African growth will hit 6% this year, says report: this year's African Economic Outlook, compiled by the African Development Bank and the Organisation for Economic Cooperation and Development, paints a positive picture of the continent's overall performance over the past year. Neil Ford reviews the report

African Business, Oct, 2007 by Neil Ford

The annual report on the state of the African economy by the African Development Bank (AfDB) and Organisation for Economic Cooperation and Development (OECD) has been a cause for optimism in recent years. After many years of disappointing growth, the AfDB/OECD investigation has begun to paint a more optimistic picture of the continental economy.

This year's report sees this trend continue, with average economic growth across the continent predicted to continue rising, as levels of private investment increase on the back of improved fiscal policy in many countries.

According to the AfDB/OECD figures included in the African Economic Outlook 2006/2007, economic growth has averaged about 5% since 2000 and rose to 5.5% in 2006.

This increase is more important than might be imagined, as it is generally considered that real benefits in living standards in developing countries are only achieved when growth exceeds 5%, partly because rapid population growth absorbs a large proportion of growth, as a result of the greater strain placed on resources.

The latest report predicts that growth will reach 6% for this year, although the report's authors argue that even higher rates are required. Louis Kasekende, the chief economist of the AfDB, says: "The continent still needs to accelerate and sustain growth to the level of 7-8% to be able to achieve the Millennium Development Goal (MDG) of halving the proportion of people living in extreme poverty by 2015."

Nevertheless, this year's report indicates that growth has been spread across the continent and has been strong in key sectors. Although high demand for oil, gas and mining products generated a large proportion of the additional economic activity, the agricultural sector across the continent as a whole had a good year, partly as a result of good weather conditions. Most Africans continue to work in agriculture in one form or another, so good harvests and higher prices for agricultural commodities help to provide employment, secure food supplies, higher export revenues and support for rural economies.

The continent's net oil exporters benefited from high oil prices to record average economic growth of 5.9%, but the performance of the net oil importers was not much worse at around 5.2%. Although the import of refined petroleum products places a heavy burden on many economies and drives up the cost of almost all products because of higher transport costs, the latest figures indicate that economic success is possible under such circumstances. The governments of weak or slow growing economies merely point to high fuel costs when they are under pressure, but fuel expenses are generally not the determining factor in an economy's success or failure.

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Smaller countries post bigger growth

Growth averaged 5.1% in Africa's four biggest economies: South Africa, Algeria, Nigeria and Egypt, which collectively account for about half of the continent's GDP. However, it is encouraging that the continent's smaller economies recorded even stronger performance, recording average growth of 6% in 2006. Egypt had a particularly good year in 2006, recording growth of 6.8%, as did Morocco with 7.3%; while growth in North Africa is expected to remain at 6% during 2007 and 2008 because of higher oil production in Mauritania and Sudan.

The East African economy grew by 5.1% in 2006, again led by strong growth in Tanzania, Uganda and Ethiopia, although the end of the Multi-Fibre Agreement and greater competition from Asian textile producers affected the economies of Mauritius and Madagascar. Nevertheless, the African Economic Outlook report predicts higher regional growth of 5.8% and 6% in 2007 and 2008 respectively.

Neighbouring Central Africa had a less successful year in 2006, with the lowest growth of any region of just 3.9%. However, this is expected to increase to 5.2% this year and 6.3% next, partly because of higher donor support for the Democratic Republic of Congo.

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West African economic fortunes are heavily reliant on the health of the Nigerian economy, given that country's huge population and so the ongoing Nigerian recovery has helped to buoy overall regional performance. Nigerian growth of 5.3% in 2006 was driven by high oil prices, although instability in the Niger Delta curtailed production on some fields. At the same time, the emergence of a significant gas sector, banking sector reforms and the privatisation programme all began to pay dividends.

The AfDB and OECD expect the Nigerian economy to grow by 7% this year, with improved performance from the agricultural and service sectors. This should help to push up regional growth from 4.8% last year to 5.9% for 2007. In addition, the Ghanaian economy continues to go from strength to strength and reconstruction efforts in Liberia and Sierra Leone should provide further engines of growth. The resolution of the political and security crisis in Cote d'Ivoire could allow the economy of that country to rebound but this looks an outside bet at this stage.