Africa now collects about $500 billion in tax revenue every year, $50 billion in foreign aid, $60 billion in remittances, and $60 billion in FDI inflows. More than $100 trillion is managed by institutional investors and commercial banks globally, [and as such] African countries seeking financial resources now have a wide variety of options, well beyond foreign aid. This is one of the key highlights in the 2018 African Economic Outlook, released by the African Development Bank.
The more than 180 pages indepth report provides short-to-medium term forecasts on the evolution of key macroeconomic indicators for all its 54-member African countries. It also, quite tellingly, analyses the state of socioeconomic challenges, priority areas of concern, and progress made in each country, while rigorously proffering ways forward, backed by comprehensive data and analyses. For example, report highlights how Africa’s infrastructure requirements run between $130 to 170 billion a year. “That’s far higher than the long-accepted figure of $93 billion a year,” the report state.
And Akinwumi Adesina, President African Development Bank Group emphasise this fact further: “infrastructure projects are among the most profitable investments any society can make. When productive, they contribute to and sustain a country’s economic growth. They thus provide the financial resources to do everything else.”
But many governments try to do too much at the same time and end up not actually doing much, concludes the report.
Here in bitesize, we spotlight some highlights, facts and figures, conclusions, as well as recommendations, from the report:
- Growth in real output recovered in 2017. Many African economies are better placed to cope with harsh external conditions than they were in the past two decades.
- Global conditions have eased slightly since mid-2016, improving the outlook for Africa, but countries in the region still face major macroeconomic challenges.
- After tepid annual growth of 2.2 percent in 2016, average real GDP rebounded, reaching 3.6 percent in 2017. It is projected to grow 4.1 percent a year in 2018 and 2019
- East Africa remains the fastest-growing sub region in Africa, with estimated growth of 5.6 percent in 2017, up from 4.9 percent in 2016. Growth is expected to remain buoyant, reaching 5.9 percent in 2018 and 6.1 percent in 2019. Strong growth is widespread in the subregion, with many countries (Djibouti, Ethiopia, Kenya, Rwanda, Tanzania and Uganda) growing 5 percent or more.
- Growth in Southern Africa nearly doubled in 2017, to 1.6 percent, up from 0.9 percent in 2016. The improvement reflects better performance of the three main commodity exporters: South Africa, which doubled its growth (still low, at 0.6 percent); Angola, where output expanded by 2.1 percent; and Zambia, which grew 4.1 percent. The three countries accounted for about 1 percentage point of Africa’s growth rate.
African countries should strengthen their economic resilience and dynamism to lift their economies to a new growth equilibrium, driven by innovation and productivity rather than by natural resources.
- In West Africa, supported by increased oil production and output growth in agriculture, Nigeria is expected to consolidate the gains made in 2017. As a result, growth in West Africa is projected to accelerate to 3.6 percent in 2018 and 3.8 percent in 2019. Other large countries accounting for the expansion include Côte d’Ivoire, Ghana, and Senegal; smaller countries (Benin, Burkina Faso, Sierra Leone, and Togo) are also expected to grow at 5 percent or more.
- The Central Africa region has continued to underperform, even with the recovery in oil prices. Output contracted sharply in the Republic of Congo (-4.0 percent) and Equatorial Guinea (-7.3 percent), weighing down the region’s overall growth to 0.9 percent in 2017. Moderate recovery in the Republic of Congo will bolster growth in the region, which is expected to pick up to 2.6 percent in 2018 and 3.4 percent in 2019, respectively. Macroeconomic conditions have deteriorated sharply, stoked largely by the fall in oil revenues.
- African economies have been resilient: Real output is up, reflecting generally good macroeconomic policies, progress in structural reforms (especially in infrastructure development), and generally sensible policy frameworks.
- Global and domestic shocks in 2016 slowed the pace of growth in Africa, but signs of recovery were already manifest in 2017.
- Overall, the recovery in growth has been faster than envisaged, especially among non-resource–intensive economies, underscoring Africa’s resilience.
- African countries should strengthen their economic resilience and dynamism to lift their economies to a new growth equilibrium, driven by innovation and productivity rather than by natural resources.
- The recovery in growth could mark a turning point in net commodity-exporting countries, among which the protracted decline in export prices shrunk export revenues and exacerbated macroeconomic imbalances.
- Many African economies are more resilient and better placed to cope with harsh external conditions than before. But the end of the commodity price super-cycle has cut earnings from primary exports in many countries, undermining planned investments.
Although, infrastructure deficits are not unique to Africa, the report highlights these three factors to explain the low infrastructure provision on the continent: Weak legal, regulatory, and institutional frameworks; Weaknesses in infrastructure planning and project preparation; Governance and corruption.
- One of the key factors retarding industrialization has been the insufficient stock of productive infrastructure in power, water, and transport.
- Africa’s infrastructure needs, $130 to $170 billion a year, and leaves a financing gap of as much as $108 billion.
- The share of infrastructure investments in transport is the largest, at around 39 percent, followed closely by the energy sector at 32 percent and water and sanitation at 17 percent. The increasingly important ICT sector is under 3 percent
- Africa now collects about $500 billion in tax revenue every year, $50 billion in foreign aid, $60 billion in remittances, and $60 billion in FDI inflows.
- More than $100 trillion is managed by institutional investors and commercial banks globally… African countries seeking financial resources now have a wide variety of options, well beyond foreign aid.
- Also in the picture are sovereign wealth funds and market finance.
- Tax-to-GDP ratios are still low in most African countries.
- In the medium to long term, the most important area of fiscal policy, is tax reform.
- Domestic revenue mobilization improved substantially in recent decades, but tax-to-GDP ratios are still below the 25 percent threshold deemed sufficient to scale up infrastructure spending.
- Widening the tax base (eliminating many exemptions and leakages) rather than hiking already high marginal tax rates will be indispensable for boosting tax revenues.
- With the notable exception of the CFA franc used by 14 African countries, which is pegged at a fixed exchange rate against the euro, most African currencies have lost about 20–40 percent of their value against the dollar since the beginning of 2015.
- Africa is estimated to have had 226 million youth in 2015, a figure projected to increase 42 percent, to 321 million by 2030.
- Africa will become the youngest and most populous continent in the next few decades. Its labour force will rise from 620 million in 2013 to nearly 2 billion in 2063.
- Slow job growth has primarily affected women and youth (ages 15–24).
- In the face of rapidly growing populations and heightened risks of social unrest or discontent, jobless growth is the most serious concern for African policy makers.
- All regions except Central and Western Africa recorded inflation rates of 5 percent or more in 2017.
- Inflation spiked to nearly 10 percent in East Africa, fueled by a rise in food prices, especially in Kenya, where the effects of the drought reduced the maize harvest, causing chronic shortages of the staple.
- Inflationary pressures have raised the cost of living in affected countries. The cost of running government has also gone up, expanding financing needs and widening fiscal deficits.
- Africa as a whole saw growth fall behind the global average in 2016; in 2017 it grew at about the same rate as the global economy. But because population growth is greater than in most other regions, per capita growth was below the world average.
- The continued rise in the price of crude oil—from an average of $44 a barrel in 2016 to more than $50 a barrel in 2017—provided relief to both government budgets and current accounts.
- The fiscal deficit among oil exporters was 6.7 percent of GDP in 2017, higher than for net oil-importing countries, where the average was 4.6 percent of GDP.
- The average fiscal deficit in Africa is projected to reach 4.5 percent of GDP in 2018–19. Its narrowing reflects gains in net oil-exporting countries, where the deficit is expected to fall to an average of 4.7 percent of GDP in 2018–19, down from 6.7 percent in 2017. To contain the rise in debt levels, further fiscal consolidation will be necessary, particularly reduction in recurrent expenditure.
The full African Economic Outlook report which can be downloaded here, examines recent macroeconomic development and structural changes in Africa, and outlines the 2018 prospects. It then focuses on the need to develop Africa’s infrastructure, and recommends new strategies and innovative financing instruments for countries to consider, depending on their level of development and specific circumstances