Economic Outlook
Macroeconomic Prospects
After an initial rebound from the 2009 world economic crisis, Africa’s economy was undermined last year by the Arab uprisings. The continent’s growth fell back from 5% in 2010 to 3.4% in 2011. With the recovery of North African economies and sustained improvement in other regions, growth across the continent is expected to accelerate to 4.5% in 2012 and 4.8% in 2013. Short-term problems for the world economy remain as Europe confronts its debt crisis. Commodity prices -- crucial for Africa -- have declined from their peak due to weaker demand and increased supply, and some could fall further. But prices are expected to remain at levels favourable for African exporters.
External Financial Flows and Tax Receipts in Africa
External resources flowing to Africa peaked in 2011 following a decade of sound macroeconomic policies and sustained average annual growth of over 5%. The strong recovery of foreign investment, with the exception of Northern African countries, spurred external flows. The appetite of Asian and Latin American emerging economies for natural resources triggered a boom of international commodity prices, which underpinned resource-seeking investment in Africa.
Trade Policies and Regional Integration
Because Africa’s export portfolio remains predominantly based on raw material, its export earnings are contingent on commodity price fluctuations. This exacerbates the continent’s susceptibility to external shocks and bolsters the need for export diversification. Trade in services, mainly travel and tourism, continued to rise, underscoring the continent’s strong potential in this sphere.
Human Development: Capital Flight and Poverty
Sub-Saharan Africa had the lowest aggregate level of human development in 2011, albeit posting the second fastest annual increase over the period 2000-11. Improved policies will not suffice to sustain high rates of growth of human development. It will have to be complemented by a combination of ODA, remittances, FDI and tax revenue to provide the required financial resources to bridge the gap in human capital.
Economic and Political Governance
The “Arab Spring” in 2011 caused Islamic-inspired political parties in Tunisia and Egypt to be elected into parliament. Following decades of repressive regimes these countries will have to broker a new social contract that satisfies all strata of society in order to enable their economies to get back on their feet swiftly and appease the high expectations generated by the revolutions.
Promoting Youth Employment
Africa has the world’s youngest population and it is growing rapidly. Hundreds of millions of young Africans will be leaving school over the next decades, at every level, and looking for jobs. The challenges and obstacles unemployed youth and the working poor face are diverse and vary between countries. Youth employment is largely a problem of quality in low-income countries and one of quantity in middle-income countries. Youth in vulnerable employment and working poverty are the large majority in poor countries. In upper middle-income countries more youth are unemployed, discouraged or inactive. In all country groups more young people are discouraged than unemployed, suggesting that the youth employment challenge has been underestimated.
Some conclusions are evident. The public sector will not be able to absorb the tide of young job seekers because there is little prospect of an expansion in this area. The private formal sector is growing but from too small of a base. Existing firms in this sector, the primary source of jobs paying a living wage, must be supported to grow further and become more competitive. Most importantly, attention must be concentrated on the informal and rural sectors because these will overwhelmingly be the source of new employment. Governments must focus on removing obstacles to the many small informal firms, helping them to grow and create decent jobs.
