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SUSTAINING ECONOMIC GROWTH IN
AFRICA
Presentation at the 17th Annual Conference on Global Economic
Analysis: New Challenges in Food Policy, Trade and Economic
Vulnerability – Dakar, Senegal
by
Prof. Njuguna Ndung’u, CBS
Governor, Central Bank of Kenya
18th June, 2014
Outline
1.
Background
2.
Growth Performance and Outlook
3.
Opportunities for Growth in Africa
4.
Why is Growth Low in Africa?
5.
Some Solutions to Sustain Growth in
Africa
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1. Background
1.
Africa needs rapid and sustained growth to achieve the following:
a)
Meet the needs of a steadily growing population dominated by the youth – half
of the population in SSA is below 25 years old (World Bank, 2013).
b) Create employment for the youth – unemployment remains high as Africa is not
generating even a tenth of the required jobs for this segment of the population.
c) Poverty reduction has not been sustainable – what is needed is an inclusive
growth strategy.
d) Political stability which is intertwined with economic and social stability:
 Peace and stability required to facilitate growth and development of markets
in Africa.
 Rapid and sustained growth may be required to promote peace.
e) Rapid growth and stability will allow institutions to grow, develop and
strengthen – institutions define the rules of the game and appropriate incentives
for the markets to thrive.
f) Finally, structural transformation and economic diversification takes place.
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1. Background…
2.
3.
4.
5.
6.
Africa has diversity that can be characterized into:
◦ Coastal, resource rich, and Coastal resource poor,
◦ Land locked, resource rich, and Land locked, resource poor.
The growth experience will follow these classifications – opportunities for
investment will vary from country to country on the basis of each country’s
geographical character and resource base.
Growth, diversity and structural transformation has been supported or
constrained by these factors.
But a strong dependence on traditional trade partners has exposed
Africa to spillover effects of financial/economic crises such as the
instability in the Eurozone.
There has also been a failure to establish value addition and new
markets
– Africa boasts over 380 million middle income class of its population, a massive
market to rely on.
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1. Background…
But in the last decade we have seen an improved
macroeconomic environment in SSA
Sub-Saharan Africa Annual CPI Inflation (%)
1.
12.0
11.0
10.0
9.0
8.0
2.
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2004-08
2009
2010
2011
2012
2013
Sub-Saharan Africa (Overall)
Oil exporting African countries
Middle-income African countries
World
2014
Source: IMF Regional Economic Outlook: Sub-Saharan Africa – April 2014
3.
Prudent monetary policies
and stable international
food and fuel prices have
supported declines/stability
in inflation in SSA countries.
Most SSA countries are realigning their monetary
policy
frameworks
to
changing economic and
financial
conditions
–
unstable money demand
functions in the face of
financial innovations.
But currency wars and the
prevailing
unconventional
monetary policy in the USA
and Europe will create
currency volatility
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1. Background…
However savings and investment levels for SSA much lower than those of
emerging market and developing Asia economies. The rapid growth rates
experienced in some emerging and developing Asia economies can be
associated with the comparably high savings rates
Savings/GDP Ratio (%)
Investment/GDP Ratio (%)
50.0
50.0
45.0
45.0
40.0
40.0
35.0
35.0
30.0
30.0
25.0
25.0
20.0
20.0
15.0
15.0
10.0
10.0
5.0
5.0
-
1992-99
2000-07
World
SSA
2008
2009
2010
Emerging market economies
2011
2012
2013
1992-99
2000-07
Emerging and developing Asia
World
SSA
2008
2009
2010
Emerging market economies
2011
2012
2013
Emerging and developing Asia
Source: IMF World Economic Outlook – April 2014
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2. Growth Performance and Outlook
Growth in SSA countries expected to pickup with macroeconomic
stability and global economic recovery in 2014
Sub-Saharan Africa Real GDP Growth (%)
1.
9.0
8.0
7.0
2.
6.0
5.0
4.0
3.0
2.0
1.0
0.0
3.
-1.0
-2.0
2004-08
2009
2010
2011
Sub-Saharan Africa (Overall)
Middle-income African countries
SSA frontier and emerging market economies
2012
2013
2014
Oil exporting African countries
World
SSA economies have been
recovering from the financial
crisis in 2009.
Strong growth is projected
for SSA in 2014, rising from
4.9 percent in 2013 to 5.4
percent in 2014 – this gives
scope for increased trade in
the region including new
product lines.
SSA’s economic performance
will benefit from stronger
global economic activity due
to the improved outlook for
the advanced economies.
Note: SSA frontier/emerging economies include Kenya, Mauritius, Ghana,
Nigeria, Rwanda, Senegal, south Africa, Tanzania, Uganda, Zimbabwe &
Cote dilvoire
Source: IMF Regional Economic Outlook: Sub-Saharan Africa – April 2014
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2. Growth Performance and
Outlook…

A strong growth recovery is expected for SSA in 2014 (IMF
WEO, April 2014) to be supported by:
◦ Ongoing heavy investment in infrastructure development that enhances the
productive capacity of the economies as well as opening up
regional/external markets to private investors and facilitation of exports.
◦ Increased consumption and activation of new capacity in extraction sectors
also underwrite beneficial distribution effects.
◦ Regional integration efforts and regional infrastructure projects will open
up the economies and markets.
◦ Improved macroeconomic environment as inflation moderated from 10.7
percent in 2011 to 7.7 percent in 2012 and further to 5.9 percent in 2013
signifying an easing of supply side shocks.
◦ But the projected slowdown in the growth of China, Brazil and Indian
economies coupled with the rollback of the unconventional monetary
policies in advanced countries pose a risk to the SSA growth outlook – could
lower export demand and investment through a rise in interest rates, and
more importantly cause volatility in major prices.
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3. Why is Growth Low in Africa?
1.
2.
3.
4.
5.
6.
Why has Africa failed to grow given the structural changes, the policy reforms and
the diversity of the economies?
a) Is it a principle agent problem?
b) Is it an incentive problem?
c) Is it a collective action problem?
d) Or is it a capacity problem?
Investment and savings ratio are low – Africa needs to raise the investment to GDP
ratio to over 30 percent to achieve and sustain growth rates that will address the
current challenges.
Investors have difficulties appropriating returns on their investments – there are
binding constraints.
Vulnerability to both domestic and external supply shocks impacts negatively to the
price stability objective – volatile oil prices weighs heavily on oil importing countries
with a likely expansion in current account imbalances.
Dependence on and the decline in commodity prices (tea, cocoa, coffee and
metals) has continued to significantly affect export earnings of some SSA.
But above all the social-economic and political environment has pulled Africa
growth: civil wars; ethnic violence; governance and resource extortion, etc
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4. Opportunities for Growth in
Africa
1.
Africa has the potential and is a large market for the world:
a)
b)
2.
3.
4.
Africa’s GDP in PPP terms is above USD 4 trillion which places it as the fifth
block after the USA, China, India and Japan.
Africa’s middle class is growing now at over 380 million which is
considerably above the entire USA population and provides potential for
consumption, innovation and consequential investment opportunities.
Financial Institutions are diversifying, growing and strengthening
across Africa.
Widespread reforms supported by changes in legal and regulatory
frameworks have improved the business environment – the devolved
government structure as for example under the new Constitution in
Kenya which provides new opportunities for inclusive growth.
The prevailing macroeconomic stability in most SSA countries has
enhanced investor confidence, and provided monetary policy space
to support economic activity.
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4. Opportunities for Growth in
Africa…
5.
6.
7.
8.
9.
Adequate room for inclusive growth through reforms to promote economic
diversification and employment, deepen financial sectors, and tackle
infrastructural gaps – to make markets accessible.
The large proportion of the population that is either unbanked or underbanked provides scope for financial institutions to increase their outreach
– often dependent on innovations. The unbanked are often in rural areas
where the multiplier generates more economic impact.
Recent discoveries of oil and other mineral deposits in Eastern and
Southern Africa countries could provide new impetus for growth by
enhancing both the productive capacities of economies and finance public
investment.
The diversification of trading partners towards Asia and South America
has increased prospects for increased trade opportunities and
development cooperation.
Public-Private-Partnerships should not only tap the skills of the private
sector but increase the commitment of those with embodied domestic skills.
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5. Some Lessons on Sustaining Growth
in Africa
Infrastructural gaps – enhance public investment in infrastructure to
increase the future capacity for growth and promote private
investment.
2. Mobilise resources through domestic savings and foreign direct
investment:
a) Leverage on mobile financial services to raise financial inclusion
levels and savings.
b) Deepen the financial market with long-term funds through
Pension Funds and Insurance Schemes reforms – A vibrant bond
marketing.
3. Strengthen institutions through socio-political reforms to enhance
their effectiveness and efficiency.
4. Generate youth employment – targeted interventions are required
1.
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5. Some Lessons on Sustaining Growth
in Africa…
Reinforce macroeconomic stability – through a comprehensive approach
to managing public finances, expenditure programmes and sound
monetary policy.
Enhance productivity growth:
5.
6.
a)
b)
Efficiency of investment that is manifested in total factor productivity is critical to
growth.
Promote competitive production – reducing transaction costs for firms, and enhancing
intra-regional trade and investment will increase total factor productivity.
Implement measures to reduce inequality that generate threats to
security and sustainability of reforms:
7.
a)
b)
c)
Growth targets should focus on reducing poverty – an incentive for the populace
Redistribution policies increase growth by enhancing the poverty reduction impact.
Countries in Africa should develop strategies that pronounce their vision: see Kenya
Vision 2030: priority areas and investments in enablers.
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