Authors : Richard Antonin Doffonsou, Francis Jony Andrianarison
The international and regional situation influenced Cameroon’s economic performance in 2016. Several events have had an impact on economic activity and trade in goods and services: the oil crisis, the regional security crisis in the far north of the country, and the competitive devaluations of the Nigerian currency. Nevertheless, the economy has been resilient. Growth was an estimated 4.7% in 2016, down from close to 6% in 2014 and 2015. Fiscal policy was moderately expansionary, with major infrastructure projects continuing. The budget deficit grew to 3.3% of GDP in 2016, up from 2.5% the previous year. Cameroon continued to diversify its economy through agricultural and forestry value chains.
In line with the direction of fiscal policy, monetary policy remained somewhat expansionary, as it had been in previous years, leading to a 9.2% increase in the money supply, which reached XAF 3.97 trillion (CFA Franc BEAC) in August 2016, up from XAF 3.64 trillion a year earlier. France, Germany, Nigeria and the People’s Republic of China account for 80.4% of Cameroon’s external trade, so their slow economic recoveries affected Cameroon’s current-account balance, with the deficit reaching an estimated 4.8% of GDP in 2016, compared with 4.2% in 2015. Net foreign assets stood at XAF 1.54 trillion in August 2016 (equal to around five months of imports), down 5.5% from XAF 1.62 trillion a year earlier. Inflation fell from 2.7% to 2.2%, and is expected to remain below the 3.0% convergence threshold of the Central African Economic and Monetary Community (CEMAC) in the medium term. Cameroon’s medium-term growth prospects remain good, with projections of 4% to 5%. Growth will be driven by the non-oil sector and will enjoy the benefits of economic diversification policies and investment incentives. The country’s economic performance in recent years is reducing poverty. The poverty rate fell by 2.4 points between 2007 and 2014.
Authors : Joel Tokindang, Ernest Bamou, Arthur Rushemeza
The socio-political crisis embroiling Burundi since 2015 has caused a sharp decrease in economic activity and worsened living conditions for the population. In January 2016, the International Monetary Fund suspended its evaluation of the Extended Credit Facility arrangement, and in March 2016 the country’s main donors (the European Union, Belgium, the Netherlands, Germany and the United States) suspended part of their direct aid.
Gross domestic product (GDP) growth, which stood at 4.5% in 2014 contracted to -3.9% but recovered modestly to 0.9% in 2016. The sectors most affected were hotels, tourism, construction and infrastructure.
The decline in economic activity caused a 10% drop in public revenues and sharply widened the fiscal deficit, which stood at 6.7% of GDP in 2016, compared with 3.2% in 2014 and 8.6% in 2015. The government covered the shortfall through systematic recourse to advances from the Central Bank. Domestic debt rose to 26% of GDP in 2016, up from 12.4% in 2014, while the national debt reached 42% of GDP.
Spending in 2016 was 25% lower than in 2015. The government froze the salaries of civil servants and suspended recruitment in all ministries except Education and Health. This caused a considerable decline in the availability of services in 2016, leading to: i) a lack of medicine and vaccines; ii) insufficient school material; iii) the non-admission of 80 000 pupils who had been due to begin secondary education; and iv) pockets of famine in certain regions.
The Central Bank’s policy rate dropped from 12.5% in 2013 to 7.5% in October 2016, while the loan rate of commercial banks remained unchanged at around 16.5%. Official reserves fell by 30.1%, or 1.4 months of import cover. The drop in net foreign assets and government debt led to a 6% decline in official exchange rates between 2015 and 2016 (USD 1 = BIF 1 687 [Burundi francs]), while the dollar fetched more than BIF 2 600 on the parallel market. Inflation stood at 5.5% in 2016. The authorities are projecting 2.0% growth in 2017, while the 2017 budget law projects a 5.2% increase in public expenditure and a fiscal deficit of close to 3.8% of GDP. These projections appear unrealistic, however, given the economic situation and the challenges experienced since 2015. A re-engagement of political stakeholders depends on a political solution to the current tensions that would make it possible to prevent an even more serious deterioration of the socio-political situation.
Authors : Facinet Sylla, Amata Sangho Diabate, Alain Siri, Hervé Marie Patrice Kouraogo
After a drought-affected harvest and social and political problems slowed real GDP growth to 4% in 2014 and 2015, prospects are quite good for 2017, with the economy forecast to expand by 8.4% (up from 5.4% in 2016). The recovery is based on a vigorous mining sector (two new mines coming into production) and the start of major public investment in energy, hydro-agricultural facilities, roads and telecommunications under the 2016-20 PNDES national economic and social development plan adopted in July 2016. Continuing good prices for the country’s main commodity exports, gold and cotton, should also help the chances of a substantial revival of economic growth.
Inflation should be no more than 2.1% in 2017 thanks to 2016/17 harvest surpluses and reasonable prices of oil and other imports. Public finances remain tight due to the effects of social and political unrest and militant attacks. Reduced economic activity has meant less tax revenue as well as higher spending on security and meeting social demands. This in turn sharply cut investment spending, from 13.7% of GDP in 2013 to 8.6% in 2015, with a slight rise to 10.7% in 2016. The overall budget deficit (commitment basis) was 3.1% of GDP in 2016. The government plans similar strictness in 2017 and has extended for nine months the programme backed by the IMF’s Extended Credit Facility (ECF), with release of funds at its end. The budget deficit is forecast as 3% of GDP.
Entrepreneurs are thriving due to rigorous application of economic reforms as part of the 2011‑20 policy of the industry, commerce and small producers sector (Posica), including programmes to encourage entrepreneurs. An average 6 500 firms a year were set up between 2011 and 2015, nearly all very small and mainly in the services sector. New small firms in the industry sector are recent and especially in the extractive sector, with few in agro-food or manufacturing. Those classified as “other modern manufacturing industries” fell from 1.5% of GDP in 2011 to only 1.1% in 2016.
To advance industrialisation, Posica 2011-20 has to create good conditions for industrial development and strengthen support infrastructure, especially energy, transport, technology and better training.
Authors : George J. Honde
Botswana has experienced boom-bust cycles, two of which have occurred since the turn of this century. The economy recovered in 2016, after it suffered another setback when economic growth contracted in 2015 because of weak demand for diamond exports and persistent electricity and water supply shortages. Domestic growth was boosted in 2016 by both the expansion of mining activity, reflecting the recovery in diamond industry, and a sound performance of nonmining sectors.
Botswana’s growth prospects for the medium term remain favourable. Medium-term growth is forecast to rise moderately. The continued recovery depends crucially on a continued rebound in the global diamond market, the expansion in construction activities in the context of the government’s Economic Stimulus Programme (ESP), improved reliability in electricity and water supply, and reforms to further improve the business environment. Downside risks remain elevated stemming from the sluggish recovery of the global economy and its impact on diamond demand.
The fiscal situation has weakened. After three consecutive years of surpluses, the fiscal position swung into a deficit in the 2015/16 financial year and another deficit is expected in FY 2016/17, reflecting lower mining revenues, a decline in revenues from the volatile South African Customs Union (SACU) and the continued use of fiscal stimulus. The government remains committed to returning the budget to surplus in the near term.
Inflationary pressures have eased sharply. Annual inflation closed below the lower end of the Bank of Botswana’s medium-term objective range of 3% to 6% in 2016. Key factors that have helped to drive down inflation include the drop in international fuel prices and the government’s commitment to prudent monetary policy. Inflation is expected to remain within the target range in the medium term, owing to low domestic demand and subdued foreign price developments.
To achieve economic diversification, Botswana needs to promote industrialisation by accelerating economic transformation from the primary sector to advanced manufacturing and services. Over the past four decades, the government has put in place appropriate policies and initiatives in support of industrial development and entrepreneurship. It has also stepped up efforts aimed at addressing various challenges investors and entrepreneurs face by pursuing measures aimed at reducing the cost of doing business and increasing competitiveness, as well as enhancing skills development.
Authors : Daniel Ndoye, Ginette Patricia Mondongou Camara
Economic growth was estimated at 4.0% in 2016, a further decline from 5.2% in 2015 and 6.5% in 2014, caused by electoral activity, power shortages and an economic slowdown in neighbouring Nigeria. Inflation remained low because of lower world oil prices and depreciation of the naira, the Nigerian currency. The budget deficit, which had increased between 2013 and 2015, fell to 6.2% of gross domestic product (GDP) in 2016 thanks to cuts in operating costs by the new government that came to power in April that year.
The government’s 2016-21 action programme, Programme d’action du gouvernement (PAG), known as “Bénin révélé” (Benin revealed) is expected to boost the economy by 5.5% in 2017 and 6.2% in 2018, with investment rising from 18.8% of GDP in 2016 to an annual average of 34.0% through to 2021. The public deficit, projected as 9.4% of GDP in 2017, should ease in the next few years. The government needs to keep debt sustainable and improve the country’s absorption capacity to ensure a proper implementation of its investment plan. The outlook for 2017 and 2018 is also part of the country’s sustainable development goals as set out in its Agenda 2030 development plan. The PAG aims to consolidate social progress and significantly reduce poverty, which has been on the rise.
Boosting sustainable and inclusive growth requires a particular focus on industry and entrepreneurship. The country’s industrial structure is small and not very diverse, so the government should strengthen it through greater use of the nation’s agricultural potential and Benin’s position as a transit country and neighbour of Nigeria.
Entrepreneurship needs more support, especially in agro-processing. The PAG’s development model, including more public-private partnerships (PPPs) as well as promoting self-employment and entrepreneurship, is part of this dynamic.
Authors : Glenda Gallardo, Joel Muzima
The sharp and long-lasting decline in oil prices has derailed Angola’s economic performance. GDP growth slowed to 1.1% in 2016, driven by a slowdown in non-oil activity as the industrial, construction, and services sectors adjusted to cuts in private consumption and public investment amid more limited availability of foreign exchange. This has highlighted the need to more forcefully address the dependence on oil, diversify the economy, and reduce vulnerabilities. In 2017 and 2018, GDP growth is projected to rise to 2.3% and 3.2%, respectively, mainly due to planned increases in public spending and improved terms of trade.
The government has taken steps to mitigate the impact of the oil price shock on the economy, and these included: the rationalisation of public expenditure through the elimination of fuel subsidies, significant increase in mobilising non-oil revenues, and allowing the exchange rate to depreciate to preserve export competitiveness and reduce the imports trend of the country. However, additional policy actions are needed to stabilise macroeconomic conditions, enhance equitable distribution of wealth and better service delivery. One priority will be to invest in human capital, accelerate economic diversification, and reduce economic vulnerability as the country graduates from Less Developed Country (LDC) status in 2021. Regarding human capital, higher investments in health and education are crucial. Investment in agricultural transformation and value chains is needed to diversify exports in order to increase revenue sources and reduce dependence on oil. The expansion of economic infrastructure and more importantly electricity access, roads and transportation, water supply and sanitation and skills development is critical to improve the business environment and enhance the private sector’s role in economic growth. The country should also foster regional integration in order to unlock the potential of local manufacturing and boost trade.
Angola should enhance its support to entrepreneurship and industrialisation. Angolan industry is at an early stage, with food and beverages as key sectors. The National Industrialisation Programme 2013-17 defines seven key sub-sectors, e.g. textiles and clothing, chemical and paper products, and ornamental rocks. Nevertheless, the share of manufacturing value added in GDP in Angola remains low at 8.6%. The entrepreneurial activity rate also stands low at 21.5%, hindered by infrastructure deficiencies, difficulties in access to credit, low managerial skills and lack of integrated strategies to foster entrepreneurship. Addressing these structural bottlenecks is critical if economic diversification and wellbeing are to be achieved.
In the past, regional development policies have been carried out in several African countries to tackle regional disparities and promote spatial inclusion. Generally, these different policies have met with little success and have been progressively brought to a halt since the 1980s.
Some policy instruments continue to be applied, remain patchy and have lacked an integrated and cross-sectoral approach. In many African countries, policy instruments have been used in targeted regions and specific places. Special economic zones, economic corridors, planned cities and policies that target lagging regions have appeared across Africa. Some of these instruments have proved useful in certain conditions. However, their sum does not constitute in itself a policy for regional development.
In parallel, some sectoral national policies have had certain positive spill-over effects on territorial development. Progress in infrastructure projects, especially information and communication technology, energy, and river basins, have contributed to reducing regional fragmentation and strengthened regional ties.
Taking a step back from both these different tools and sectoral policies allows us to identify blind spots that have a negative impact on effective regional policy making. The prevalence of narrowly defined sectoral actions and inadequate statistics as well as knowledge about regions and local economies constitute crucial challenges that African policy makers will have to face.
Source: AEO experts’ survey, 2015.
Promoting industrialisation is back on Africa’s economic policy agenda, with renewed impetus and vigour. Industrialisation in 21st century Africa calls for innovative strategies embracing all the potential of its 54 countries. First, innovative industrialisation strategies should go beyond sectoral approaches that target only manufacturing. Africa can industrialise by promoting all economic sectors that have potential for high growth and employment creation. Second, strategies should include high-potential entrepreneurs. Start-ups and small and medium-sized firms with high-potential can complement the growth of large companies in driving Africa’s industrialisation. Finally, policies must promote “green industrialisation” with lower environmental costs. Industrial policies must adapt lessons from countries that have already developed a strong industrial base to the distinct African context. Innovative peer learning is critical to the new wave of industrialisation in Africa.
How can African governments design and implement effective industrialisation strategies? About half of the African countries have strategies for industrial development which aim to create labour-intensive industries to enhance job growth. However, these blueprints often do not address the needs of firms that have high growth potential. Capacity to implement policies is also weak, often resulting in conflicting mandates across different government agencies. Governments should design strategies that remove the existing binding constraints on high-potential entrepreneurs. Implementing productivity strategies requires full commitment, strong and far-sighted political leadership, efficient government co-ordination and active private-sector participation. Involving local governments can help tailor industrial policies to firms’ needs. Finally, evaluating policies and their impacts is key to ensuring the success of industrial policies.
The report’s final chapter tackles three particularly important policy areas to ease the constraints that most entrepreneurs in Africa are confronted with. First, to strengthen skills, there is need for public policies that prioritise formal education, apprenticeships, vocational training and managerial capabilities in order to meet labour market needs. Second, policies that support business clusters can help raise the productivity and growth of firms, including smaller ones. Third, financial market policies can increase firms’ access to innovative and tailored sources of finance.
Unlock the potential of African entrepreneurs for accelerating Africa’s industrial transformation, says the African Economic Outlook 2017
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