Download Overview of Vulnerabilities

NS4301
Political Economy of Africa
Summer Term 2015
Overview
Introduction I
• Most sub-Saharan economies have been performing
very well since 2008
• Growth in the region has reached nearly 5% since
2008.
• Occurred despite:
• International financial crisis 2008-09
• Ongoing Eurozone crisis
• Slow growth in the advanced industrial countries
• Declining growth trend in the large emerging economies
• Brazil
• Russia
• India for a while and
• More recently China
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Introduction II
• A number of reasons for the African success
• Relatively low initial per capita wage level
• High foreign investments in context of abundant world liquidity
• More stable political environments
• Public finances in better condition thanks to numerous debt
cancellations
• Also important
• Relatively high prices of raw materials
• Oil, metals, minerals and foodstuffs are 80% of region’s exports
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Introduction III
• Situation today:
• Sharp fall in global raw materials prices over last year
• Raises a number of questions:
• Has the situation worsened for all countries universally?
• Which countries are coming out best in this environment?
• Are there other sources of growth to protect these countries from
further problems in the world economy?
• Want to first identify those countries hardest it by fall in
raw material price
• Should make distinction between countries which export nonrenewables from those exporting renewables
• Prices of the former have deteriorated much more
• Which non-renewable export countries have diversified their
exports and economy to reduce vulnerability?
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Introduction IV
• Importance of:
• agricultural sector (20% value added) and
• that of extractive industries and utilities (21% value added)
• Shows dependence of Sub-Saharan economies on
commodities
• Markedly different patterns across region
• Central Africa (Angola, Cameroon, Gabon, Equatorial
Guinea, Chad, Congo, but not Nigeria) importance of
extractive activates and utilities greatly expanded in
2000s.
• Much higher than the African average (46% in 2012).
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Sector Patterns: Central Africa
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Introduction V
• Southern Africa (mostly South Africa) Proportion of
agriculture has fallen to low levels
• Importance of extractive industries and utilities light despite
abundance of natural resources
• Growth much less dependent on raw materials
• Eastern Africa (Kenya, Ethiopia Tanzania)
• Some similarities with Southern Africa
• However agriculture still important
• Western Africa (Nigeria, Ghana, Ivory Coast)
• Middle position with
• extractive industries, agriculture and services having about equal
weight.
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Sector Patterns: Southern Africa
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Sectoral Patterns Eastern Africa
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Sectoral Patterns Western Africa
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Oil Patterns
• Of the raw materials sub-Saharan African countries are
strongly reliant on oil rents
• Oil rents are the difference between the total cost of production
and the value of production at world prices.
• After peaking in 2008 contribution of oil has slowly
diminished
• Production concentrated in small number of countries
• Production stagnating in Angola
• Falling trend in Gabon, Equatorial Guinea an Chad
• Production erratic in Nigeria
• Oil alone accounts for nearly two thirds of the total
contribution of natural resources in sub-Saharan Africa
• Oil rents represent 11% of the region’s GDP in 2013
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Natural Resource Rents % GDP I
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Natural Resource Rents II
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Patterns of Commodity Exports I
• Analysis of share of commodities in goods exports
shows more pronounced dependence of region in raw
materials than that of different sectors in the economy
• Commodities represent 80% of region’s exports of goods
• Fuels (essentially oil) account for more than half of sub-Saharan
Africa’s sales abroad
• Far ahead of minerals, metals and precious stones (17%) or
agriculture (11%).
• Countries most dependent of raw materials:
• Fuels between 60% to 100% of exports of: Angola,
Equatorial Guinea, Chad, Nigeria, Congo, Gabon, and
Sudan
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Share of Fuels in Exports
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Patterns of Commodity Exports II
• For mining products, sub-Saharan Africa mainly exports (order
of importance) iron, gold, copper, precious stones, silver, and
platinum
• Between 60% and 90% of exports of Botswana (primary diamonds),
DRC (copper), Zambia (copper), Mauritania (iron ore), and Eritrea
(gold).
• Food and agricultural products chief exports are cocoa, fruits,
cotton, fish and coffee.
• Between 60% and 100% of exports of Guinea Bissau (fruits), Somalia
(animals), Seychelles (fish), Ethiopia (coffee, vegetables, and grain)
• Raw materials less than half exports of South Africa, Comoros,
Lesotho, Malawi, Mauritius and Swaziland
• Intermediate countries (percentages between 50% and 65%)
Djibouti, Kenya, Madagascar, Niger Uganda, Senegal, Togo and
Zimbabwe.
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Shares of Ores, Metals in Exports
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Patterns of Commodity Exports III
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Commodity Prices I
• After reaching record highs in 2011, prices of raw
materials began to fall
• Slide accelerated in second half of 2014
• Was uneven depending on the raw materials concerned
• Should make a distinction between non-renewables and
renewables
• Prices for the first group fallen sharply -35% for base metals and
40% for oil between January 2013 and May 2015
• While limited decline for second, -5% for agricultural raw
materials and -20% for foodstuffs
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2014-15 Fall in Commodity Prices
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Commodity Prices II
• To measure differentiated effect of recent drop in raw mineral
prices:
• Calculate difference between exports and imports of non-renewables
and that of renewables
• A positive (or negative) score indicates the country a net exporter (or
importer) of these products
• Then calculate the difference between these two scores to
classify countries according to their vulnerability
• Classification:
• Countries very vulnerable – net exporters of non-renewables and
importers renewables – terms of trade worsening significantly
• Moderately affected – net exporters both renewables and nonrenewables
• Relatively unaffected –net exporters of renewables and net importers of
non-renewables
• No countries net importers of renewables and non-renewables – would
have been big winners.
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Vulnerability to Commodity Price Change
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Debt Situation I
• The cancellation of the debt of nearly 30 African
countries under the heavily indebted poor countries
initiative (HIPC) since 2000 and
• Acceleration in growth
• Have made it possible to bring overall burden of subSaharan debt within reasonable limits
• Region’s public debt/GDP ratio dropped from 66.7% in
2000 to 23.6% in 2008 – lowest in three decades
• Since 2009 has been a period of re-indebtedness along
with the reappearance of budget deficits
• After five years of surpluses, region’s public accounts
recorded a deficit of nearly 3% GDP over 2009-2014
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Debt Situation II
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Debt Situation III
• Turning away from concessionary loans from multilateral
institutions, some African countries including some
former HIPC countries have successfully taped financial
markets.
• Other countries took significant bilateral loans outside
Paris Club countries – China
• Bowers benefit from greater freedom in their borrowing
policy
• Particularly where their infrastructure requires
mobilization of a significant amount of capital.
• Facilitated by monetary easing applied in western
countries, and abundant credit, this renewal of debt
proceeded at very rapid pace
• Cost of these loans higher than that of loans obtained
from multilateral institutions or Paris Club countries
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Debt Situation IV
• These patterns could increase the region’s vulnerability
• Also recovery in US and the fall in oil prices already
beginning to lead to tightening of borrowing conditions
• Noticeable especially for oil-producing countries.
• Some countries will be forced to scale down their bond issuance
program
• Could delay their investment programs and will make it difficult to
refinance existing debts.
• Depreciation of certain currencies against the dollar
(currency in which international bonds are denominated)
further complicates the task since it increases the value
in local currency of repayments to foreign currencies.
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Diversification Efforts I
• Greater economic diversification reduces country
vulnerability to external shocks in raw materials prices
• Two possible diversification strategies
• Expand manufacturing sector, in particular upgrading the
agricultural sector favoring the agri-food industry
• Developing the relatively high value-added service sectors
• Manufacturing’s share of GDP is generally fairly weak in
Africa – average around 7.8% with significant gaps
between counties
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Diversification Efforts II
• Among economies were the production of manufactured
goods contributes most, not all have increased their
share of manufacturing in GDP since 2000
• Stability tends to suggest that manufacturing sector
could have difficulty in driving economy in the long-term
if production stagnates
• Some have seen this sector’s share in economy increase
in last 10 years, but this does not necessarily reflect
increased diversification
• Success of Southeast Asian countries has been based
partly on the expansion of manufacturing linked to
successful integration into global value chains (GVC)
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Share of Manufacturing in GDP
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Diversification Efforts V
• Integration of a country into global value chain enables
its businesses to focus on their comparative advantages
and create value added by transforming goods imported
from another country
• Two main indicators can serve to access a country’s
integration into GVCs
• Upstream integration used to measure share of foreign value
added in a country’s exports
• Downstream integration which is used to measure the share of
added value contributed by a country in the exports of other
countries
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Diversification Efforts VI
Strategies:
• Initially develop products with high labor intensity
(because of low wage costs) followed by
• An increase in value added content is a development model
which has enabled a number of countries, particularly East Asia
to create basis for sustainable growth
• Increased integration into GVCs seems to be a prior condition for
initiating a virtuous circle of growth and structural transformation
and for
• Generating a basis for job creation and inclusive growth leading
to genuine developments
• Unfortunately integration of sub-Saharan Africa into
GVCs generally weak because structure of exports
dominated by primary products and the poor
diversification of products exported
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Diversifiation Efforts VII
• There is a potential for strengthening this integration
through increased diversification of exports.
• The more different products that a country exports,
the more diversified its production structure and the
better it will be integrated into international trade.
• The number of products exported by the oil
producing countries is generally much lower than
that of non-hydrocarbon exporting countries.
• The diversification index is a UNCTAD indicator
• It is the number of products of which the valued
added of exports is
• Above USD 100,000 or
• Represents more than 0.3% of the country’s total exports
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Diversifiation Efforts VIII
• Diversification index is
• 36 for Equatorial Guinea,
• 70 for Chad and
• 82 for Angola
• while it is above 250 for South Africa
• Nigeria is an exception at 229
• Three newer industrializing countries stand out,
Uganda, Ethiopia and Rwanda -- For these
economies, diversification can be a key factor for
long term growth.
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Diversification Efforts VIII
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Services I
•
•
•
•
The service sector is dominant in African economies
For Sub-Saharan Africa, sector grew by 5.2% 2000-03
Agriculture grew by 5.1% and 3.5% for industry
Several countries have revised their national income
accounts, and services appear even more important than
previously thought.
• Particularly the case for Nigeria, Ethiopia, Ghana, Mozambique
and Kenya.
• Services account for more than 50% in more than half of subSaharan economies.
• In general the extractive economies – oil, minerals have
below average service sectors
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Service Sector More than 50% of GDP
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Services II
• A development model based on services is unusual
• The sector does not act as a driver in the early phases of
development
• However several countries have been able to increase
their level of development through high value added
services – India
• The lasting quality of economic growth and the positive
impact in terms of develop can be established providing
services provide high added value.
• Dominant sub-sectors in sub-Saharan Africa are trade
and public services
• Trade services usually underreported because many are
carried out in the informal sector
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Services III
• Appears that the share of trade in GDP is on a stagnating
or even falling trend in the richest countries.
• With exception of Angola, trade’s contribution to national
economy was the lowest in GDP in countries with highest
GDP.
• Conversely the share of trade grew in the poorest
economies.
• The trade sector, essentially retail trade is an activity with
low productivity and low value added
• Low productivity also prevails in public services (health,
education, administration). Offsetting this
• Good sources of employment
• Good in contributing to development
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Services IV
• Other services
• In general transport and communications activities
considered having a higher value added
• Financial series – limited development
• Only 8 countries have financial sectors accounting for
more than 5% of GDP
• Services to businesses also important in that they are
tradable. However very limited in sub-Saharan Africa.
• These services capable of driving other sectors –
improving transport and communications infrastructures
supporting the development of the financial system will
have a positive impact on industrial sector and even
agriculture.
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Public Services % GDP
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Transport & Communication Share of GDP
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Financial Services Share of GDP
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Service Exports % GDP
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Summary I
• Want to identify countries with both lower exposure to
recent fall in world commodity prices and which have
already begun a process of economic diversification
• 13 countries little affected by fluctuations of world prices
• Both efficient net exporters of renewable raw materials
and net importers of non-renewable raw materials
• For the manufacturing sector, those countries where
number of exported products more than tripled between
2000 and 2013.
• Uganda, Rwanda, and Ethiopia
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Summary II
• Success in services
• Where share of transport and communications services
in GDP is above 10% and has increased since 2005
• Where the share of financial services in GDP is above 5%
and has increased since 2005
• Where share of exports of services is over 40% of total
sales abrad and has increased since 2005 – Kenya only
country
• Several countries meet none of the total criteria
• They are exposed to fall in commodity prices and have
not diversified.
• Three countries meet all the criteria – Ethiopia, Uganda
and Kenya.
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Summary III
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