This chapter analyses recent trends in external financial flows to Africa and domestic revenue collection. It explores how foreign direct investment, portfolio investment, remittances and official development assistance have evolved in 2015 and 2016, and their outlook for 2017. It highlights the growing importance of private flows in comparison to public ones. The chapter concludes with a description of domestic revenue performance in Africa from 2005 to 2015, as well as an analysis of the challenges to increasing domestic revenue mobilisation.
Private external flows in the form of investment and remittances continue to drive growth in external finance to Africa. Despite prolonged weak commodity prices, foreign direct investment (FDI) inflows to Africa are estimated to have bounced back in 2016, reflecting increasing diversification of investment into services, manufacturing and infrastructure-related projects. FDI is expected to reach USD 57.5 billion in 2017, underpinned by large greenfield investment from economies from the Far East and Middle East. In 2016, Africa recorded its lowest total portfolio inflows since 2008 at USD 6.5 billion, and this downward trend is expected to continue, with a projected average of USD 5.2 billion in 2017. Remittances increased by more than 50% from 2005 to 2009 and are predicted to reach USD 66.2 billion in 2017, with Egypt and Nigeria receiving the bulk of flows. Official development assistance (ODA) to Africa declined in 2016, by 1.7% in real terms as some donors backtracked on a commitment to reverse past declines in flows to the poorest countries. The share of aid allocated to 17 of the 27 African low-income countries is expected to decline at least up to 2019, which gives rise for concern. In spite of progress, domestic revenue mobilisation remains low. To meet Africa’s financing needs, the international community and African policy makers are exploring new ways of engaging with the private sector to mobilise finance and foster local financial markets and entrepreneurship.
Authors : Adalbert Nshimyumuremyi, Yannis Arvanitis, Luca Monge Roffarello
Real GDP growth in the country has been sluggish over the past years. Between 2000 and 2008, the country recorded an average growth rate of 6.6% before hitting a recession in 2009 on the back of the European crisis. Thereafter, in spite of a counter-cyclical policy with high investment spending, Cabo Verde only managed to grow by an average of 1.3% over the 2010-15 period. As a consequence of high investment spending, the debt level increased drastically, from 71.9% of GDP in 2010 to 125.9% in 2015. In 2016, however, the economy showed some positive signs of recovery. Albeit still at overall low levels, credit to the private sector increased by 2.1% in the first eight months of 2016. Similarly, a trend inversion was noted in economic confidence indicators.
On the fiscal side, after having presented an expansionary fiscal stance, the new government revised its plans to settle for a deficit of 3.3% of GDP, 1.9 percentage points below what was initially approved. GDP growth in 2016 reached an estimated 3.2%, against 1.5% in 2015. For 2017 and 2018, growth should reach 3.7% and 4.1% respectively, driven by continued increase in confidence, strength in agricultural output and tourism, as well as government efforts to stay on the reform path. On the policy front, Cabo Verde’s main issues in 2016 are likely to carry over to 2017 and 2018. They include control of the country’s fiscal stance, and in particular, the drain on the budget of some state-owned enterprises (SOEs). Considering that Cabo Verde is importing monetary policy through its euro peg, it only has fiscal policy to face any shocks. However, with public debt at 125.9% of GDP (excluding contingent liabilities) and rising, there is little room for manoeuvre. For 2017 and 2018, the Medium-Term Expenditure Framework (MTEF) should ensure some built-in flexibility to weather potential shocks. On the debt side, while underlying sustainability indicators are under IMF thresholds, it is important to take urgent action to stem the debt generating process.
Considering the debt level, the government is seeking to change the underlying growth paradigm in the country, which has up to now been based to a large extent on the public sector. This requires enforcing a credible and far-reaching engagement to further improve the business environment, with efforts to promote industrialisation and entrepreneurship. However, further improving the business environment depends on removing – through well-coordinated sectorbased policies – current binding constraints such as limited market access, high-energy costs and a lack of inter-island transportation.
This chapter looks at the most recent data on governance in Africa, with the intent of assessing the effectiveness of public institutions in supporting Africa’s development outcomes. It examines policy demands across the continent, current challenges in meeting these demands and examples of good initiatives paving the way forward.
The principal questions of interest are as follows: What do we know about citizens’ demands for economic and political governance in Africa? How are public institutions currently performing in terms of meeting those demands? What are examples of policy initiatives leading the way in achieving results in Africa?
Key findings are presented first, and details about how these findings were arrived at are provided in subsequent sections.
The most recent data available on governance in Africa shows growing demands for better economic opportunities and more accountability with respect to public policies. Priorities for businesses include better access to electricity, financing and competition policies.
Regarding the policy-making processes, key challenges remain in most countries.
Recent policy initiatives show good examples of achieving results in public service delivery.
Looking forward, stronger accountability and oversight processes will be crucial to identifying and solving cross-cutting challenges. Good oversight can also help reduce institutional fragmentation and duplication of effort across governments.
This chapter presents human development in Africa and its close links to entrepreneurship. It highlights the importance of investing in people – including their health and nutrition, knowledge and skills, and decent jobs and livelihoods – in order to unlock entrepreneurial activity across the continent. It discusses strategic actions in achieving significant reduction in risks of future progress such as unemployment, inequality and vulnerability.
Advancement in human capabilities is central to development in two ways – first, as an integral part of advancing development (including poverty and inequality reduction), and second as a platform for promoting productivity and entrepreneurship. Given the potential for a virtuous circle of human development and economic growth, investments in education and skills, health and nutrition, and social protection are also investments in inclusive growth and entrepreneurial development. It is only with the support of a productive, skilled and entrepreneurial labour force that Africa will be able to harness its demographic dividend. Human development is about creating opportunities and building people’s capability for innovation and entrepreneurship.
The outlook is positive. There is a high degree of convergence in a shared agenda and associated political will across Africa’s leaders and their partners for prioritising human development to underpin entrepreneurship and economic growth. Moving forward together with innovative policies and programmes will help ensure the demographic dividend is unlocked and the objective of “leaving no one behind” across Africa is achieved.
Trade within Africa and its commercial relations with the rest of the world are changing quickly. This five-section chapter focuses on the diversification of Africa’s trade partners and products and the potential for further progress. It assesses global economic developments, explains the eight regional economic communities, their policies and integration initiatives, and provides ideas on how Africa’s private sector can maximise opportunities presented by regional and global value chains.
As the world evolves into a single highly interconnected global market, prosperity no longer depends just on a country’s productivity but also on its strategic choice of trading partners, export products and policies. Africa’s growth in recent years has been helped by advances in trade, policies, the regulatory environment and regional integration.
However, the widespread and uneven impact of commodity price shocks and criticism of the global trade system increase uncertainty about the future. Countries need to make the best use of globalisation by further diversifying their trade away from resources, and increasing trade within Africa. Economic and political changes in China and the United States will have varying effects on Africa’s trade, but to counter risks, the continent must carry out structural and regulatory reforms, improve policy and investment climate, deepen regional integration and maintain its commitment to reform. Africa’s regional economic communities are instrumental to strengthening economies and building resilience against global shocks. Increased political commitment therefore, especially at national level, is needed to actualise regional integration agreements. The proposed Continental Free Trade Area could yield large gains from trade and bolster other development objectives.
This chapter reviews macroeconomic conditions in the different regions and countries of Africa, and on the continent as a whole. It highlights past growth trends and projects future growth for 2017-18 based on prevailing global, regional and domestic dynamics and shocks. It examines the main drivers of growth on the supply and demand sides and provides comparisons at the regional level and based on the structure of African economies. The chapter also examines fiscal, monetary and financial sector policies, as well as external positions underpinning recent growth performance that are likely to shape the future growth paths of African countries.
Africa’s economic growth continued to deteriorate in 2016, due mainly to lower commodity prices, with commodity exporters most adversely affected. Despite this trend, the majority of noncommodity exporting African countries maintained positive growth. Africa’s growth outlook remains positive for 2017-18, boosted by expected increases in commodity prices and domestic demand. Domestic demand continues to drive Africa’s growth. Meanwhile, better macroeconomic management, increased diversification and an improved business environment will maintain Africa’s growth resilience in 2017-18. Countries with better co-ordinated and consistent fiscal, monetary and exchange rate policies are able to weather shocks. Countries perceived as safe destinations for investments (e.g. because of policy coherence), can accommodate higher external imbalances over longer periods of turbulence, irrespective of their macroeconomic governance fundamentals.
The 2017 Annual Meetings of the African Development Bank Group will take place from Monday, May 22 to Friday, May 26, 2017 at the "Mahatma Mandir Conference Center" in Ahmedabad, Gujarat State, Republic of India.
The 52nd Annual Meetings for the African Development Bank will focus on the theme "Transforming Agriculture for Wealth Creation in Africa " and draws on one of the Bank's "HIGH 5" priority areas, namely to "Feed Africa".
The 16th edition of the African Economic Outlook will be launched during the Annual Meetings of the AfDB. The report will present the continent’s current state of affairs and forecasts its situation for the coming two years. It also takes a hard look at industrialisation and entrepreneurship in Africa and proposes practical steps to harness the potential of entrepreneurship in Africa.
Click here for the Media advisory
The Annual Meetings programme is available here.
Unlock the potential of African entrepreneurs for accelerating Africa’s industrial transformation, says the African Economic Outlook 2017
AfricanEconomicOutlook.org offers comprehensive and comparable data and analysis of 54 African economies.