Reflecting the weaker global economy, the negative effects of low commodity prices in 2001, drought in East and Southern Africa and armed conflict in several countries, the performance of African economies fell short of expectations in 2002. External factors, such as the decision by the US to increase agricultural subsidies and the stalled World Trade Organisation (WTO) negotiations on reforming farm trade, do not bode well for the continent, notes the Economic Report on Africa 2003, released 30 July in Addis Ababa, Ethiopia, by the UN Economic Commission for Africa (ECA).
Gross domestic product (GDP) growth averaged 3.2% in 2002, down from 4.3% the previous year, the Commission's annual report notes. Since 2000, the performance of agriculture, the mainstay of African economies, has been weak. This has been attributed to severe flooding in Algeria, Kenya and Senegal and to drought and dry conditions in Botswana, Ethiopia, Lesotho, Malawi, Mauritania, Namibia, Niger, Swaziland, Tunisia, Zambia and Zimbabwe. Agriculture grew a meagre 0.8% in sub-Saharan Africa (excluding South Africa), far below the sector's average of 3.9% in 1992-96, the report states.
"The US decision in May 2002 to introduce a six year $51.7 bn farm bill boosting crop and dairy subsidies by 67% doesn't help Africa's prospects," the Economic Report on Africa 2003 notes. "The subsidy will reduce agricultural prices making it difficult for small African countries to compete," states ECA, adding its voice to growing pressure on industrial countries to eliminate trade-distorting subsidies. In 2001, countries of the Organization for Economic Cooperation and Development spent $311 bn on agricultural subsidies, more than sub-Saharan Africa's $301 bn GDP for that year. According to the Commission, failure to achieve significant progress at the WTO negotiations on farm trade -- by far the most important issue for developing countries -- further weakens Africa's prospects.
Africa's lower overall growth rate also reflects the poor performance of four of the region's five largest economies -- Algeria, Egypt, Morocco and Nigeria. Algeria registered a decline from 5% in 2001 to 2.7% in 2002 due to floods, political and religious tensions, and weak competitiveness in the industrial sector, ECA reports.
Egypt's economy grew by 3%, down from 3.5% the previous year due to higher domestic interest rates, sluggish private sector growth, "regional insecurity, and a lack of political will by the government to implement far-reaching economic and social reforms" such as privatization and trade liberalization, the report states. Morocco registered a decline in growth from 6.5% to 4.3% and Nigeria's economy was down from 4% to 2.6%.
South Africa, which accounts for 35% of the GDP of the continent's five largest economies, grew by 3% in 2002 up from 2.5%. However, economic growth was hampered by sluggish performance in the euro area, an important market for South Africa, and by the appreciation in the value of the rand against the dollar, reducing the competitiveness of the country's exports.
Only five of the continent's 53 countries achieved 7% growth, the level required to achieve the international community's target for reducing poverty, known as the United Nations Millennium Development Goal. The five are Angola, Chad, Equatorial Guinea, Mozambique and Rwanda. Another five countries -- Gabon, Guinea-Bissau, Madagascar, Malawi and Zimbabwe -- registered negative growth in 2002. The report contains in-depth country analyses for Egypt, Gabon, Ghana, Mauritius, Mozambique, Rwanda and Uganda.
Released shortly after US President George W. Bush's first official visit to Africa where he pledged his country's support, the report urges donor countries to live up to commitments to increase official development assistance to the continent.
The US has pledged an extra $12 bn a year in aid to developing countries beginning in 2006. Canada announced last year that it would commit an additional CAN$66 bn to Africa over five years. Members of the European Union have announced they will meet or exceed their current average commitment of 0.33% of gross national income to aid by 2006. "The challenge is to ensure that these commitments actually become available and are deployed more effectively than in the past," the report notes.
While 2001 was a tough year globally for tourism, Africa performed strongly. Tourist arrivals fell by 0.6% worldwide, but the continent saw an 8.1% increase during the first eight months of 2001. Overall, arrivals grew by 4% in 2001 while tourism receipts rose by 8.8% in Africa as the sector continued a decade-long strong growth pattern. Between 1990 and 2000, African tourism grew at an annual rate of 6.2% compared to the world average of 4.3%.
The ECA report states that monetary policy in Africa has been relatively sound. Inflation has been reduced to single digits in several countries. The number of African countries with double digit inflation fell from 30 in 1995 to 11 in 2002 and 26 countries achieved inflation rates of less than 5%.
Burkina Faso, Cape Verde, Central African Republic, Djibouti, Egypt, Gabon, Kenya, Mali, Morocco, Niger and Rwanda had less than 3% inflation, while Ethiopia and Uganda had negative inflation rates. At the other extreme, the Democratic Republic of Congo registered 27.7% inflation, Angola 108.5% and Zimbabwe 137.2%. All three countries were in the midst of political or armed conflict.
A number of economic and political factors have encouraged the ECA to forecast an improvement in economic performance in 2003. Growth is expected to reach 4.2%. Factors include:
-- A reduction in conflict on the continent. A ceasefire was declared in Angola after the death of rebel leader Jonas Savimbi of UNITA. Peace has returned to the Horn of Africa with cessation of hostilities between Ethiopia and Eritrea. And the Democratic Republic of Congo and Rwanda signed a peace agreement in July 2002.
-- An increase in the number of countries receiving debt relief under the Heavily Indebted Poor Countries initiative, freeing up resources for social spending.
-- A "bottoming out" of the global slowdown. Economic growth is expected to improve in the major regions of the world by the third quarter of 2003, spurring economic activity in Africa through increased trade and aid.
-- A decision by six West African countries to form a monetary union in 2005, a decision likely to improve macroeconomic policies in the region.
-- A significant recovery in commodity prices since 2002. The World Bank price index for petroleum rose from 84.4 in the last quarter of 2001 to 117.7 in the third quarter of 2002. The index for non-energy commodities increased from 75 to 84.9 during the same period.
On the other hand, the report points to several factors that may pose risks for improved economic growth in the region:
-- The deteriorating situation in Cote d'Ivoire and Zimbabwe.
-- The US decision to increase agricultural subsidies.
-- Inflationary pressure in the major economies of South Africa and Nigeria.
-- Renewed incidents of flooding and drought in some parts of the continent.
-- The high probability of an El Niño phenomenon in 2003.