West Africa: Economic Recovery and Beyond

IMF Blog, November 2, 2010

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West Africa: Economic Recovery and Beyond

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Bibliographic details

• Authors: Mark Plant
• Published: November 2, 2010

Economic growth

• IMF mission launched the October 2010 Regional Economic Outlook on sub-Saharan Africa; reactions were "very positive."
• The central message: "Africa’s resilience to the global economic crisis has owed much to good policy management here, both before and during the crisis."
• West African countries "fared relatively well during the global financial crisis." The slowdown was "mild" and growth rates "appear to have already bounced back to their pre-crisis levels."
• Long-term difference: "West Africa hasn’t been able to move into, and sustain, the higher rates of economic growth needed to make serious inroads in job creation and poverty reduction."

Growth challenge

• Comparative focus: eight countries of the West Africa Economic and Monetary Union (WAEMU) — Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo — compared with other countries in sub-Saharan Africa.
• WAEMU features: single trading block, single stable currency over the last fifteen years, and "benefited from low inflation."
• Performance summary:
  • "Over the past fifteen years per capita incomes grew, on average, by less than 1 percent each year."
  • "In sub-Saharan Africa as a whole, the growth rate has been more than twice that; and more than four times that in the region’s highest growers."
• No single explanatory factor identified: not attributable solely to initial income levels, natural resource endowments, location, or primarily to global forces (world trade or prices).

What's holding back growth?

• Four noteworthy impediments identified:
  • Political instability:
  • "Periods of political instability were associated with particularly lackluster performance" in slower-growing WAEMU countries — Côte d’Ivoire, Guinea-Bissau, Niger and Togo.
  • Political instability complicated macroeconomic management.
  • Low investment:
  • "Private investment rates in most WAEMU countries have been noticeably lower than in other sub-Saharan African countries" — low investment in both public and private sectors, with "relatively little foreign direct investment."
  • Weak business environment and governance:
  • "Perceptions of governance remain weak."
  • WAEMU countries have ranked low in the World Bank’s Doing Business Survey and other composite indicators.
  • Inadequate physical infrastructure and weak public services:
  • Shortfalls "especially in education and health."
  • "Underinvestment in physical and human capital undermines the private sector’s ability to produce goods and services efficiently."

Actions to raise growth (policy recommendations)

• Political stability:
  • "Political stability is a necessary precondition for macroeconomic stability and sustaining improved performance."
• Infrastructure and human capital:
  • Upgrade "weak energy and transport infrastructure."
  • Improve "health and education standards."
• Governance and business environment:
  • Ensure "good governance, including market-friendly regulations, effective financial sector supervision, and enforcement of laws" to support a more competitive private sector.
• Fiscal and investment strategy:
  • Make room for "higher pro-growth government expenditure" by:
  • Increasing revenues so critical investments can be made.
  • Building capacity to safely attract and manage private finance.
  • Improving the quality of spending.
  • Improve budget institutions, with emphasis on:
  • "Improving financial management, prioritizing expenditures, and ensuring their high quality."
• Evidence of progress:
  • "The four higher-growing WAEMU countries—Benin, Burkina Faso, Mali, and Senegal—performed significantly better in the last fifteen years than they did in the fifteen years before that."
  • IMF expresses confidence that "the region as a whole can realize its potential for higher growth, more jobs, and faster poverty reduction."

Source: West Africa: Economic Recovery and Beyond (IMF blog post, Mark Plant, November 2, 2010)

References

• Regional Economic Outlook