in 1996.

against a negative rate in 1995. I

On the external front, although the pace of economic expansion in a number of industrial countries slowed somewhat in the first half of 1995, a strong upswing in growth of output was recorded in 1996 in the United States of America, the United Kingdom, and Australia, some of which are amongst African donors and trading partners. Satisfactory growth is also reported in Germany, France and several other continental European countries which still recovering from 1992-1993 recession.

Exports of goods and services have shown wide fluctuations over the period 1995-1996. Their value increased by 7.1 per cent in 1996 as against 11.1 per cent in 1995 and 4.9 per cent in 1994 whereas the value of imports grew by 7.3 per cent against 17.6 per cent and 6 per cent in the respective years. Such deceleration has been determined by changes in earnings from commodity exports which took stock from a stagnation of primary commodity prices, but also thanks to the slow growth in the OECD countries. The region's total imports also showed wide fluctuations as they are tightly linked to the level of economic activity and most of imports were concentrated in manufactured goods to cover both its investment and consumption needs.

Despite the continued upturn in export revenue, Africa's share in world trade continued to stagnate around 2.3 per cent in 1996. The loss in market share as a whole, was due to the absence of diversification away from primary commodities with depressed prices and demand and towards the fast expanding trade in manufacturing. The recent timid recovery in primary commodity prices was not sufficient to offset the earlier sharp decline. Commodity exports constituted about 90 per cent of total export earnings in the early 1980s; but this share declined to around 75 per cent in the early 1990s, with manufacturing exports making up the remaining 25 per cent, although the latter are concentrated in a limited number of African countries, namely South Africa, Tunisia, Morocco and Mauritius.

However, despite encouraging progress on a number of policy frpnts, prospects for the medium-term sustainability of such a high economic growth as depicted by the following parameters

remain uncertain. }

i

\

\

Growth rate Negative 0<10

1990 BurkinaFaso-3.5) CentralAfrica*(r0.2) i Coted'lvoire(- Nigcr(-2.0) Angola(1.8) Benin-Tuniai Burundi(7.0) Cameroon(1.. Chad(0.5) Comoros(1.6 Congo(2.6) Djibouti(7.8) EquatorialGu Ethiopia(9.6) Gabon(6.0) Mali(l.<5) Mauritania(6. Morocco(7.0] Nigeria(7.4) Rwanda(4.2) Senegal(0.3) Togo(1.1)

i > i f>

1.7) (1.1) *(0.7)

1991 Cameroon(-0.6) CapeVerde(-2.8) Congo<-1.6) Niger(-1.9) Senegn!(-1.8) Benin(2.1) BurkanFaso(2.2) Burundi(9.0) CapeVerde(8.0) Chad(4.2) Comoros(1.7) Coted'Ivoire(1.6) Djibouti(6.B) EquatorialGuinea(4.9) Gabon(3.3) Ghana(9.1) Madagascar(8.5) Malawi(8.2) Mali(1.5)

Table1.3:InflationFrequencyDistribution (ConsumerPrices) (Percent) 1992 BurkinaFaso(-2.0) CentralAfrica(-0.8) Chad(-3.8) Comoros(-1.4) Congo(-3.9) EquatorialGuinea(-3.2) Gabon(-10.8) Mali(-5.9) Niger(-1.7) Senegal(0.9) Benin(5.9) Burundi(4.5) Cameroon(1.9) CapeVerde(7.0) Coted'lvoire(4.2) Djibouti(3,4) Morocco(5.7) Rwanda(3.5) Swaziland(8.2) Togo(1.6) Tunisia5.8)

1993 Cameroon(-3.7) CentralAfricaRep.(- 2.9) Chad(-7.0) Mali(-0.6) Niger(-0.4) Senegal(-6.9) Togo(-0.1) Benin(0.3) BurkinaFaso(0.6) Burundi(9.7) CapeVerde(5.9) Cameroon(1.9) Congo(4.9) Coted'lvoire(2.1) Djibouti(4.4) EquatorialGuinea(0.3) Gabon(0.6) Gambia(5.9) Guinea(7.1) Lesotho(7.0)

1994 Capeverde(3.4) Djibouti(6.5) Ethiopia(1.2) Gambia(4.0) Guinea(4.1) Lesotho(6.7) Mauritania Mauritius(9.4) Morocco(5.1) Seychelles(1.8) SouthAfrica(9.0) Tunisia(4.7)

1995 BurkinaFano(7.5) CapeVerde(7.1) Chad(9.5) Comoros(4.8) Congo(8.6) Djibouti(4.9) EquatorialGuinea(6.3) Guinea(4,0)SA(87) Kenya(1.7) Lesotho(8.9) Mauritania(6.5) Mauritius(6.1) Morocco(6.1) Senegal(8.0) Seychelles(0.2) Tunisia6.3 Uganda(8.0)

1996 Cameroon(-5.7) CapeVerde(-7.5) CentralAfrica(-8.7) Djbouti(-4.3) Comoros(10.8) Congo(3.2) Ethiopia(8.7) Guinea(6.1) Kenya(7.9) Madagascar(2.8) Namibia(12.9) Swaziland(8.4)

10<30 30<50 50<100

Algeria(16.7) Botswana(4.3] CapeVeide(1a Gambia(10.2* Guinea(19.4) Kenya(11.2) Lesotho(17.6] Liberia(10.0) Madagascar(1. Malawi(11.9) Mauritius(10.1 Namibia(12.0) SouthAfrica(1 Swaziland(13, Zimbabwe(17 Uganda(24.4) Ghana(37.2) GuineaBiasaw Mozambique(■ SaoTome&I (42.2) Tanzania(30.4 Sudan(56.0) Zaire(81.3)

6) ■) ■4) 1 ) (53.0) ■~-T) -ncipe

Algeria(25.9) Botswana(11.8) Ethiopia(20.8) Gambia(18.0) Guinea(19.6) Kenya(19.6) Liberia(10.0) Lesotho(16.6) Mauritius(12.2) Namibia(11.9) Nigeria(13.0) Rwanda(12.0) SouthAfrica(19.3) Rwanda(12.9) Sudan(11.0 Zimbabwe(23.3) Mozambique(31.3) SaoTome&Principe (46.5) Tanzania(31.7) Uganda(42.2) Angola(83.6) GuineaBissaw(57.6) Zambia(93.3) -

—•T_-...___ Botswana(16.1) Ethiopia(23.0) Gambia(12.0) Ghana(10.1) Guinea(16.6) Kenya(27.3) Lesotho(13.0) Liberia(10.0) Madagascar(15.3) Malawi(23.2) Mauritania(lO.l) Namibia(17.1) SouthAfrica(13.9) Tanzania(23.8) Algeria(31.7) Mozambique(45.1) Nigeria(44.6) SaoTome&Principe (37.7) Uganda(30.0) Zimbabwe(42.1) GuineaBissaw(69.4) Serraleone(65.5)

9 Algeria(20.5) Botswana(14.3) Ethiopia(10.1) Ghana(24.9) Liberia(10.0) Serraleon(17.6) Swaziland(11.3) Tanzania(23.0) Zimbabwe(27.6) GuineaBissaw(482) Kenya(46.0) Mozambique(42.3) SaoTome&Principe (31.8) Nigeria(57.2)

Cemlean(29.0) Botswana(10-C) BurkinaFaso(24.5) Rwanda(14.7) Cameroon(12.7) CapeVcide(24.5) Comoros(25.0) Coted'Ivodire(26.0) Ghana(24.9) GuineaBisaw(15.2) Kenya(28.8) Lybia(lO.O) Mali(27.8) Namibia(10.8) Serraleone(18.4) Swaziland(13.8) Benin(38.6) EquatorialGuinea Gabon(36.1) Madagascar(39.1) Malawi(34.7) Niger(35.6) Senegal(32.1) Tanzania(30.2) Todgo(35.3) Mozambique(63.1) Nigeria(57.0) Rwanda(71.5) Zambia(53.3) Algeria(29.8) Cameroon(26.9) Rwanda(22.2) Somalia(29.8) Zimbabwe(22.6) Benin(15.1) Botswana(10.5) Burundi(19.4) CentralAfrica(19.2) Coted'lvoire(14.3) Ethiopia(13.4) Gabon(10.0) Liberia(10.0) Mali(12.4) Namibia(10.0) Nigeria(10.5) Swaziland(12.3) Togo(15.7) GuineaBissaw(75.4) Madagascar(48.0) Tanzania(34.0) Zambia(34.5) Ghana(59.5) Malawi(83.1) Mozambique(54.5) Nigeria(70.0) SaoTome&Principe- (64.5)

Algeria(12.) Botswana(18.5) Gabon(13.4) Somalia(10.7) Lesotho(18.4) Rwanda(29.4) SouthAfrica Tunisia(10.6) Uganda(15.4) Equatorial Guinea(40.3) Ghana(34.6) Malawi(47.7) Mauritania(-5.2) Serraleone(46.1) Zimbabwe(48.5) Zambia(47.3) Chad(99.8) GuineaBisaw(54.5) Mauritius(1.2) Morocco(6.5)

>100

10 Ii SierraLeone(1 Zambia(109.6)

0.9)SierraLeone(102.7) Sudan(111.0 Zaire(2154.4) Angola(299.1) Sudan(110.0) Zaire(4129.2) Zambia(191.4) Angola(1379.5) Sudan(103.8) Zaire(1893.1) Zambia(187.1) Angola(949.8) Sudan(118.0) Zaire(23760.5) Angola25553.7 Zaire541.8

Sudan(104.8) Zaire(511) Africa15.424.531.729.536.832.1 Source:CountiysurveyprofilesanlIMFWorldEconomicOutlook,Washington,D.C.:IMF,October1996,andIHF,InternationalFinancialStatisticsYearbook1996

First, inflation in the majority of the African countries remains difficult to control, but continued its downward trend in 1996, bringing the regional rate from the peak 36.8 per cent in 1994 to 21.3 per cent in 1996 and is forecast to reach 9.1 per cent in 1997. The rate of inflation differs from country to country as it can be seen from Table 1.3 Of course, these average inflation rates combine together countries with quite varied inflationary experiences, ranging from the extreme inflation in countries such as Sudan, Zambia, Zaire, Angola, etc. to the more moderate or even low or negative inflation rates such as Burkina Faso, Central African Republique, Niger, etc.

Although there have been widespread and substantial progress in lowering inflation through determined stabilisation efforts, many countries, however, had persistent inflation rates in the double digits which continue to impose substantial social costs. The double digit inflation stems from the fact that governments in those countries rely on seigniorage for a substantial portion of their revenue, nearly 10 per cent. Fiscal pressures have contributed greatly to inflationary expansion as many countries have monetized large budgetary deficits. On the other hand, at extremely high rates of money growth -where seignorioage equals around 10 per cent of GDP (Zaire) - inflation has led to demonetisation of the economy, so that transactions are made either by barter or with a foreign currency such as the US dollar. In this case, seigniorage revenue has fell in real terms, as the tax base (i.e., the demand for money) shrinks by more than the increase in the tax (i.e., the rate of inflation). Moreover, high inflation in those countries has eroded the real value of tax revenues.

Table 1.4: Budget Deficits as a Percentage of GDP in Selected African Countries Country

Angola Botswana Burkina Faso Cameroon Congo Cote d'lvoire Ethiopia Gabon

Mozambique Lesotho CAR Swaziland Sudan Zambia

Average

1990

18.1 5.8 0.3 7.9 9.5 9.0 8.3 5.2

29.5 4.3 10.3 5.3 8.3 6.9

1991

25.9 4.7 0.1 8.3 7.9 8.6 8.8 10.3

26.2 0.6 12.1 8.3 6.2 8.1

1992

13.4 3.9 0.3 0.9 6.4 9.0 7.0 10.6

28.1 0.3 10.8 5.3 4.7 6.6

1993

23.3 3.8 0.4 23.0 3.7 12.0 6.6 3.7

23.5 2.3 4.5 1.5 5.8 8.5

1994

0.1 7.9 0.6 20.4

5.1 7.0 8.4 35.8

31.7 4.0 19.4 5.6 4.0 5.2

1995

6.3 1.5 0.3 8.6 5.2 3.7 2.7 0.8

22.7 3.5 6.6 2.2 3.2 12.0

1996

0.2 1.2 0.3 9.3 . 10.4 ;

2.6 „"

2.80.3 I 8.3 \

2.3 {

1.4 \

2.1 \

3.2 \ 8.7 [

1 (

Source: Country Survey Profiles

Second, budget deficit as a percentage of GDP continues to decline in the majority of the

I

African countries. In 1995-1996, all the EGA member countries managed to reduce their budget deficits

^a^a^£Gentage^i^B]^-1^G^

GDP to less than 2.00 per cent. This is shown in Table 1.4. The main factors that may h£ve influenced

this success include: the unexpected high level of increase in commodity prices; -the generally constrained government expenditure; and the rising GDP growth rates and improvement in the tax collection.

Third, the prospect of primary commodity export prices which substantially improved in 1995 bringing about a 10 per cent increase in export revenue remains sluggish. As a result of the slow down in economic activity in industrialized countries, that boom in non-oil commodity prices started to come

12

to an end in 1996. Many prices, including those of minerals and metals, started to decline during the first half of 1995, and by December non-oil primary commodity prices as a whole averaged 2 per cent less than in January, remaining relatively stable during the first quarter of 1996 (Table 1.6). Some recovery for tropical beverages, mostly coffee, was offset by declines for other commodities, including vegetable oilseeds and oils, agricultural raw materials, mineral ores and metals. In particular, non-food prices appear to have peached in recent months, not only for agricultural raw materials, such as wool, where prices have been under pressures from both low demand and sales from stockpiles, but also for metals, demand for which has been low. Even cotton prices, which had continued to rise during early 1995, were stable for the remainder of the year.

However, there has been some price increases for industrial raw materials (20 per cent over the 1994 level), especially for aluminum, copper, lead, nickel, and tin, and also for agricultural raw materials (13 per cent) and vegetable oilseeds and oils (10 per cent), as a reflection in the strength of demand. The low rates of price increases were for food and beverages, mainly due to supply conditions.

Oil prices showed substantial recovery in 1996 owing to the increasing in demand on account of an unusually hard winter in the Western Europe and North America, but nevertheless remains at the low level in real terms for over 20 years. Although OPEC countries had decided to freeze output levels for the second year running, other non-OPEC countries (especially suppliers of North Sea oil, Canada, and Mexico) have increased their output, thereby preventing oil price to increase further. The agreement to allow Iraq to resume limited sales under United Nations supervision, suggest another period of prolonged weakness in the oil market.

Fourth, private capital inflows continued to fall as many African countries still suffer from declining or stagnating levels of per capita aid. According to UNCTAD, the foreign direct investment flows to Africa which increased from USS 2.7 billion in 1990 to US$ 5.1 billion in 1994 declined to US$4.7 billion in 1995.3 These investment flows are highly concentrated, with Nigeria reaping about 61 per cent of the average annual flows to Sub-Saharan Africa during 1993-1995 and Egypt receiving about 48 per cent of the investment flows going to North Africa. Table 1.7 gives the distribution of FDI flows by subregion of Africa.

African countries are making considerable efforts to attract FDI. In June 1996, 258 bilateral investment treaties for the promotion and protection of FDI and 155 treaties for the avoidance of double taxation. However, Africa's overall intensity of bilateral investment treaties, at 4.6 treaties per country, lags behind that of other developing regions in the world. Possible solutions to these problems is determined by sound domestic policies with policy priorities including the need to intensify efforts to strengthen government revenue mobilization, reduce fiscal imbalances, and step up structural and

3 UNCTAD, World Investment Report 1996, Geneva: UNCTAD, 1996, p. 227.

13

Table 1.5

Wholesale Price Indices for Selected Commoditie 1990-1996 (Base: 1990=100)

Price basis Sugar Bovine seat Bananas PaIra Oil GroiTtdnut Coffee Cocoa Tea Tobacco Cotton Logs Hides Rubber Phosphate Iron ore Cobalt Copper Lead Manganese Nickel Tin Petrol sim ECA Co&oodities Export Price Index including fuels

ECA Ccsusodities Export Price Index excluding fuels

EC Isport Price All origins (US prots) Malaysia (Europe) All origins (Europe) Uganda (Wen Vork) Hea Vork £ London Average auction (London) USA (all isarkets) Liverpool Index Malaysia (Tokyo) USA (Chicago) Malaysia (Singapore) Morocco (Casablanca) Brazil (North Sea ports) UK (London)

UK (London) UK

UK (N.European ports) All origins (London) Canada (UK)

UK Brent (ports)

1990 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

100 100

1991 105.0 103.9 103.5 117.0 93.4 90.6 94.1 90.7 103.2 93.2 112.1 86.1 95.1 104.9 108.0 131.0 87.9 68.9 114.3 92.1 92.1 79.5 83.3

86.8 96.3

1992 107.6

95.8 88.2 135.8 60.3 79.3 86.7 98.3 101.4 70.2 122.7 82.3 99.6 103.1 102.6 297.7 85.9 67.1 109.4 79.1 100.3 76.6 80.6 83.7 92.4

1993 106.2 102.1 81.7 130.3 82.4 97.3 87.6 91.4 104.6 70.3 122.5 86.8 96.1 81.5 91.3 148.9 72.0 50.3 87.2 59.9 83.4 69.5 71.0 75.1 88.1

1995 '&>£

9\JB 81-@

"S23 T2M 217.1s 110.8 90.fi 87.51 96.6 WS 94.S 13LA 82JS 2&J 8S^

67.E 62J&

71 .S fflJK 90.S

&?£

69J:

6 117-&

Source: IMF, International Financial Statistics, unctad. Monthly Commodity Price Bulletin, ECA Secretariat

Table 1.6 (bis) Uorld Price Movements 1990-1996 (Base: 1990=100)

n l

ECImportPrice Allorigins(USports) LatinAmerica(USPorts) Malaysia(Europe) A!lorigins(Europe) Uganda(NewYork) NewYorkS.London Averageauction(London) USA(allmarkets) LiverpoolIndex Malaysia(Tokyo) USA(Chicago) Malaysia(Singapore) Morocco(Casablanca) Brazil(NorthSeaports) UK(London) UK(London) UK UK(N.Europeanports) Allorigins(London) Canada(UK) UKBrent(ports)

100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

105.0 103.9 103.5 117.0 93.4 90.6 94.1 90.7 103.2 93.2 112.1 86.1 95.5 104.9 108.0 131.0 B7.9 68.9 114.3 92.1 92.0 79.5 83.3

107.6 95.8 88.2 135.8 60.3 79.3 86.7 98.3 101.4 70.2 122.7 82.3 99.6 103.1 102.6 297.7 85.9 67.1 109.4 79.1 100.3 76.6 80.6

106.2 102.1 81.7 130.3 82.4 97.3 87.6 91.4 104.6 70.3 122.5 86.8 96.1 81.5 91.3 148.9 72.0 50.3 87.2 59.9 83.4 69.5 71.0

106.6 91.0 81.0 182.6 72.0 217.9 110.0 90.2 87.7 96.6 197.4 94.1 130.2 81.5 82.7 2S8.3 86.6 67.8 62.3 71.4 89.7 90.0 69.2

118.0 74.4 81.4 216.9 68.6 230.6 113.0 80.8 77.9 119.1 160.8 95.6 182.8 86.4 87.7 345.7 110.2 77.7 59.4 92.8 101.8 110.1 74.7

117.8 69.9 87 183.6 72.7 150.7 114.8 87.2 89.7 97.6 158.1 94.7 162.1 96.3 92.8 253.4 86.2 95.6 59.5 84.7 101.2 91.9 88.9 10086.883.775.169.287.494.1 nmoditiesExportPrice (eludingfuels

10096.392.488.1117.6127.4110.6 IMF,InternationalFinancialStatistics ICTAD,MonthlyCommodityPriceBulletin :ASecretariat

• WorldUholesaLePriceIndices Food Beverages Agriculturalraumaterials KetaLsandminerals PetroleunpriceIndex ManufacturingPriceIndex(G5-KUV) UorldMerchandiseTradePriceIndex ALLprimarycommodities PriceIndex Hon-fuelPrimaryCoiraitodities PriceIndex SpotCrudePrice(US$/bb1) Source:IMF,WorldEconomicOutlook

* 1990 100 100 100 100 100 100 100 100 100 22.83 Internationa

1991 99.1 93.2 97.4 89.0 83.3_ 102.2 99.1 90.0 94.3 19.3 Financial

14 1992 101.3 80.5 99.0 84.0 82.6 106.6 100.6 89.5 94.4 19.0 StatisticsIBRD,

1993 100.0 85.6 115.0 72.4 73.2 106.3 96.5 86.4 96.1 16.8 CommodityMarkets

1994 105.1 149.7 126.6 84.1 69.2 110.2 99.4 92.3 109.2 15.9 andthe

1995 113.7 151.1 131.3 100.1 74.7 119.4 108.6 99.8 113.1 17.2

r* 12 1

96 7-5 4.9 ^.5 89.3 83.9 1

k.4

S.7 1.4 ECA

Percentag e1996/199 5 12.1 -17.3 -2.9 -10.8 19.0 -2.5 -0.4 Secretariat.

15 Table1.6:Distributionof (MillionsofUS Subregion NorthAfrica Egypt WestAfrica Nigeria CentralAfrica Cameroon EastAfrica Mauritius SouthernAfrica Angola Africa SouthAfrica

FDIinAfricabySubregionand Dollars) 1990 1166 734 914 588 -102 -113 157 41 64 -335 2194 -5

1991 925 253 866 712 -8 -15 68 19 943 665 2786 -8

selected 1992 1495 459 709 897 173 29 77 15

537 288 2980 -5

countries 1993 1496 493 1554 1345 -76 5 92 15 230 302 3288 -8

1994 2102 1256 2332 1959 45 105 75 6

529 350 5089 6

1995 1762 1000 1741 1340 271 102 113 18

835 400 4726 4 Source:UNCTAD,UorLdInvestmentReport1996,Geneva:UNCTAFD,1996.

Fifth, the unsustainable debt problem. While the debt burden of both other developing countries and countries in transition has continued to decline to reach 29 per cent of GDP and 108 per cent of export earnings in 1996, the lowest levels since 1992, in Africa only few countries, including Ghana and Uganda, have managed to substantially reduce their debt burdens in the context of a strengthening of their adjustment efforts, supported in some cases by debt restructuring and debt forgiveness. For most countries of the region, however, the debt burden remains extremely high, and the accumulation of arrears continues to raise debt service burden, earnings. Few countries now appear to have any realistic scope of servicing debt burden of such magnitudes, and there is the impending risk that excessive debt burden may deter foreign direct investment and other private capital flows to some African countries.

In December 1994, Paris Club creditors agreed to the so-called "Naples Terms" which held the promise of a major alleviation of the debt burden of low-income countries in connection with debt rescheduling operations. Under these terms, Paris Club donors were encouraged to provide increased concessionality for those countries that face special difficulties of debt service flows falling due in the consolidated period for eligible countries as well as the prospect for an exit from the rescheduling process through stock-of-debt reduction operations. The Group of Seven Industrial Countries, at their Halifax summit in June 1995, requested the World Bank and the International Monetary Fund (IMF) to develop a comprehensive approach to assist a small number of the most heavily indebted countries, Facing significant extended debt problems both through a flexible implementation of the existing debt relief instruments and, where necessary, through new mechanisms. In response to this request, the two institutions made a preliminary analysis of debt sustainability for a number of countries; that is, whether those countries were capable to meet fully current and future debt obligations without unduly compromising growth.

Finally, deteriorating human conditions. Even under favourable conditions, those countries who performed well above the UN-NADAF growth rate will need to sustain that growth target for about 10 years in order to bring real per capita incomes back to their levels of 20 years ago. Despite numerous recommendations of the international community in favour of aid and solidarity for the developing countries and for the least developed countries in general and the countries in the African continent in particular, the indicators of sustainable human development related to the life expectancy at birth, the rate of alphabetization and the adjusted per capita income, put the countries of Sub-saharan region among the least developed in the world. The World Rapport on Human Development, published by the UNDP in 1996, indicates that the life expectancy at the birth for the Sub-Saharan African countries was 50.9 years against 63 years in the world; the adult alphabetization is respectively 55 and 76.3 per cent and the real GDP per capita is US$1,288 against US$5,428.4

4 See UNDP, Human Development Report 1996 (New York:

Oxford University Press, 1996).

17

In 1996, the overall performance of the agricultural sector continued to improve and output rose by 5.22 per cent as compared with 1.5 per cent in 1995. This is not to suggest, however, that the food crisis in Africa was over. The food situation in the region continues to be worrisome and a number of African countries with structural food deficits continue to require

food aid. ____„__ .

In a few countries, there were strong indications that the policy measures undertaken in the recent past to give top priority to agriculture, were starting to pay off. The twin objectives of food self-sufficiency and food security have loomed large along with agricultural diversification, favouring increased trade in traditional and non-traditional export crops, with the private sector assuming a relatively greater role in agricultural development. In Algeria, for instance, the transformation of state-owned farms to private farms has changed the historical structure of agricultural production and promoted the efficiency and competitiveness of farming activities.

In Madagascar, among the notable policy thrusts are those to increase rice production for food self-sufficiency, diversify agricultural production, and liberalize agricultural marketing process.

Cereals production has been the main food group contributing to the recovery of the sector.

Increase in cereal production was most noticeable in North Africa and the East and Southern Africa subregions, where output increased by 46 and 26 per cent respectively. Production in the Southern Africa subregion was estimated to be 26 million tons in 1996, some 10 million tons more than 1995's drought-affected harvest of 15.4 million tons. In the Central Africa and the Great Lakes Region, cereal output was stagnant in 1996 compared to that of 1995 making food supply problematique for many people in these countries. In Rwanda, the influx of half a million refugees from neighbouring countries strained the already fragile and unstable food situation in that country while the socio-political crisis in Burundi and the economic sanctions

imposed by neighbouring countries aggravated the food situation towards the end of 1996.5 In

The situation at individual country level was, however, marked by frequent variations. In Algeria, the creation of local and regional agricultural credit institutions, coupled with a better organisation of the harvest, the extension of the area under cultivation up to 3,663,OCX) hectares, and the use of additional 2.5 million quintals of seeds, increased in cereal production, reaching a record production of 46 million quintals in 1996. Morocco also registered a record cereal harvest of 9.75 million tons, some 1.5 million tons higher than forecasted. Good climatic conditions in Tunisia have resulted in a significant expansion in agricultural output. A record cereals harvest of more than 2.8 million tons in 1996 was expected, following falls of 10.1 and 9.7 per cent in 1994 and 1995 respectively. In Somalia, although output increased by 50 per cent in 1996, the food situation was still cause for concern and the harvest still a third less than it was in pre-war years. Civil strife, shortage of inputs and insufficient rains are now the main contributory factors for unfavourable prospects for current crops in Burundi, Kenya, Somalia, Tanzania and Uganda. On the other hand, the peace dividend in Mozambique has brought

5 See FAO, (1996) Foodcrops and Shortages. December 1996/January 1997, p.5.

benefits reflected by a renewed agricultural effort and, and although they are still to attain self- sufficiency in food, Mozambican farmers registered their best grain harvest ever in 1996. In

South Africa, cereal production has increased from 7,463 thousand tons in 1995\to 13,205 thousand tons in 1996. Following widespread rains in many principal crop growing aieas in late

However, outbreaks of locus have been reported in Botswana, Malawi, Mozambique, South

Africa, Zambia and Zimbabwe.6 - f

Production of roots an<I tubers was stagnalrtlnTyyo. Trie totaToutput oTffie^^gion was estimated at 135 million tons, approximately the same as in 1995. Production or' industrial

crops have been marked by slight variations in 1996 at subregional level. In the Gre|k Lake

countries, for instance, production of coffee remained unchanged in 1996 compared to 1995, while it has dropped slightly in West Africa to 0.25 million tons from 0.27; million tons in 1995. Ethiopia and Uganda provided the bulk of coffee production in East and Southern Africa, while in Central Africa the leading coffee producer was Cameroon, followed vby the Central

Africa Republic. \

i

Definitive figures are yet to be available for cocoa production in the region for the 1996/97 harvest. However, preliminary statistics indicate a global figure of 3.8 million t6ns, about two million tons more than in the 1995/1996. In Cote d'lvoire, the largest African cocoa producing countrv, a bumper cocoa crop was expected in the 1996/1997 and production was estimated to be 1,353 thousand tons, an increase from the 1,100 thousand tons recorded in the previous year.

In Ghana, cocoa production was estimated to be 425 thousand tons for the 1996/1997, about 9 per cent higher man the Cocoa Producers' Alliance released figure of 390,000 tons for the previous year.7 Nigeria, the third largest cocoa producing country in West Africa,increased its production by 6 per cent in 1996. Overall production of both tea and tobacco in the region remained relatively constant in 1996.

Although overall food production, in per capita terms, was still lagging behind the region's population growth rate, recent policy developments both in and outside the region are likely to be cost-effective and thus brightening up prospects for expanded food and agricultural production in the region in 1997. The main policies actions include introducing agricultural reforms with a focus to enhance institutional efficiency, strengthening the role of the private sector in agricultural development and, liberalising the marketing of agricultural products.

6 See FAO (1996) Foodcrops and Shortages, op. cit. p. 3.

7 Economic Intelligence Unit, Country Report. 4th Quarter 1996.

19

-

A Crops

Cereals

Roots & tubers Coffee

Cocoa bean Tea

Tobacco

Sources: FAU data ana

A.3 Good Uecov

TabI gricisltural production,

1994 - H3vl

132.5 1.1

1.4 1

0.3 \

1.4 \

ECA Secretariat \

prv in the Mining Sect(

-}L7

1994-1996 (Million toa

! 1995

135.1

' 1.1

1.5 0.4 1.5

>r

S)

1996

135.5 1.2 1.6 0.4 1.6

Value added of the mining sector increased substantially from a negative growth rate of 0.2 per cent in 1995 to 6.6 per cent in 1996. This impressive recovery was mainly due to the strengthening of the international crude oil prices and the increase in the prices of other primary metal and mineral commodities on the international markets. Production volumes remained virtually stable in 1996 except for crude oil, which enjoyed a substantial recovery.

Some major non-fuel producing countries such as Ghana, South Africa, and Sierra Leone, experienced internal difficulties and output contracted in absolute terms in 1996. In Ghana gold production for the first three quarters of 1996, though slightly higher, was still some 6,600 ounces short of the 1 million ounces the Ashanti Gold Corporation had pledged to achieve since the end of 1995, owing to the harder transitional material processed at the company's plant.

In South Africa, since mid-1996, the mining industry had been experiencing significant productivity problems related to increased costs and working capital problems in that industry.

Gold production fell to 505 tons in 1996 from 523 tons in 1995. By contrast, in Zaire, despite the chronic economic and social difficulties, the copper mining industry has not only held its

own but also implemented strategies to regain its full production capacity. Copper output was

estimated to be 50 thousand tons in 1996, increasing by more than 40 per cent over the 1995 output In Sierra Leone, rebel activities have forced the closure of the world's largest rutile mine. Mining activities in countries such as Cote d'lvoire, Mali, Morocco, Namibia and Senegal continued to focus particularly on reviewing the mineral codes and regulations in order to encourage an environment that engenders mineral-led economic growth, driven primarily by

the private sector.

8 Economic Intelligence Unit, Country report. 4th Quarter, 1996.