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African Economic Outlook 2013

Summary in English

The African Economic Outlook is the only annual report that monitors in detail the economic performance of 53 individual countries on the continent, using a strictly comparable analytical framework.

The focus of the 2013 edition is structural transformation and natural resources in Africa.

Growth is robust, fuelled by Libyan rebound

Africa’s economy grew by 6.6% in 2012, up from 3.5% in 2011, in part because of a rebound in Libya following its economic collapse during the 2011 revolution. Excluding Libya, the continent’s GDP grew by 4.2% in 2012. Africa’s medium‑term outlook remains favourable: The economy is projected to grow by 4.8% in 2013 and 5.3% in 2014 on the back of expanding agricultural production, robust growth in services and a rise in oil production and mining, all underpinned by increasing consumption and investment.

West Africa is expected to lead the way, with Central Africa and East Africa also expected to perform strongly. Growth in Southern Africa will be dragged down by South Africa’s weak recovery, while the slow pace of transition to democracy in North Africa may continue to affect economies there, despite Libya’s strong recovery.

Average inflation in Africa increased to 9.1% in 2012, from 8.5% the previous year, fuelled by higher food and fuel prices and, in some East African countries, rapid credit expansion and exchange rate depreciation. Inflationary pressure should ease in 2013 and 2014 as a result of relatively stable oil and food prices.

The main short‑term challenge for the continent is to consolidate stable macroeconomic conditions in the face of the volatile global economy. Regulation of the private sector must also be further improved. Addressing infrastructure bottlenecks and increasing access to public services like education, health and security, would put countries on a durable growth path while addressing poverty.

External financial flows hit record high

External financial flows to Africa have quadrupled since 2001 and hit a record high in 2012. They ranged from an average of 4% of GDP in upper‑middle‑income countries to 18% in low‑income countries. After declining in 2011, both foreign direct and portfolio investment recovered in 2012. Remittances have also increased. Foreign direct investment is projected to remain buoyant in 2013, increasing by over 10%. Southern African is expected to be the main recipient, boosted by resource projects in Angola, Mozambique and South Africa.

Emerging partners playing a greater role in trade

Europe and the United States remain Africa’s main trading partners, but emerging partners like China, India and Brazil are becoming more important. Africa is also seeking to strengthen regional integration by tackling challenges linked to the small size of many of its economies. These include stiff competition in international markets and impaired bargaining power in international trade negotiations.

Slow progress on human development

Many countries in Africa have improved their scores on the Human Development Index, however progress remains slow. Income inequality is widening and education and health indicators are deteriorating in some places, with the result that many people are not benefitting from economic growth. Among many other benefits, human development can help drive Africa’s structural transformation by speeding both the rate of innovation and uptake of new technologies. Against this background, more attention should be directed to improving the quality of education and healthcare systems and fostering job creation in order to narrow income inequalities.

Governance is improving, but remains fragile

Many countries have made notable progress in improving their regulatory frameworks and business environments and in strengthening democratic institutions. Multiparty elections are now firmly taking root. However, as events in the Central African Republic, Mali and Guinea‑Bissau show, some countries are losing democratic gains and returning to cycles of violence and political instability. Rising terrorism and organized crime are major threats to security. Combined with lingering cross‑border conflicts, they are helping to create pockets of significant instability.

In 2012, popular protests in North Africa were driven mainly by demands for political reform. Elsewhere, protests were mainly associated with economic and social issues. Protests on the continent demonstrate a need to enable citizens to better engage with their governments and provide feedback on the quality of services and policies.

Special Theme – the role of natural resources in driving structural transformation

African economies face the challenge of not just sustaining growth but making it more inclusive. Structural transformation is fundamental to doing this, and Africa’s abundant natural resource wealth can help make that happen by allowing the emergence of new, more productive activities and better‑paid jobs. Regrettably, Africa’s record in this area is weak: Productivity growth has been slow in recent years and has not created enough of the relatively low‑skilled jobs in manufacturing that are needed to reduce poverty.

Although natural resources have contributed no less than a third to Africa’s growth during the last decade, much potential remains untapped. But this is changing: As exploration and production expand, Africa stands to gain more from its resources. Getting it right requires the right policies. To this end, this edition of the African Economic Outlook recommends that countries follow a four‑layer approach to harnessing natural resources for structural transformation:

1. Put in place the right conditions for structural transformation, including basics such as infrastructure and education. Broad‑based tax systems and accountable institutions that share power and deter rent‑seeking are also essential.

2. Meet the specific requirements of the primary sectors. These include good land management, and specific skills and research. Agriculture needs transport infrastructure and fertilisers, while extractive industries need the right incentives for exploration and often specific infrastructure, especially energy.

3. Optimise revenue from natural resources and invest it wisely. State ownership has not generally proven superior to private ownership in this regard, and in the past many countries did not manage their resource revenues effectively. Lessons need to be learned from these failings: Strong investment management, effective citizen oversight and a stable expenditure framework are all essential.

4. Active policies are necessary to increase agricultural productivity and to develop related businesses around extractive industries. Policy options for governments include coordination of investments in training, infrastructure and logistics and research. International firms also have a role to play by, for example, supporting local suppliers.

Key figures

Africa’s economy set to grow by 6.6% in 2012 and 4.8% in 2013.

Libya’s rebound accounts for more than a third of 2012 growth.

Inflation hit 9.1% in 2012; should moderate in 2013.

External financial flows set record in 2012, equivalent to 9.2% of Africa’s GDP.

Summary of
OECD (2013), African Economic Outlook 2013, OECD Publishing.
http://dx/doi.org/10.1787/aeo-2013-en

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