Africa Regional Economic Outlook

Press Release: IMF Regional Outlook Report Cites High Growth and Low Inflation in Africa But Calls for More Efforts to Attain the Millennium Development Goals
April 14, 2005

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People's Republic of China and the IMF

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The Federal Democratic Republic of Ethiopia and the IMF

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South Africa and the IMF

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Transcript of a Press Conference on the Regional Outlook
for Sub-Saharan Africa

by Abdoulaye Bio Tchané, Director, African Department, with Anupam Basu, Benedicte Christensen and Siddharth Tiwari, Deputy Directors, African Department
International Monetary Fund
April 14, 2005, Washington, DC

MS. HARDIN: Good afternoon and welcome to the briefing on the Regional Outlook for Sub-Saharan Africa. I'm Frances Hardin, one of the Senior Press Officers here at the IMF in the Media Relations office.

I'd like to introduce the panel members, and I'm going to start at my far right with Benedicte Christensen, who is a Deputy Director of the African Department. Next we have Siddharth Tiwari, also a Deputy Director. Next we have—I'm going to skip and come right here to Anupam Basu, the Deputy Director, and in the Center we have Abdoulaye Bio Tchané, who is the Director of the African Department.

He will give a statement and then we will take questions from you. Thank you.

MR. BIO TCHANE: Thank you, ladies and gentlemen. Good afternoon. I'm happy to see so many faces again. Let me just make a short statement on this outlook. I think you've seen the material we distributed. We posted also a press briefing this afternoon or late this morning.

Given these materials I would like to focus on four key messages. First let me report on the performance in 2004. That was quite impressive, I might say, for the Sub-Saharan countries.

First, economic performance in Sub-Saharan Africa in the past year was the best in the last, say, eight years. Real GDP growth accelerated to an eight-year high of 5 percent, and average inflation fell to below 10 percent for the first time in almost 25 years. So I think it's an impressive achievement.

While growth continued to be particularly strong in oil-producing countries, mainly because of new development, but also because of high oil prices, even in non-oil-producing countries GDP continued to grow. Growth picked up to 3.7 percent in South Africa last year, and slowed to 3.5 percent in Nigeria after the record high witnessed in Nigeria in 2003.

The policy response of individual countries, particularly in the non-oil-producing countries was quite appropriate, but we need to set in place the domestic policies buttressed by international support that can result in even stronger growth. In fact, despite the strong performance being recorded, as I just mentioned, these growth rates still fall short of the level required to reach the MDGs, the Millennium Development Goals by 2015.

The second item in this agenda, moving to 2005, this year, we project the strong economic performance to continue. Specifically we project growth at 5 percent and inflation to average about 9 percent in 2005,[inaudible] continue therefore to be below the two digits. Nonetheless, some countries will face policy challenges in sustaining economic performance, for instance, in the Great Lake Region, for instance also in Cote d'Ivoire with the crisis that you all know.

I must also mention that the 30 percent fall in the world cotton prices over the past year in West Africa, particularly for Benin, Burkina Faso, Mali and Togo. This underlines the importance of social reforms in those countries, but also the necessary support that those countries need to get from the international community.

An appropriate mix of macroeconomic policies to improve export competitiveness while vigorously pursuing social reform to remove impediments to trade extension is also the challenge for those countries, but also for in general for the Sub-Saharan African countries.

Third, I want to refer to the report's discussion on how to sustain and accelerate economic growth. Growth is more likely to be sustained if it is driven by higher productivity and investment, rather than the temporary and prominent increases. A welcome finding of this report is that productivity growth in Sub-Saharan Africa has improved strongly. Total investment has not increased at the same time. A number of countries have succeeded in achieving strong growth acceleration for policy improvement that led to increases in investment, lower debt burdens, higher aid and more democratic institutions.

I would also like to note that the improvements were strongest for countries that successfully implemented Fund programs. To sustain and accelerate current growth Sub-Saharan African countries must implement additional macroeconomic policies and social reforms to boost investment and trade. Improving the investment climate is a key priority. As we've learned in this report, 16 of the 20 countries in the world with the most difficult business conditions are in Sub-Saharan Africa.

Finally, the report makes a case that strong trade expansion must be an integral part of sustainable growth in Sub-Saharan Africa. Trade within Africa remains low, and in terms of overall trade and foreign direct investment, the region is falling further behind the rest of the world. Reducing trade barriers on a broad nondiscriminatory basis, including strong commitment to trade liberalization in the Doha Rounds of multilateral trade negotiations, complemented by reducing trading costs at and behind the border and by improving an infrastructure is the way to successfully make trade policy an integral part of the growth strategy.

To underscore the importance of domestic infrastructure, it is estimated that shipping a car from Japan to Abidjan, Cote d'Ivoire, costs $1,500, while shipping the same car from Addis Ababa in Ethiopia to Abidjan costs $5,000. So you can see the difference.

Currently Africa is home to some 30 RTAs, regional trade agreements, and on average each African country belongs to four regional trade agreements. Therefore, as recommended by African leaders themselves, a greater effort is needed to rationalize the original trade agreements. We have -therefore- this report that draw these conclusion, and I want to share them with you.

We are ready to take your questions. Thank you very much.

MS. HARDIN: Would you please give your name and your news organization, please?

QUESTIONER: The fall of cotton prices, were many of these economies prepared for this? I mean, are they in dire straits now, or do you believe that they've already got some sort of policies in place that could get them through this?

MR. BIO TCHANE: Obviously, the countries are still—we mentioned that a couple of others, particularly Chad and maybe Togo, are still going through a difficult period of adjustment. Last year it was 30 percent. The prices are quite stable now, but I'm not sure that we are still at a level that is sustainable for not only the countries but for the farmers. Therefore, I think the policy response should include, one, the continuation of the structural reform in the cotton sector; second, our continuous call for the removal or the elimination of the subsidies in Europe and in the U.S., and in general in rich countries. And thirdly, certainly, financial support for those countries in this exceptional period.

So that's what we can call for. And I think it means effort from all sides, obviously, from the countries themselves, but also from the international community to help cope with this exceptional situation.

QUESTIONER: The G-7 are going to be talking about the possibility of a non-borrowing program for Africa over the weekend, and [inaudible] today from the U.S. Treasury was talking about his hopes that something will be agreed soon.

I just wanted to ask you what is the gap in the facilities you have available now and how having a non-borrowing program for Africa would make it easier to work in that region?

MR. BIO TCHANE: Well, obviously, as when you look at the current available instruments, there is certainly a gap. That gap is particularly for what we call the "mature stabilizers", the countries like, say, Tanzania, Uganda maybe, Mozambique, and [inaudible] Senegal, who have gone through a certain number of years of stabilization and who have achieved more-or-less some kind of macro stability. And those countries are asking for an instrument that will help them first continue with the current support from the front in terms of policy advice, in terms of technical assistance, in terms of continuous surveillance. But obviously there are those countries that don't need financial support from the Fund, and that's the gap that that instrument could help close.

QUESTIONER: But that's something you do already with countries, providing technical assistance, surveillance, lots of help, central banks and finance ministries, without having this particular program. Is that correct or is it something that's hard for you to do?

MR. BIO TCHANE: Well, that's something hard for us to do. I mean because currently what we have is either a normal surveillance for the Article IV or enhanced surveillance exceptionally, or another side is the PRGF, that is done by agreement. But we don't have an instrument that could help us continue a stronger relation with the countries without providing any resources.

MS. HARDIN: Yes, here in the front row, please.

QUESTIONER: You mentioned in the report the problems that some African countries are going to have as a result of the phasing out finally of the Multifiber Agreement and the competition they're going to be facing from China. What do you think these countries should do? You said in the report that there's a mix of fiscal monetary and exchange rate policies. But what sort of concrete advice can you give to these countries to actually cope with what's going to be quite extreme competitive pressure from China?

MR. BASU: Thank you. Let me just first recount some of the obstacles that these countries face internally to develop the production capacities generally and to develop their exporting capacities. You will recall that there is a mechanism called the IEF Mechanism, which is sort of a multilateral mechanism for doing diagnostic trade integration studies in most of the low income countries. There have been several countries where this has been done. And basically this identifies constraints at the supply level in individual countries to sort of alleviate and address, to give them greater capacity to produce for exports and to produce them efficiently.

Typically they point out—you know, these diagnostic studies have pointed out, for example, transport bottlenecks and transport systems that are inefficient in the countries.

Another area that people have pointed out in studies is public utilities, their inefficiencies and the costs of doing business that arise from it. There are complications and sort of burdensome regulatory environments that make it difficult for African manufacturing to establish themselves in these environments. So these diagnostic trade integration studies have taken a very close look at the domestic supply constraints that inhibit investment and supply conditions.

Then there is the whole focus in these studies on the structure of tariffs in these countries, the internal trade regimes of these countries, how complex, how nontransparent or how sort of dispersed they are and also how high they are relative to other countries, and what are the implications for developing and manufacturing environment in such an anti-export biased environment?

Not to say that these can be resolved at one go, but these are the basic areas that the diagnostic trade integration studies seem to have pointed out for addressing and alleviating.

So basically what we are saying is that there should be a broad approach to developing domestic potential for accessing foreign markets. We are urging developed countries to open their markets to African countries, but at the same time we are working with the African countries to make sure that the domestic supply constraints are addressed. So it is not really textile specific as such. The macro issues arise precisely because this transformation will take time.

If you lose markets or if you lose your competitive edge to China or to India or other countries, you suffer a shock in the interim. Obviously, you could get some relief from the expected scaling up of aid resources or whatever it is, but it is not going to be targeted exactly at that. And in effect, there's likely to be more aid if the reforms are taking place, the ones that I'm talking about.

But at the end of the day there is still a financing constraint. Then I am afraid that the removal of the textile quotas is a pretty much permanent thing that's on the landscape. At least to get across temporarily, it doesn't make sense to just lose reserves as such. So you would need some at least safeguard measures at home by their fiscal policy or somewhat tighter monetary policy, or for that matter, some exchange rate flexibility.

But I would press very much on the supply side measures so that the countries can get out of this in a fundamental way in the coming years.

QUESTIONER: Could you address the growth prospects in the context of how much of that is the result of just the up tick in commodity prices over the last few years of these impressive growth figures that Africa is now accumulating? But also, where do you find the prospects for per capita income growth brightest? And along with that, where are they requiring the most effort?

And I just wanted to make a comment on your very interesting remark about transport between Ethiopia and Cote d'Ivoire. I don't think there's a railroad across there. You must be thinking of sea transport for a car. But wouldn't the most, more useful comparison be if you were looking at, say, shipping a car from Port Elizabeth to Abidjan, and what would that cost be?

MR. BIO TCHANE: Well, I think we did this study, and when you look at the table you will see that the achievement had been across the countries. Whether you take a criterion like a country that has gone through IMF support, whether it's oil and non-oil, whether it's, you know, landlocked countries or non-landlocked countries, I think the results are really across the continent. That's one.

The second lesson we learned is that we see also a positive continuance that there is much more adherence to macro policy stabilization and that's clear. And I can tell you from my own experience that 10 years ago we had a different dialogue between the Fund and the African countries. It is different today. We've seen a lot of progress due to that.

What you see also is that countries that are moving faster not only on macro stabilization but also on structural reforms are gaining more results, they're having more results across the board, not only on growth, but also on other issues from that perspective. So that's one lesson—I mean the lessons we are learning from this study.

On the transportation, and particularly on trade, because I just took that example to show one of the main obstacles, transportation and infrastructure. Yes, you can take that example. But the example that we took is a very good one, because it's clear that you don't have, you know, any other means to transport a car from Addis Ababa to Abidjan except from—through the sea, which means that the objective of the NEPAD leaders to have to enhance infrastructure across the continent is a valid one. This means also that while you are tackling that you need to tackle other obstacles to trade, non-trade barriers, formalities at borders, formalities at the ports, even the management of the port and airport facilities. These are important issues.

And finally let me say one thing. While it's important -macroeconomic study is important and crucial for growth and poverty reduction- it's not sufficient. We need many other things. We need structural reforms. We need to create a conducive environment for private sector development. We need all these things that we talk about when we discuss trade issues in the report. So that's—I want to refer to [inaudible] to those other aspects of our study, but also on the issues we discussed in the report. Thank you.

QUESTIONER: Given that the IMF and World Bank put out a report earlier this week saying that Sub-Saharan Africa needed to grow basically at a 7 percent annual rate for the next decade in order to achieve the UN goals of cutting poverty in half by 2015. How realistic is that? Is that too tall of an order?

MR. BIO TCHANE: I think it's realistic, not least because a few of the countries are already there, and some of them are even growing beyond the 7 percent, 8 percent rate you just mentioned. I think it's realistic if you look at what is needed. And when you look at the call made by the Blair Commission Report, when you look at the call made by Jeff Sachs, we know what is needed. We know that clearly—they all argue that we need more resources. Clearly we need to scale-up resources, both external and domestic. But also we also need policies, and I think we don't insist a lot on that. We need policies in all these areas I mentioned earlier.

And if you take a few counties you see it clearly. Take Nigeria recently. This is a country that has seen a lot of issues in the past, and yet we know from what we've seen in the last two years that there have been impressive achievements on both sides. We have now in two successive years, more than 4 percent of growth rates in Nigeria. It is not yet the 7 percent you just mentioned, but we are moving to that. We have now a country that has capped the inflation rate from almost 20 percent two years ago to now, to less than 10 percent, single digits. We have a country with less than almost 7 billion of U.S. dollars of reserve two years ago, now they have more than 20 billion dollars in reserve. And I think in all sorts of policy areas we are proving that moving in the right direction needs policies, and that's what we need to emphasize.

So clearly we need resources, policies and strong leadership finally, because what is not in the reports -and everybody would tell you, every analyst would tell you in Africa- is that countries that have succeeded are countries with strong leadership and that is important to mention.

QUESTIONER: Even with Nigeria, which is one of the larger economies in the region, that growth rate is 4 percent, and they're benefiting from the oil windfall, so if they can't get near the level of 7 percent now, how are they ever going to be able to do so when conditions seem to be quite favorable right now?

MR. BIO TCHANE: I'm just mentioning growth in the non-oil sector. If you take growth in the non-oil sector for the last two years, the average is 4.4 percent. And they can move to that 7 percent level. That's what I'm telling you, that they're coming from a low level and these two years they have done a lot of things. They are moving in the right direction. I can give you other indicators that are showing that they are moving in the right direction. And I think if those policies can be sustained, clearly we'll be there.

And I can give you other examples. We have more than 20 countries today that are witnessing more than 5 percent of GDP growth. And as we said in my introduction, for the first time in 25 years, you have inflation falling to less than 10 percent. I think this is an achievement worth mentioning.

MS. HARDIN: I think we're going to take one last question.

QUESTIONER: Thank you. I just wanted to ask you a question on the strategic review of the Fund, which is being discussed recently by the Board, and the question of the Fund's role in Africa. Sometimes it seems very clearly defined. The Fund works on the macro issues, on the central banks and the finance ministries, but there's lots of discussion and some controversy about what the correct role should be. I just wondered if you could say just how you see the Fund's role and what the important questions are to ask as part of that strategic review?

MR. BIO TCHANE: Look. I think this is something we've been working on for almost two years now. Remember before the discussion started on the strategic review almost a year ago, there was already the discussion of Fund involvement in low income countries. And as part of that, we did some pretty large consultations across the continent. We had a workshop in Dar es Salaam. We had another one in Dakar to listen to our African constituency. And we heard a lot of proposals. But basically what I think—apart from the issues of instruments and goals—we just partly discussed the gap in the instrument—I think we need to look at the most important issues we need to tackle in Africa if, as Julie just mentioned, we are to reach the 7 percent growth rates needed to achieve the MDGs.

And these are issues we pretty much agreed upon with our African colleagues. One is trade, clearly. Trade and investment, as it's described in the report. African countries are lagging behind other continents, and we need to act quickly on that. Acting on that means also the policies we discussed, the trade arrangements in the Doha Round, and also domestic trade policies.

I also think that beyond the policies, once the policies are right, we need—and when I say "we" I mean the Fund and all the other agencies, whether they are multilateral or bilateral—we all need to work so that African countries benefit from the policies. This means putting in place the type of policies my colleague, Anupam, just mentioned, to address the supply issues. That's one.

The second issue is financial sector development. We look across the country today, what you will hear from small and medium-sized enterprises, from the farmers, from all sorts of financial services, really the lack of access, and obviously there is no way you can get anywhere in the development process if you don't address that issue of having access to not just credit, but to financial services at large. And that's something we clearly need to work on, one, commercial banking, it's clear, but also all the other financial institutions and instruments.

Third is clearly—and we have to link that to all the other issues we are discussing about scaling up the resources and so forth, the public expenditure management system. I think if you, both in terms of managing the domestic resources and the external resources, if you don't have in place a financial—a public expenditure monitoring system that will allow the public at large, domestic community but also the international community, to be assured that the resources would be accounted for, then it's really difficult.

Therefore I think that we all agree that we should work with African countries in addressing the obstacles in that area.

So that's really the broad agenda. You can go a little bit further and look at some of the other aspects, but let me keep it to that level.

MS. HARDIN: Okay. We have one final, final question.

QUESTIONER: I couldn't let you go without asking about South Africa and Zimbabwe. So my question on South Africa is do you think there is a lot more growth potential in the economy? I mean do you think the 3.7 is about—I think it's 3.7—is about what they can do right now?

The other question is—you had mentioned last year about inflationary pressures. Are you still seeing some of those and how do you think the government should be reacting on that?

The other thing, on Zimbabwe, is the review is coming up again—I believe in June is it—on Zimbabwe? Have you seen since your last meeting in Zimbabwe, have you seen any further economic reforms or progress in the economy?

MR. BIO TCHANE: Benedicte, you want to talk about South Africa?

MS. CHRISTENSEN: Sure. Maybe let me address first your last question, which was the one on inflationary pressure and so forth. You probably have seen that the repo rate has been cut by half a percentage point today. And essentially I would say the inflation, the current rate of inflation has—certainly is as low as it has been for a long time, at 3.2 percent in February. And thereby it's at the lower end of the 3 to 6 percent range which the Reserve Bank has set for its monetary policy.

Now, there is—there has been strong demand, and I think it's something that needs to be watched, the domestic demand, also the increase in oil prices, its impact it could have on the rate of inflation. So the answer is that so far inflation has come down, also inflationary expectations. But there are at least uncertainties on the horizon that needs to be watched carefully.

Now, in terms of the other question on the growth potential of South Africa, I think there are a number of structural reforms that need to be addressed. I mean what South Africa has successfully addressed over the last 10 years since apartheid has ended is essentially macroeconomic stability, and that is an important condition, but not a sufficient condition for growth, and certainly not for a pick-up in that growth.

Another thing that has happened is also there has been relaxation of the capital controls. There are still some elements that are missing. But as we all know, there is very high level still of unemployment. Unemployment has come down sort of from the 28 to the 26 percent, but still it's at a very high level. That is a concern of the government. And some of the rigidities are in the labor market, and they're of different natures. There is partly a skills mismatch. Also there are issues in terms of the bargaining system, which bargaining system, and some of these structural rigidities need to be addressed, and the government is also doing it, addressing these issues in order to raise the growth rate. But I mean it is a priority of the government and in order to get the unemployment down and poverty reduced.

MR. BIO TCHANE: Something on Zimbabwe?

MR. TIWARI: Yeah. I think Zimbabwe—as you know, the relations between Zimbabwe and us is at the critical juncture. There are a series of sanctions that the membership has agreed to impose on countries in arrears to the Fund, the final stage of which is the Managing Director's Complaint on Compensatory Withdrawal, and that's where Zimbabwe is.

There was improvement in 2004, but went short of comprehensive adjustment. Given the severity of the sanctions, the Board has given Zimbabwe and us another six months to consider it.

What Zimbabwe needs is fairly clear. I was there late last year. A mission has been there since then. And the authorities know that they need to implement one comprehensive program that revives economic activity in Zimbabwe. It's declined to over 30 percent in the last few years. They need to bring inflation down. The authorities' objective is to the 60 [inaudible] percent range. It's ambitious, it's very ambitious, but they need to start in that direction. There are no two ways about it.

Structural policies and investment climate is at the heart of the issues in Zimbabwe. From the commitments we have from the authorities, they have a desire to move in that direction. And you know, the election finished, what, a couple of weeks back, and now is the time for the authorities to move in that direction.

The other side of this is that Zimbabwe needs to integrate itself with the international community. It's a two-way street. It's from Zimbabwe to the rest of the world, but also the rest of the world to Zimbabwe.

My sense on this is that the latter will not happen till Zimbabwe does something to address economic policies at home, improve living standards. I think there is a lot of good will in multilateral institutions and bilateral countries to help Zimbabwe, but they need to make the first move.

MR. BIO TCHANE: Okay. Let me finally say on South Africa, on the growth prospect, and it's clearly South Africa is, with a couple of other countries, the engine of growth in the continent. And clearly we all know that the potential is there. We know some of the obstacles. One of them is the one mentioned by Benedicte earlier, but I think clearly that what we are seeing at least for the last past 10 years is a clear commitment for macro stability, is a clear commitment to address all these obstacles, particularly most recently.

So I think my sense is that we are heading in the right direction for the next few years, particularly after the last budget statement, but this clearly shows that government is committed to address all the issues on the structural side, particularly in the infrastructure of the country.

MS. HARDIN: Okay.

MR. BIO TCHANE: That's it. Thank you very much.

MS. HARDIN: Let me just mention that the transcript of this press briefing will be posted later on the web. Thank you for coming.




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