Press Release No. 06/200

Press Release No. 06/200

Economic growth in sub-Saharan Africa is expected to remain robust, despite high oil prices. Thanks mainly to the prudent macroeconomic policies of countries in the region, inflation remains under control.

These were among the main findings of the fall 2006 issue of the sub-Saharan Africa Regional Economic Outlook, which the International Monetary Fund released today. Abdoulaye Bio-Tchané, Director of the IMF's African Department, highlighted the report's main findings:

"Real GDP in sub-Saharan Africa is projected to grow by 4.8 percent in 2006. Although below the rate of 5.6 percent in 2005—largely because of a temporary slowdown in oil production in oil-exporting countries like Equatorial Guinea, Chad, and Nigeria and a moderation of growth in South Africa to more sustainable levels—this growth performance demonstrates the growing robustness of economic growth in sub-Saharan Africa.

"Growth in oil-importing countries as a whole is expected to decline to 4.5 percent from 5 percent in 2005, though 17 of these countries—about the same number as in 2005—are expected to experience growth of 5 percent or more. In many oil importing countries, the impact of persistently high petroleum prices has been mitigated by rising export prices for nonfuel commodities and by growing domestic investment.

"Looking ahead to 2007, GDP growth for the region as a whole is projected to rise to about 6 percent. Growth in oil-exporting countries as a group could accelerate to 10 percent, mainly because oil production is rising in Angola and Equatorial Guinea. Growth in oil-importing countries should remain steady at 4.6 percent. Inflation for the region (excluding Zimbabwe) is projected to fall further, to 6 percent.

"There are downside risks to this favorable picture, however. Export demand could be lower if activity in the rest of the world slows from the impact of global imbalances and tighter monetary policies. Growth and inflation could also be adversely affected by further increases in oil prices and a larger-than-expected fall in nonfuel commodity prices. And there are still political risks in a number of countries in the region.

"Our analysis of the impact of higher oil prices reveals some policy challenges for African governments. Since 2003, governments in most countries in the region have passed a relatively large portion of higher oil prices through to domestic retail prices. Rising oil prices have thus cut into the real income of the poorest population groups. Addressing this impact will be difficult for policy makers where there are no effective safety nets for the poor.

"Many countries are using indirect instruments to shield the poor, such as subsidizing kerosene (given its importance in the lives of the poor) and public transportation, and reducing or eliminating charges for public services like health and education, subject to the overall fiscal constraints. According to our analysis of eight countries in sub-Saharan Africa, oil and other fuel price increases in 2003-05 may have lowered real GDP by 0.2 to 1.0 percent, depending on national production and trade. Fortunately, in some of these countries, such as Botswana, Mozambique, South Africa and Zambia, the impact on GDP of higher fuel prices was more than offset by rising prices for nonfuel commodities.

"Finally, oil-producing countries need to strengthen their fiscal institutions to enhance revenue transparency and their public financial management systems.

"The IMF has so far provided debt relief to 14 countries in sub-Saharan Africa under the Multilateral Debt Relief Initiative (MDRI). These countries are using the resources released from debt service to boost poverty-reducing investment. However, economic performance will have to improve significantly if the region is to attain many of the Millennium Development Goals (MDGs). In particular, countries in the region will need to accelerate annual GDP growth to at least 7 percent to attain the poverty MDG.

"The scaling-up of aid promised by the international community at the Gleneagles Summit a year ago has yet to materialize, but private capital inflows are rising in some countries as surging commodity prices and debt relief make the region a more attractive place to invest. Still, countries in sub-Saharan Africa will have to do much more to lower the costs of doing business if private sector activity is to flourish."