Press Release No. 05/86

Press Release: IMF Regional Outlook Report Cites High Growth and Low Inflation in Africa But Calls for More Efforts to Attain the Millennium Development Goals

April 14, 2005

The International Monetary Fund (IMF) today released the Spring 2005 issue of the Africa Regional Economic Outlook. Abdoulaye Bio-Tchané, Director of the IMF's African Department, cited the report's main findings:

"Real GDP growth in Sub Saharan Africa accelerated in 2004 to an eight-year high of 5 percent, and average inflation fell to below 10 percent for the first time in a quarter century. While growth continued to be particularly strong in oil-producing countries, oil-importing countries also performed well despite the world oil price hikes, with more than one-third of the countries achieving a growth rate of above 5 percent. Growth picked up to 3.7 percent in South Africa, while it slowed to 3.5 percent in Nigeria from an extraordinarily high rate in 2003. The policy response of the authorities to the oil price shock—through fiscal consolidation, exchange rate flexibility, and price pass-through to oil users—is generally appropriate."

The report projects that both strong growth and subdued inflation will continue in 2005. Nonetheless, some countries will face policy challenges in sustaining economic performance. Lingering conflicts in the Great Lakes region, falling world cotton prices, and abolition of remaining textile quotas at the beginning of 2005 are key challenges that call for well-crafted policy responses. The 30 percent fall in the world cotton prices over the past year mean that Benin, Burkina Faso, Mali, and Togo will all need to implement structural reforms to improve efficiency in the sector. The worst-affected countries will need donor support to avert worsening poverty while implementing these reforms. An appropriate mix of macroeconomic policies to improve export competitiveness while rigorously pursuing structural reforms to remove impediments to trade expansion is the challenge for at least five Sub Saharan countries (Lesotho, Mauritius, Madagascar, Cape Verde, and Swaziland) as they deal with the abolition of textile quotas.

The Africa Regional Economic Outlook reports that the most critical challenge for Sub-Saharan Africa is to sustain and accelerate economic growth, noting that even the recently improved growth rates fall short of the level required to achieve the Millennium Development Goal of halving income poverty by 2015. Macroeconomic policies contributed strongly to the recovery of the fast-growing economies of the 1990s, and the improvements were strongest for countries that boldly implemented their IMF-supported programs. Growth is more likely to be sustained if it is driven by higher productivity and investment rather than by temporary employment increases. A welcome finding is that productivity growth has improved strongly for the first time since the 1960s. However, unfortunately, total investment has not increased significantly for the fast-growing economies. A number of countries have succeeded in achieving strong growth accelerations through policy improvements that led to increases in trade and investment, lower debt burdens and higher aid, and more democratic institutions.

To sustain and accelerate current growth, Sub Saharan countries must implement additional macroeconomic and structural reforms to boost investment and trade. Improving the investment climate is a key priority: 16 of the 20 countries in the world with the most difficult business conditions are in Sub Saharan Africa.

Mr. Bio Tchane noted that "Trade policy must be an integral part of the region's growth strategy." The report finds that, to date, the continent's regional trade arrangements (RTAs) do not seem to have contributed to that desired result so far. Trade within African remains low, and in terms of overall trade and foreign direct investment, the region is falling further behind the rest of the world. Reducing trade barriers on a broad, nondiscriminatory basis—including strong commitments to trade liberalization in the Doha Round of multilateral trade negotiations—complemented by reducing trading costs at and behind the border and by improvements in infrastructure is the way to successfully make trade policy an integral part of the growth strategy. To underscore the importance of domestic infrastructure, it is estimated that shipping a car from Japan to Abidjan costs $1,500 while shipping the same car costs $5,000 from Addis Ababa to Abidjan. Sub Saharan countries should also take early action to mobilize domestic taxes to address revenue concerns over tariff cuts. Currently, Africa is home to some 30 RTAs, and on average each African country belongs to four RTAs. As recommended by African authorities themselves, a greater effort is needed to streamline existing RTAs to eliminate conflicting commitments."