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Press release African Economic Outlook 2016

Articles 23/05/2016

Lusaka, Zambia, 23 May 2016 - How Africa urbanises will be critical to the continent’s future growth and development, according to the African Economic Outlook 2016 released today at the African Development Bank Group’s 51st Annual Meetings.

 

Africa’s economic performance held firm in 2015 amid global headwinds and regional shocks. The continent remained the second fastest growing economic region after East Asia. According to the report’s prudent forecast, the continent’s average growth is expected at 3.7% in 2016 and pick up to 4.5% in 2017, provided the world economy strengthens and commodity prices gradually recover.

 

In 2015, net financial flows to Africa were estimated at USD 208 billion, 1.8% lower than in 2014 due to a contraction in investment. At USD 56 billion in 2015, however, official development assistance increased by 4%; and remittances remain the most stable and important single source of external finance at USD 64 billion in 2015.

 

“African countries, which include top worldwide growth champions, have shown remarkable resilience in the face of global economic adversity. Turning Africa’s steady resilience into better lives for Africans requires strong policy action to promote faster and more inclusive growth,” stated Abebe Shimeles, Acting Director, Development Research Department, at the African Development Bank.

 

The continent is urbanising at a historically rapid pace coupled with an unprecedented demographic boom: the population living in cities has doubled from 1995 to 472 million in 2015. This phenomenon is unlike what other regions, such as Asia, experienced and is currently accompanied by slow structural transformation, says the report’s special thematic chapter.

 

According to the authors, lack of urban planning leads to costly urban sprawl. In Accra, Ghana, for example, the population nearly doubled between 1991 and 2000, increasing from 1.3 million to 2.5 million inhabitants at an average annual growth rate of 7.2%. During the same period, the built up area of Accra tripled, increasing from 10 thousand hectares to 32 thousand hectares by an average annual rate of 12.8%. 
 

Urbanisation is a megatrend transforming African societies profoundly. Two-thirds of the investments in urban infrastructure until 2050 have yet to be made. The scope is large for new, wide-ranging urban policies to turn African cities and towns into engines of growth and sustainable development for the continent as a whole.

 

If harnessed by adequate policies, urbanisation can help advance economic development through higher agricultural productivity, industrialisation, services stimulated by the growth of the middle class, and foreign direct investment in urban corridors. It also can promote social development through safer and inclusive urban housing and robust social safety nets. Finally, it can further sound environmental management by addressing the effects of climate change as well as the scarcity of water and other natural resources, controlling air pollution, developing clean cost-efficient public transportation systems, improving waste collection, and increasing access to energy.

 

“Africa’s ongoing, multi-faceted urban transition and the densification it produces offer new opportunities for improving economic and social development while protecting the environment in a holistic manner. These openings can be better harnessed to achieve the Sustainable Development Goals – especially SDG 11 on sustainable cities and communities – and the objectives of the African Union’s Agenda 2063,” said Mario Pezzini, Director of the OECD Development Centre and Acting

 

Director of the OECD Development Co-operation Directorate. “The benefits could accrue for both urban and rural dwellers, provided governments adopt an integrated approach,” he added.  

 

This approach includes stepping up investment in urban infrastructure, improving connectivity with rural areas, better matching formal real estate markets with the housing demand by clarifying land rights, managing the growth of intermediary cities, and improving the provision of infrastructure and services within and between cities. Such investments need to be accompanied by productive formal employment – especially for the youth – and sufficient public goods.

 

In 2015, approximately 879 million Africans lived in countries with low human development, while 295 million lived in medium and high human development countries. Africa’s youth are particularly at risk from slow human progress. In sub-Saharan Africa nine out of ten working youth are poor or near poor.

 

According to the Outlook, seizing this urbanisation dividend requires bold policy reforms and planning efforts. For example, tailoring national urban strategies to specific contexts and diverse urban realities and patterns is essential. And harnessing innovative financing instruments is paramount. Ongoing endeavours to promote efficient multi-level governance systems, including decentralisation, capacity building and increased transparency, at all government levels, should be strengthened.

 

“In 2016, the emerging common African position on urban development and the international New Urban Agenda to be discussed in Quito in October provide the opportunity to begin molding ambitious urbanisation policies into concrete strategies for Africa’s structural transformation,” said Abdoulaye Mar Dieye, the Director of the Regional Bureau for Africa at the United Nations Development Programme. “We need to invest in building economic opportunities, especially those of women of which 92% work in the informal sector. Cities and towns have a key role to play in that process, but only if governments take bold policy action.”

 


About the report:

The African Economic Outlook is produced annually by the African Development Bank (AfDB), the Organisation for Economic Co-operation and Development (OECD) Development Centre and the United Nations Development Programme (UNDP).

 

For the full report, including statistics and 54 individual African country notes, please visit www.africaneconomicoutlook.org. Official hashtag: #AEO2016

 

For more information on the African Development Bank Group’s 51st Annual Meetings, visit www.afdb.org/am. Official hashtag: #AfDBAM2016

 

 

 

Press contacts:


Em português: África: a transformação económica depende do desbloqueio do potencial das cidades, de acordo com a publicação African Economic Outlook 2016

Management and industrialisation in Africa

Blogs 12/09/2017

By Daniela Scur and Nicolas Lippolis, University of Oxford


The manufacturing sector has traditionally been seen as an engine for development due to its high propensity for productivity gains. Worryingly, recent evidence suggests that this has not been the case in Africa.1 One important determinant of firm productivity is the quality of management practices, and new data sheds light on the state of management in some African countries.

Management around the world

For over 12 years, the World Management Survey (WMS) has been collecting data on management practices using an interview-based methodology. It defines 18 key management practices and scores them from worst practice (1) to best practice (5). The focus is on such practices as monitoring, target-setting and incentives/people management. Research using this data suggests a strong correlation between management and a series of productivity measures – such as firm size, profitability, sales growth, market value and survival. Experimental evidence further confirms a positive correlation.2 Indeed, researchers have found that the quality of management can help explain productivity differences between countries, and it is estimated that management accounts for close to a third of cross-country productivity differences.3 The WMS only surveys firms with 50 or more employees, which means a set of medium- and large-sized, more well-established firms. Although this is not a random sample relative to the full population, it is a random sample of the population of firms that have reached some scale and, arguably, have growth potential.

Read the full blog on Development Matters

Biases in entrepreneurship and industrial policy in Africa

Blogs 06/09/2017

By Wim Naudé, Professor in Business and Entrepreneurship in Emerging Markets, Maastricht University, Dean of the Maastricht School of Management, The Netherlands, and Research Fellow at the IZA Institute for Labor Economics, Bonn, Germany


Africa has failed to industrialise. At the same time, millions of young people are seeking jobs. Put one-and-one together and the answer seems to be that if these labour market entrants become entrepreneurs in industry then they can in one stroke create jobs and help Africa industrialise. Yet, optimising the nexus between entrepreneurship and industrialisation requires overcoming some vexing policy biases. These can be categorised as biases of over-estimation and biases of under-estimation.

First, industrialisation’s job-creation potential is often over-estimated. The world is in a Fourth Industrial Revolution (4IR) driven by technologies such as the Internet of Things, automation, additive manufacturing and big data analytics (see Naudé, 2017). These technologies are causing the loss of low-skilled routine jobs, of which Africa has a disproportionate share. It’s estimated that up to 66% of all jobs in developing countries are at risk. Relatively poor African countries such as Ethiopia are at a particular risk of having around 44% of current jobs susceptible to automation. The 4IR is furthermore leading to a ‘re-shoring’ of manufacturing back to advanced economies. This is to the detriment of low-wage labor in African and other developing countries. As Culey (2012) points out: How important is low-cost labor when you don’t actually need labor?

Second, the dangers of entrepreneurship are under-estimated. Most businesses are small and micro-enterprises that do not create many jobs, that do not grow and that fail within a few years (Nagler and Naudé, 2017). Although problematic, this is perhaps the least of the dangers (Naudé, 2011). More of a concern is the danger of government capture and destructive entrepreneurship such as looting, people smuggling, poaching and outright war (Brück et al., 2013). Consider two recent examples (unfortunately there are many more). First, a study on the relationship between African leaders’ birthplaces and the destination of Chinese-funded industrial projects found that when leaders hold power, their birth regions receive substantially more funding from China than other subnational regions (Dreher et al, 2016: p.1). Second, state capture by entrepreneurs has contributed to the destruction of the textile industry in northern Nigeria. Millions of garments with the Made in Nigeria label are illegally smuggled across the Niger border, with the complicity of local politicians/entrepreneurs (Burgis, 2016). The garments are in fact not made in Nigeria.

Read the full blog on Development Matters

Electricity for all in Africa: Possible?

Blogs 02/08/2017

By Bakary Traoré, Economist, Sébastien Markley, Statistician, and Ines Zebdi, Research Assistant, OECD Development Centre


For decades, access to electricity has been a serious challenge in Africa. It still is. 600 million Africans are not connected to an electrical network. African businesses cite electricity amongst the two most severe constraints on their operations (Enterprise Surveys, 2016). Twenty-five of the 54 countries in Africa, including Nigeria, South Africa, Ghana and Senegal, deal with frequent power crises characterised by outages, irregular supply and surging electricity costs. These are symptoms of insufficient generation capacity and a lack of infrastructure.

Despite these sobering facts, a number of recent initiatives signal that major improvements may be underway. The impetus to act is driven by the benefits Africa can reap by investing in electrification. Such benefits go far beyond direct job creation in energy infrastructure, as important as that is. Several pieces of evidence (Jimenez [2017], Torero [2014], van de Walle et al. [2013]) suggest that household electrification also increases job opportunities by carving out more time for work and enabling rural micro-entrepreneurship. We see three reasons for hope that Africa is on the path to greater electrification – provided certain conditions are met.

 

First, solid investment fundamentals are encouraging the building of new electrical production capacity.

Growing demand for electricity across Africa, along with a more conducive environment for public-private partnerships (PPPs), are raising developers’ interest. Electricity demand is currently growing at 6% per year, and will likely exceed GDP growth until 2040. This has spurred private investment, leading to project financing that is increasingly diversified (Crishna Morgado and Lasfargues, 2017). Power generation in Sub-Saharan Africa increased by 21% to reach 115 GW between 2010 and 2015. Chinese contractors accounted for 30% of this growth (IEA, 2016).

Since 2011, more and more projects in the alternative/renewable energy sector are being developed in Africa (Figure 1). Out of 38 sectors reported in the fDi markets database, it was the third most attractive for companies that invested in Africa in 2015-16, with USD 21 billion in new projects announced. Morocco is at the forefront of recent developments: in February 2016, it launched the world’s biggest solar power station in Ouarzazate. This PPP model between MASEN (Morocco’s agency for solar energy) and a consortium of private and international organisations may be a promising way to engage key players and can serve as an example for future projects in other countries. Tools such as the OECD Policy Guidance for Investment in Clean Energy Infrastructure can also help governments address barriers to private investment in renewable energy generation.

Read the full blog on Development Matters

Strengthening Regional Agricultural Integration in West Africa

Blogs 26/07/2017

By John Staatz, Professor Emeritus, Dept. of Agricultural, Food and Resource Economics, Michigan State University


Soaring and volatile international food prices since 2007-08 have forced West African governments and their development partners to translate their long-standing rhetoric about support for West African agriculture into concrete programmes. Doing so effectively, however, has proven much more challenging than simply meeting the Comprehensive Africa Agriculture Development Programme (CAADP) goal of increasing the share of national budgets and donor funds dedicated to the agricultural sector. A recently released joint study by the Syngenta Foundation for Sustainable Agriculture (SFSA) and Michigan State University (MSU) draws lessons from such efforts over the past 10 years and suggests ways in which policies and programmes can be more effective in helping West Africa feed its young, burgeoning and increasingly urban population. Research by MSU, SFSA and West African scholars provides a number of crucial policy insights.

Policies need to adapt to reflect major changes in the region

During the international food price crisis, West African governments protected consumers from the full impact of volatile international food prices through measures such as tax holidays on imported foods and input subsidies to farmers. These measures, however, have had a high opportunity cost to the local economies, as they absorbed revenues that could have been used to relieve underlying structural constraints to greater agricultural productivity.

To build greater resilience to future price fluctuations, policies need to reflect the major changes taking place in the region beginning with consumption habits. West Africans are changing their diets rapidly, consuming more perishable and processed foods. Consequently, focusing food policies mainly on cereals, as in the past, will be less effective in addressing the future needs of farmers and consumers.

Moreover, focusing food policy primarily on the farm-level is insufficient, as several of the constraints to competitiveness lie in logistics, marketing, processing and retailing. Many of these activities lie in areas outside of the domain of ministries of agriculture, requiring greater cross-sectoral policy co-ordination. West African agriculture can be competitive with imports, but only if entire value chains are improved.

Read the full blog on Development Matters

Sustainable Cities and Structural Transformation

The African continent is urbanising fast. By the mid-2030s, the majority of Africans will live in urban areas. Africa’s urbanisation can allow for structural transformation, if accompanied by productive employment and sufficient public goods. However, diverse urbanisation patterns across African countries show that unplanned urbanisation can hinder their structural transformation. In many African countries, a large portion of the urban labour force remains trapped in low-productivity informal services activities and access to public goods is unequal. The costs of environmental degradation are large and increasing, adding to the economic and social challenges of urbanisation.

The African Economic Outlook 2016 shows that the continent is performing well in regard to economic, social and governance issues and has encouraging prospects for the near future. With its special theme on sustainable cities and structural transformation, this edition looks closely at Africa’s distinctive pathways towards urbanisation and at how this is increasingly shifting economic resources towards more productive activities.

Africa’s economic growth remained resilient in 2015 amid a weak global economy, lower commodity prices and adverse weather conditions in some parts of the continent. Real GDP grew by an average of 3.6% in 2015, higher than the global average growth of 3.1% and more than double that of the euro area. At this growth rate, Africa remained the second fastest growing economy in the world (after emerging Asia), and several African countries were among the world’s fastest growing countries. We forecast that Africa’s economic growth will gradually pick up during 2016/17, predicated on a recovery in the world economy and a gradual rise in commodity prices. However, given the vulnerable global economy and the high volatility of commodity prices, this forecast is uncertain.

Domestic factors have underpinned Africa’s resilience, allowing countries to better cope with the global headwinds. On the supply side, in countries where weather conditions were favourable, agriculture boosted growth, but droughts or floods slowed down growth in countries in East and Southern Africa. In resource-rich countries, growth slowed down as lower commodity prices strained government budgets and affected investment. Manufacturing activity improved in a few countries but was limited by persistent power shortages. On the demand side, private consumption and construction investment remained the main drivers of growth, reflecting relative insulation from external shocks. However, weak global demand curtailed growth of Africa’s exports, especially minerals and oil, and terrorist attacks and general security problems in some countries adversely affected tourism.

Given the increased budgetary pressures in most African countries, keeping debt at sustainable levels has become increasingly important. Governments generally continued to adhere to prudent fiscal policies, limiting spending and improving tax collection. The rapid depreciation in exchange rates and weakening current accounts fuelled a rise in imported inflation. This prompted affected countries to tighten monetary policy to cool down inflationary pressures. Some countries benefited from declining inflation due to lower energy prices. This created additional room for monetary easing through a reduction in interest rates to spur growth.

In 2015, net financial flows to Africa were estimated at USD 208 billion, 1.8% lower than in 2014. Official development assistance rose, but stability in remittances continued to be the main contributing source of Africa’s net financial flows. Sovereign bond issuances rose despite higher interest rates, reflecting general resource starvation among issuing countries. However, direct foreign investment in the oil and metals sectors dropped, as the extractive sector was buffeted by falling commodity prices. Net portfolio equity and commercial bank credit flows dried up, reflecting tight global liquidity conditions and faltering market sentiment. In the wake of slowing growth in large emerging economies, bilateral trade credit suffered as well. Public policies should now aim to stabilise current financing sources and explore new ones, to support infrastructure, training and employment.

Africa’s growth performance over the past 15 years has created new opportunities for trade. The European Union is likely to continue to be Africa’s main trading partner; however the Tripartite Free Trade Agreement proposed between three of Africa’s largest trade blocs could increase market size, translating into economic benefits. The agreement could narrow income gaps in African countries and help regions integrate financially, provided that governments strengthen structural and regulatory reforms and foster macroeconomic stability. Governments will also need to give pan-African banks a larger role in financing trade, boost capital market liquidity and attract new financial sources to finance intra-regional trade.

African countries have steadily progressed in enlarging people’s choices in education and health and in improving living standards, but the pace is insufficient. Progress is hampered by inequality between countries, within countries, and between women and men. It is held back by lack of opportunities for the youth, weak structural transformation, especially in sectors dominated by the marginalised groups (including agriculture and informal sectors), and weak investments in gender equality and women empowerment programmes beyond the political sphere. Human progress for rapidly expanding and increasingly mobile populations remains a considerable challenge as espoused in Agendas 2030 and 2063.

Africa’s urbanisation contributes to human development gains but not for everyone. Thus, addressing growing urban poverty should be an integral part of new urbanisation strategies. Underlying tensions between social groups as a result of economic, political and social exclusion can be overcome by ensuring that citizens have secure livelihoods and access to quality services. It also depends on governments enhancing security, promoting human rights and protecting the most vulnerable in society. This will become paramount as African citizens strengthen their demands for better economic opportunities and for more accountable and credible institutions. These demands require an adequate response through sound regulatory policies and effective delivery of public services. Several countries have set good examples that are laying the foundation for reaching developmental goals, including a successful political transition in Burkina Faso in 2015, a Nobel Peace Prize for the Tunisian national dialogue quartet, and successful reforms to health systems in a few other countries.

Africa’s rapid urbanisation represents an immense opportunity, not just for Africa’s urban dwellers but also for rural development. As two-thirds of the investments in urban infrastructure to 2050 have yet to be made, the scope is large for new, wide-ranging urban policies to turn African cities and towns into engines of sustainable structural transformation. The creation of more productive jobs for the rapidly growing urban population is central to achieving this objective. Those new urban policies, at national and local levels, have a key role to play in i) economic development, through higher agricultural productivity, industrialisation and services; ii) social development, targeting safer and inclusive urban housing and robust social safety nets; and iii) sound environmental management, by addressing effects of climate change, scarcity of water and other natural resources, controlling air pollution, developing clean public transportation systems, improved waste collection and increased access to energy. They include stepping up investment in urban infrastructure; improving connectivity with rural areas; matching formal real estate markets better with the housing demand; managing urban land expansion; and developing public mass transport systems within and between cities. The new policies will have to be adapted to the specificities of Africa’s urban realities, tap innovative ways of financing the development of sustainable cities and be implemented through effective multi-level governance systems. In 2016, the common African position on urban development and the emerging international New Urban Agenda offer opportunities to discuss options and start articulating those new urbanisation policies around strategies for Africa’s structural transformation.

Infrastructure, jobs, good governance: Bringing Africans’ priorities to the G20 table

Blogs 18/07/2017

By Michael Bratton, University Distinguished Professor of Political Science and African Studies at Michigan State University and senior adviser to Afrobarometer, and E. Gyimah-Boadi, Executive Director of Afrobarometer and the Ghana Center for Democratic Development


Beyond the limelight and the headlines, the recent Group of 20 (G20) summit accomplished an important piece of business by launching the Compact with Africa. The next step is crucial: negotiating the priorities that the compact will address.

One key concept is that the compact is with – rather than for – Africa, implying that it will rely on true partnerships to pursue mutually agreed-upon goals.

With its contribution to a “20 Solutions” document presented to the G20 by a consortium of think tanks, the pan-African research network Afrobarometer is working to ensure that the compact will take into account what ordinary Africans say they want and need.

 

Based on public-attitude surveys in 36 African countries, our data suggest that:

  • Infrastructure investment in Africa should continue to be a key priority of G20 policies.
  • Investments in employment, education, health and (especially in rural areas) food security should be further strengthened.
  • G20-Africa co-operation needs to reflect the fact that trustworthy, accountable institutions are a key factor for effective development policies.


Infrastructure investment

Millions of Africans experience “lived poverty,” or shortages of life’s basic necessities. In 2014/2015, substantial proportions of survey respondents say they went without a cash income (74%), necessary medical care (49%), enough clean water (46%), enough food (46%) and/or enough cooking fuel (38%) at least once during the previous year.

Encouragingly, levels of lived poverty in Africa are in decline. Between our 2011 and 2015 surveys, our Lived Poverty Index (LPI or an average score on these five basic necessities) was down in 22 of the 33 countries included in both surveys.

Surprisingly, we found no relationship between average annual GDP growth rates and declines in the LPI, suggesting that something other than recent macroeconomic growth in many African countries must be at work.

Instead, our data point to the importance of basic development infrastructure: Lived poverty tends to decrease in countries that make progress in paving roads and installing sewage systems. In Kenya and Tanzania, for example, a 33% increase over the past decade in the number of localities with these facilities is associated with a 6% decrease in their LPI scores.

But the delivery of basic service infrastructure remains a challenge. Only about two-thirds of Africans live in communities with an electric grid (65%) or piped water (63%). While almost all reside in areas with cell phone service (93%), only about half (54%) enjoy close-by access to paved roads.

Development priorities

When Africans are asked what they consider “the most important problems” their governments should address, the top priority is unemployment, followed by health, education and infrastructure (especially roads but also water supply and electricity) (Figure 1).

Priorities depend in part on where respondents live. In countries where a majority of the population resides in towns, 51% cite unemployment as a priority problem, and only 6% prioritise food security. But in countries that remain predominantly rural, only 32% list unemployment, while almost one in five persons (18%) say that ensuring food security remains a pressing development need.

Read the full blog on Development Matters

Presentation of the AEO 2017 in London, UK

Events 27/06/2017

African Economic Outlook 2017: Entrepreneurship and Industrialization
Tuesday 27 June | 09.30 to 10.30

Dr Arthur Minsat, Acting Head of Unit – Africa, Europe & Middle-East, OECD Development Centre
Dr Abbi M. Kedir, Associate Professor of International Business, University of Sheffield

Chair: Chi Onwurah MP, House of Commons

 

For more information on the agenda and the venue, please click here:

https://www.chathamhouse.org/about/structure/africa-programme

Presentation of the AEO 2017 in Milan, Italy

Events 26/06/2017

Africa: presentazione del Rapporto, African Economic Outlook 2017

Organizzato da: Assolombarda Confindustria Milano Monza e Brianza
22 giugno 2017, ore 9.30-13.00

Auditorium, Assolombarda Confindustria Milano Monza e Brianza, via Pantano 9, Milano

For more information on the agenda and the venue please click below: 

http://www.assolombarda.it/servizi/internazionalizzazione/informazioni/africa-presentazione-del-rapporto-dellocse-african-economic-outlook-2017-milano-22-giugno

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Unlock the potential of African entrepreneurs for accelerating Africa’s industrial transformation, says the African Economic Outlook 2017

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AfricanEconomicOutlook.org  offers comprehensive and comparable data and analysis of 54 African economies.