AEO 2016 Presentation
27 Sept 2016
Brookings Institution
Washington DC, USA
Macroeconomic
Developments and
Prospects
Development Research
Department
African Development
Bank
1
Key Messages
 Africa ‘Rising’ narrative under scrutiny as low commodity price
environment persists, shrinking revenues
 Slowdown in average Africa GDP growth but still above global average
 Growth expected to rebound in 2017 as current adjustment measures take
effect; weather patterns improve
 Growth resilience also underpinned by strong domestic consumption,
public infrastructure investment
 Policy response: Strengthen policy buffers to external shocks; explore
new drivers of growth – diversification; structural measures
2
Africa’s projected real GDP growth rates
Growth will be
subdued in 2016;
expected to recover in
2017, underpinned by:
Adjustment measures
Relatively strong domestic
consumer demand
Africa’s medium term projected real GDP growth rates
2010
5.9%
2017
2015
3.6%
2016
3.2%
1.9%
Robust public investment in
infrastructure
Underlying downside risks to growth: Protracted low commodity
price environment, persistent power shortages, adverse weather
(drought), pockets of civil conflict and political instability
But Africa remains resilient despite adverse internal and external
conditions; strong policy buffers needed to sustain growth
3
Regional Growth Prospects 2016
West Africa
GDP
growth
0.7%
GDP
growth
1.8%
North Africa
Central Africa
GDP
growth
2.4%
Africa
1.9%
East Africa
GDP
growth
4.9%
Southern Africa
GDP
growth
1.2%
4
Build up of inflationary pressures
Median inflation
2016 (p)
2017 (p)
2015
2013
2014
2012
2010
2011
2008
2009
2007
2005
2006
2003
2004
Average inflation in
2016 likely to be more
elevated than median
inflation.
High inflation countries
Angola (29.1), Zambia
(20.7%), Malawi
(19.7%), Sudan (17.9%),
Ghana (17.8%),
Mozambique (16.6%),
and Nigeria (15.3%)
12
10
8
%6
4
2
0
Average inflation
5
Global Oil Price Effect (1)
Oil-exporting versus
importing countries
Growth to be sharply
lower in exporting
countries
Recession in Nigeria;
Political paralysis
Libya and South
Sudan
Expected recovery in
2017 but uncertainty
on commodity price
movements; global
growth
Growth in real GDP (Percent)
2014
2015
2016
2017
Africa
3.7
3.3
1.9
3.2
Oil exporting
countries
3.7
3.1
1.1
2.6
Oil importing
countries
3.8
3.6
3.0
4.0
Strong domestic
policy buffers
required to protect
growth from further
decline
6
Low Global Oil Price Effect (2)
Oil exporting countries
20
10
5
Current account
2017 (p)
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
-10
2016 (p)
Moderate
improvements
expected in
2016/2017
2005
-5
2004
0
2003
First round effects
shown in continued
weakness in fiscal
and external
positions
% of GDP
15
Fiscal balance
7
Fiscal and current
account deficits
broadly weaker
Impacted by falling
non-oil commodity
prices
Improvement
expected in 2016/2017
% of GDP
Oil importing countries
1
0
-1
-2
-3
-4
-5
-6
-7
-8
-9
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 (p)
2017 (p)
Global Oil Price Effect (3)
Current acount
Fiscal balance
8
Summary and Policy Recommendations
• Economic growth in commodity dependent countries still vulnerable to swings in
commodity prices
• Fall in commodity revenues reduced fiscal space, threatening gains made in
past years
• Broad based macroeconomic imbalances observed in few countries
• Delayed adjustment to shocks address the imbalances
• Africa’s non-commodity dependent countries among fastest growing economies in
the world
• Solid macroeconomic environment and public infrastructure investment
• Benefitted from low oil prices, lowering average inflation
• Need to strengthen resilience to external shocks through counter-cyclical fiscal
policies to build buffers
• Addressing inequality and poverty will require bold policy decisions and investment
in critical infrastructure to engender diversification and industrialization.
• AfDB is taking leadership in this regard through the High 5s transformative
agenda
9
Special Theme: Sustainable cities and
structural transformation in Africa
10
Africa’s rural and urban boom
1 600
1 400
1 200
1 000
Rural population
Urban population
Today
800
600
400
200
0
1950
1970
1990
2010
2030
2050
11
Urbanisation does not reduce poverty by itself
Nakuru
North median
income =
$PP1,077
Nyando
median income
= $PP 259
Note: Results of a survey of
285-299 households in the 3 regions
Source: Losch, Fréguin-Gresh and White, 2012
12
Urbanisation does not bring about
industrialization by itself
Manufacturing value-added (%
GDP)
40
35
30
25
20
15
10
5
0
15
20
25
30
35
40
45
50
55
Urbanization level (%)
East Asia & Pacific (developing only)
Sub-Saharan Africa (all income levels)
13
Urbanization = the spatial component of structural
transformation
1.
Economic = sectoral re-allocation of factors of
production towards higher-productivity activities
2. Demographic = decline in fertility rates
3. Spatial = urbanisation
 different patterns
of structural transformation in Africa
14
6 Diversifiers
Most advanced on all three
dimensions:
- Economic diversification
towards higher
productivity activities
- Declining fertility rates
- High urbanisation rates
15
Very slow or no
diversification
towards higher
productivity
sectors
Early urbanisers
• Started fertility transition
• Started urbanising
Late urbanisers
• Started fertility transition
• but not yet urbanising
Agrarians
• fertility transition not started
• not yet urbanising
16
Very few African countries have urbanisation +
diversification
Typology of African
economies
Diversifiers
Early urbanisers
Late urbanisers
Agrarians
Resource
dependent
Demographic
Spatial
Economic
Started fertility
transition
Started
urbanising
Divers. / Higher
productivity



-


-
some
some

-
NO straight causality relationship
between those three dimensions.
8
Diverse types of structural
transformation
NER
Agrarians
Total Fertility Rate, 2010-2015
7
SOM
BDI
6
TCD
UGA
MWISSD
5
MLI
CODAGO
BFA
MOZ
TZA
ETH
ERI KEN
GIN
MDG
SDN
RWA ZWE
4
NGA
ZMB
SEN
LBR
SLE
BEN
TGO
CAF
Late urbanisers
EGY Early
CIV
CMR MRT
GHA
GAB
urbanisers
BWA
MAR
3
2
COG
DZA
LBY
ZAF
TUN
MUS
Diversifiers
1
0
10
20
Diversifiers
Agrarians
30
40
50
60
Urbanisation level (%), 2015
Early urbanisers
Natural resource-based
70
Late urbanisers
80
90
Smaller cities will drive urbanization
Contribution to population growth by urban and rural areas,
by type of African country, 2000-10
Population growth from rural areas
Growth from urban areas < 500 000 inhabitants in 2000
Population growth from cities > 500 000 inhabitants in 2000
% of total population growth
100
90
80
70
60
50
40
30
20
10
0
25 Million
22 Million
67 Million
9
41
23
25
27
29 Million
9
40
64
36
Diversifiers
Early urbanisers
22
19
39
36
85 Million
72
38
Late urbanisers
Agrarians
Natural resourcebased
City networks improve the links between
rural and urban economies
Population settlements and rural-urban linkages in West Africa, 2000
City networks can foster regional
integration
Integrate
Africa
Cities can provide enabling conditions
to host African productive sectors …
City attracts
capital, firms and
skilled workers
Agglomeration economies
Pool of labour &
inputs
Higher
productivity and
living standards
Services for
economic
activities (real
and financial)
Knowledge
spillovers and
tech transfer
Industrialise Africa
… but urban sprawling impedes
agglomeration benefits
Accra’s urban expansion (Ghana), 1991-2014
Source: AUE, 2016 project, contribution by UN-Habitat
… and the cost of air pollution is already
high despite slow industrialisation
Economic cost of selected risk factors in the African continent
Unsafe water
Household air pollution
Ambient particulate matter
pollution
Unsafe sanitation
Childhood underweight
0
50
100
150
200
USD Billion
250
300
Cities could “lighten up and power
Africa”
Projected electricity demand from the sub-Saharan African population gaining
access to electricity, “New Policies Scenario” 2020-40
TWh
150
On-grid
120
90
Mini-grid
60
30
Off-grid
0
2020
2025
2030
2035
2040
Light up and
power Africa
Bridging the financing gap
Traditional
finance
National transfers
Local revenues
Innovative
finance
Coproduction
Public Private
Partnerships
Ecological capital
Private finance
Removing fossil fuel
subsidies
Green funds
Thank you
www.africaneconomicoutlook.org
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