The African Economic Outlook 2008
the Pulse of Africa
Javier SantisoChief Development Economist, OECDDirector, OECD Development Centre
31st January 2008
Exane BNP ParibasGeneva
The challenge of diversifying growth drivers1
A new investment frontier?2
Introduction
Rising Suns: China and India3
Conclusion: Africa and Global Decentering
Comparative, up-to-date and forward-looking tool
Monitoring progress towards MDGs of African countries: 31 countries in 2007 and 35 in 2008!
Analysing crucial themes for Africa development
Previous years: privatisation, energy, SME financing, transport, water
AEO 2008: “Technical Skills Development in Africa”
Deeply rooted in African realities
Network of local experts, constant dialogue with stakeholders
Quality peer review involving AfDB country and sector economists
Sound Statistical analysis and data computation
Original indicators (political troubles, diversification) and macro forecasts
New background research:Working papers on political indicators, privatisation, etc.
AEOAEO A unique macro monitoring tool
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AEOAEO From first-mover to regional reference
From 2001:
A groundbreaking collaboration
UNECA
2008:
The reference on African economies
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Algeria
Libya Egypt
Mauritania
Mali
Niger
Chad
Dem.Rep. Congo
Sudan
Central AfricanRepublic
Equatorial Guinea
GabonCongo
Cameroon
Angola
Guinea-BissauGuinea
Sierra Leone
Liberia
Côted'Ivoire
Tunisia
BurkinaFaso
Ghana
Nigeria
Togo
Ethiopia
Somalia
Djibouti
Eritrea
Kenya
Tanzania
Mozambique
SouthAfrica
Botswana
Zimbabwe
Namibia
Zambia
Swaziland
Lesotho
Malawi
Uganda
Burundi
Rwanda
Madagascar
Senegal
Gambia
Morocco
AEO 2008
Sao Tome et principe
Mauritius
Comores
Cape verde
Benin
New in 2008:
Cape Verde
Liberia
Libya
Equatorial Guinea
AEOAEO Coverage 2008: 35 African countries
91% of GDP
86% of population
5
The challenge of diversifying growth drivers1
A new investment frontier?2
Introduction
Rising Suns: China and India3
Conclusion: Africa and Global Decentering
GrowthGrowth Africa continues steady growth
Real GDP growth expected to exceed 5% for the fifth consecutive year in 2008
African growth is becoming more broad-based:
•2006: 23 countries over 5 %
•2007: 30 countries over 5%
•2006: 15 countries between 3-5%
•2007: 12 countries between 3-5%
Total OECD
Africa
Source: OECD Development Centre / African Development Bank, 2007
7
CommoditiCommoditieses
Commodity price inflation : a recent phenomenon?Global commodity prices 1900-2000
Source: OECD Development Centre, / Oxford Latin American History Database, 2008
*US$ nominal index 1970=1000
8
CommoditiCommoditieses
The commodity boom: a key driver for Africa
Global commodity prices 2001-2009
Source: OECD Development Centre / World Bank, 2008
9
GrowthGrowth Oil exporters and importers’ diverging paths?
Source: OECD Development Centre / African Development Bank, 2007Net Oil exporters: Algeria, Angola, Cameroon, Chad, Congo, Côte d'Ivoire, Congo DRC, Egypt, Equatorial Guinea, Gabon, Libya, Nigeria, Sudan
10
ANGOLAANGOLA World growth champion 2003-2007...
Source: OECD Development Centre / African Development Bank, ERS/USDA Macroeconomic Dataset, 2008
• Broadening investment: Non-oil sectors, construction, agriculture, manufacturing, services…• Decreasing dollarization : Strong & stable Kwanza increases local-currency deposits
from 41 to 49 % 2006 – 2007• Luanda Stock Exchange: Due to open first quarter 2008• Reconstruction: Fresh commitments from China (USD 7 billion credit), Paris Club repayments
2007:Real GDP growth: +19 % Oil production: +20%
2008 outlook: real GDP growth: +11.5%
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ANGOLAANGOLA …but slowing as production reaches capacity
Source: OECD Development Centre / African Development Bank, 2008
Slowing growth prospects:
• OPEC quota: Limiting oil production to 1.9 m b/d. Impact on growth and government revenue from 2008
• Poor diversification: Specialisation in extractive industry, difficult business environment
• Limited spillovers : 25 % unemployment and 68% poverty; weak governance.
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Positive factors:
• Sustained growth due to favourable international environment
• Good macro management: repayment of external debt (4.8% of GDP)
• Investment: Up 7.2%; increasing FDI tonon-oil sectors
ALGERIAALGERIA Below par in light of assets
Source: OECD Development Centre / African Development Bank, 2008
Threats:
•Increasing export specialisation
•Strongly Underexploited potential of non-oil sectors
• Youth unemployment over 30%
•Low absorption capacity
•Poor governance
Outlook for 2007: +3.1%
13
EGYPTEGYPT Africa’s foreign investment darling
Threats:
•High budget deficits•Subsidy system still accounts for 27% of govt. spending.
•Inflation (+8.5%) and food prices putting pressure on households •Youth unemployment remains high •Central Bank’s inflation targeting will lead to hikes in interest rates
Source: OECD Development Centre / African Development Bank, 2008
Positive factors:
•Top FDI recipient in Africa ($11.1bln 2007 )
•Very strong export sector (+19.3% at $222bln 06/07)
•Investment up: Dom. +34.2%; Public +47%; Private +62%
•Sustained reforms: new VAT & real estate tax laws, tariff reductions, improved business environment.
•Important new gas resources discovered in Upper Egypt
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South South AfricaAfrica
Gearing up for 2010 World cup
Source: OECD Development Centre / African Development Bank, 2008
Positive factors:
• Sound macro management, credible institutions
• Good policy mix : budget surplus +0.7 % in 2007/08, inflation within target 3-6 % over 2004-07
• Investment up (+12 %) to address capacity constraints (mining, manufacturing and construction)
• Reduced external vulnerabilty : due to reserve accumulation and raising investor confidence. Limited impact of U.S subprime
• Well-developed financial sector: 10% of GDP.
Growth 2004-07: +5%
Outlook:2007 +4.9% 2008 +4.6%.
Threats:
• Very high current account deficit: 2006 -6.5%, 2007 -7% (Russia +9,7%; Brazil +1,2%; China +9,5%)
•Lack of competition in key sectors: monopolies in transport (Transnet), telecom (Telcom), energy (Eskom)
•Energy shortages: Cost of power cuts: Rand 2.9 - 8.6 billion. No new capacity on grid until 2012
•Inadequate transport infrastructure: mining penalised by deficiencies in freight supply chains
•Poverty and inequality : High crime; 44.4 % poor; Gini coefficient 0.68 in 2006
15
Fiscal PolicyFiscal Policy The rewards of good macro management
Public finance management is generally good and improving
Greater macroeconomic stability attained :•Fiscal balance is positive•Inflation is stable
Africa: inflation and fiscal balance(2000-2006)
Source: OECD Development Centre / African Development Bank, 2007 16
ReservesReserves Lower debt, higher reserves
Source: Avendaño, Reisen and Santiso, “The Macro Management of Asian Driver Related Commodity Booms”, OECD Development Centre Working Paper, forthcoming 2008.
Reducing vulnerability via the Greenspan-Guidotti rule. Ratio of Reserves to Short-term Debt*:
Note: Logarithmic scale defined as the scale of measurement using the logarithm of the defined ratio.
17
InstabilityInstability Long-term decline in political risk
Regime Hardening (LHS)
18
Qualitative data obtained from Marchés Tropicaux et Méditerranéens. Data is used to construct two indicators referring to: Political instability: occurrence of strikes, demonstrations, violence and coup d’état. Hardening of the political regime : incarcerations of opponents, measures threatening democracy such as dissolution of political parties, violence perpetrated by the police and the banning of demonstrations or public debates.
Source: OECD Development Centre “Moving towards political stability? Monitoring political instability, governments response and economic performance in African countries” forthcoming article, April 2008.
InstabilityInstability Zimbabwe political mess has little regional impact
Zimbabwe & its neighbours’ growth:
No contagion of political instability:
* Botswana, Mozambique and Zambia
* *
*
Source: OECD Development Centre, 2007 19
KenyaKenya Infrastructure bottlenecks may compound instability
Kampala/Lake Victoria - Mombasa rail line is the main export channel for landlocked Central Africa
High growth rates in East Africa risk being strangled by crumbling infrastructure
Uganda, Rwanda, Burundi, Eastern Congo and South Sudan all rely on the port of Mombasa:Imports: fuel, aid, diverse suppliesExports:
25% and 33% of Ugandan and Burundi GDP transit through Kenya
Tanzania’s port of Dar es Salaam, is at full capacity, and unable to handle extra Central African spillover
High cost of a fragile infrastructure
Source: OECD Development Centre, African Economic Outlook 2008
20
AidAid Over the « hump » of debt relief
Source: OECD Development Centre / African Development Banks, 2008
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MDGsMDGs Slow progress, despite growth
Source: OECD Development Centre / African Development Bank, 2007
22
OutlookOutlook Oil exporter & importers: divergent paths?
Oil and Mineral exportersChallenges:
• Capitalise on windfall gains• Maximise spillover to rest of the
economy• Avoid Dutch Disease
Trade Balance Inflation
Growth Fiscal Balance
Oil importersChallenges:
• Contain inflationary pressure• Finance widening trade deficit• Streamline spending to prioritise
poverty reduction
Source: OECD Development Centre, African Economic Outlook, 2007
23
TradeTrade African economies safe from U.S downturn?
Source: OECD Development Centre / UN Comtrade, 2008. (data on Nigeria corresponds to last available year, 2003)
Due to a low share of external trade with the U.S, Africa is less vulnerable to effects of U.S subprime woes
Note: The “Others” category includes Latin America, Middle East. East Asia and South Asia. 24
TradeTrade Concentrated U.S / Africa trade
Source: OECD Development Centre / UN Comtrade, 2008.
25
TradeTrade Concentrated U.S / Africa trade
Source: OECD Development Centre / UN Comtrade, 2008.
Main African Exports to the U.S
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TradeTrade Moderate growth across sectors
Source: OECD Development Centre / UN Comtrade, 2008.
27
TradeTrade Two very different export profiles
Source: OECD Development Centre / Comtrade, 2008(Data on Nigeria correspond to the last available year, 2003)
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The challenge of diversifying growth drivers1
A new investment frontier?2
Introduction
Rising Suns: China and India3
Conclusion: Africa and Global Decentering
29
InvestmentInvestment Africa, the new investment frontier?
Source: OECD Development Centre / UNCTAD, 2007
A rapidly evolving investment destination:
Lower external debt: from 183% of gdp in 2002, to 69% in 2006
South-South lending: South Africa exporting capital China investing & providing loans, direct entry into African banking sector (2007: $5bln in deals struck)
Today private capital = 80% of total flows (50% in mid-80s)
Decoupling: Africa’s low correlation with other asset classes has made it an important in portfolio diversification
Real lending rates still very high:SSA 13% other LIC/MIC: 8%,Developed countries: 3.5% (04).
Savings rate still very low:SSA: 10% (SSA LIC: 5%, other SSA: 12%)BICTS*: 28% average savings
Allocation puzzle: the poorest countries have become net exporters of capital over recent years
*BICTS: Brazil, India, China, Thailand & South Africa
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FDIFDI Record investment inflows for 2007
Source: OECD Development Centre / UNCTAD, 2008
Africa FDI 2007 : $36 billion
• Highest figure on record
• +20% on 2006; +200% on 2004
•FDI outflows - $8 billion 2006
• Largely due to surging extractive industry investment: South Africa and oil producing countries are still receiving the bulk of direct investment to Africa
• Previously off-limit sectors opening to foreign investment:Banking: Congo, Egypt, NigeriaTelecoms: Botswana, Burkina Faso, Cape
Verde, Ghana, NamibiaLand ownership: Morocco
FDI inflows likely to remain strong, but unevenly distributed by sector and destination.
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FDIFDI Africa still last, despite fast rising investment
Source: OECD Development Centre / World Bank, 2008
Source: OECD Development Centre based on UN Comtrade, 2008
1999 2000 2001 2002 2003 2004 2005 2006
World 3117 3199 15524 4684 6427 4595 10509 17569
Developed economies 2534 2380 14964 3668 3156 4571 9564 7173
Developing economies 583 819 559 1016 3270 2024 476 9721
Africa 52 769 520 809 569 1849 360 746
Latin America 373 - - 67 166 - - 125
Asia 158 50 39 141 2536 175 116 8850
Distribution of cross-border M&A purchases in Africa by home region, 1999-2006 (US$ million)
Source: OECD Development Centre based on UNCTAD cross-border M&A database, 2008
32
InvestmentInvestment Rising investment, unchanged allocationsGlobal Emerging Market Equity & Bond funds:
Total investments and regional allocations
0
10
20
30
40
50
60
0
20
40
60
80
100
120
140
160
180
US$
bill
ion
GEM Equity
Assets all funds (left-hand scale)
Asia
Latin America
Emerging Europe
Africa
0
10
20
30
40
50
60
0
5
10
15
20
25
30
US$
bill
ion
GEM Bonds
Source: OECD Development Centre / EPFR, 2008
33
EquitiesEquities South Africa: dominating the investment landscape
Source: OECD Development Centre / EPFR, 2008
• Global equity fund allocation remains stable: 10% total funds
• EM funds have grown considerably, especially since 2003
• In turnover, the SA stock exchange is worth 100 times that of Africa’s second market: Nigeria.
• Africa still lagging behind in investment compared to other emerging regions (Asia especially).
• Over 2001-2006 period, South Africa received as much portfolio equity investment as the entire rest of SSA, 46 times over…
• South Africa: received 147 times Botswana’s total equity investment over same period
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Private Private EquityEquity
Ideally adapted to African constraints?
Total emerging world private equity funds raised:
• $21.5 billion raised in first half of 2007
• Sub-Saharan Africa 2006: $2.3 billion raised (+198%)
• Average deal size 2005 $1.2 million, trending towards larger deals
• South Africa: 81% of investments, Nigeria 50% of remainder(2005)
• Top sectors: Transport, consumer-related investments, telecommunications/IT (2005)
• Later stage funds : 75% of all in-country investments 2005
• “In-country” investments: 96% total. “Outbound ” (intra-African) investments nonetheless in strong progression.
• Emerging Capital Partners: first $1 billion pan-African fund (2006)
2003 2004 2005 2006
$3.4 bln $6.4 bln $25 bln $33 bln
*OECD Development Centre / African Venture Capital Association, 2007
*
*
*
*
*
Source: OECD Development Centre / Emerging Markets Private Equity Association, 2008
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The challenge of diversifying growth drivers1
A new investment frontier?2
Introduction
Rising Suns: China and India3
Conclusion: Africa and Global Decentering
AsiaAsia Deepening bilateral trade relationships
Source: OECD Development Centre based on UN Comtrade, 2008
37
AsiaAsia The challenge of China and India’s rise
Source: OECD Development Centre, based on Comtrade data, 2008
n
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HH
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jj
11
1
1
2
Note: Herfindahl-Hirschmann index calculated as , where represents
the market share of good j on the exports of country i in its total exports .
iijj Xxp /
0.00.10.20.30.40.50.60.70.80.9
Vene
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ca
Mex
ico
Guat
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Braz
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Export Concentration in Products for Latin AmericaHerfindahl Hirschman Index
2001 2006
Export Concentration in Products for AfricaHerfindahl Hirschman Index
0.00.10.20.30.40.50.60.70.80.91.0
Ango
la
Chad
Nige
ria
Cong
o
Mal
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Nige
r
Moz
ambi
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Alge
ria
Zam
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n
Ghan
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Gam
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Nam
ibia
Côte
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oire
Sene
gal
Zim
babw
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Keny
a
Sout
h Af
rica
Tuni
sia
Mor
occo
2000 2005
The risks of excessive specialisation:
38
AsiaAsia Higher specialisation in export markets?
Source: OECD Development Centre, based on Comtrade data, 2008.
n
np
HH
n
jj
11
1
1
2
Note: Herfindahl-Hirschmann index calculated as , where represents
the market share of country j on the exports of country i in its total exports .
iijj Xxp /
Herfindahl-Hirschmann Index by Destination
39
ChinaChina Growing yet concentrated African exportsPartnering with the Asian drivers:
opportunities and risks of further specialization in raw commodities
Source: OECD Development Centre / UN Comtrade, 2008
40
ChinaChina High value-added imports from Asia:
Source: OECD Development Centre / UN Comtrade, 2008
Partnering with the Asian drivers: opportunities / risk of raising the bar for competing in labor intensive industries
41
ChinaChina Net Exports with Asia: growing deficit
Source: UNComtrade/OECD42
ChinaChina A new and exciting paradigm shift
Source: UNComtrade/OECD
05
101520253035404550
EU - 15 United States
Asia (exc. China)
China
Shar
e of
tot
al e
xpor
ts
African Exports by destination
2000
2006
0
0.2
0.4
0.6
0.8
1
1.2
1995 2000 2005
USD
Bill
ions
Africa' FDI to China
0
10
20
30
40
50
60
Total Trade ODA FDI Contracted Projects
ÙSD
Bill
ions
Africa-China economic links 2006Summary
0
5
10
15
20
25
2001 2002 2003 2004 2005 2006
USD
Bill
ions
China's lending role in AfricaChina Exim bank - Export Credits
Export Sellers Credit
International Guarantees
Export Buyers Credit
Source: OECD Development Centre / IMF, 2007.
43
InvestmentInvestment Attractive investments with low correlations
Source: OECD Development Centre, based on Thomson Datastream, 2008
44
The challenge of diversifying growth drivers1
A new investment frontier?2
Introduction
Rising Suns: China and India3
Conclusion: Africa and Global Decentering
ConclusionsConclusions Global Decentering and Africa’s XXIst century
Commodities are only part of the story. African countries are growing whether they be exporters or importers of raw materials
Africa is increasingly opening up to new actors, interests and sources of capital to watch: private equity and sovereign wealth funds
China and India have already shifted the state of play
Africa is at the forefront of a ‘global decentering’
1
2
3
4
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Thank you
More information:www.oecd.org/dev/aeo