Africa’s impressive economic turnaround during the 2000s saw average gross
domestic product (GDP) growth more than double from just above 2% during the
1980s and 1990s to above 5% between 2001 and 2014. It was higher than general world
growth, just above 4%, and higher than Latin America and the Caribbean, just above
3%. But it was lower than for emerging and developing Asia at about 8% (See Box 1.1).
Africa’s growth has been held back by the hesitant global economy and political and
social conflicts. Export markets, notably in Europe but also in China, remained weaker
than expected in 2014. The unforeseen drop of oil and other commodity prices reduced
revenues for Africa’s commodity exporters. An outbreak of the Ebola virus, with Guinea,
Liberia and Sierra Leone at the epicentre, killed thousands at a high economic cost. In
a few countries political and security uncertainty continued while in some others it
stabilised. Furthermore, in some countries, improvements in the business environment
have stalled or even reversed while in many others framework conditions for doing
business made new progress (see Chapter 5).
As a result of these opposing factors, growth has remained strong in some countries
and moderate in others. Africa’s overall GDP grew 3.9% in 2014, up from 3.5% the previous
year. It should accelerate to 4.5% in 2015 and 5% in 2016, approaching levels seen before the 2008/09 global financial crisis. In sub-Saharan Africa growth was 5.2% in 2014. It is projected to weaken to 4.6% in 2015 and to strengthen again to 5.4% in 2016. Relatively
low growth in South Africa is reducing overall growth in sub-Saharan Africa by about
three-quarters of a percentage point. Excluding South Africa, sub-Saharan Africa’s
economy will grow by 5.2% in 2015 and 6.2% in 2016. This projection depends on the
world economy improving, oil prices gradually recovering and the Ebola epidemic in
West Africa being contained. If the virus spreads, if commodity prices fall further or if
political and security conflicts become more serious, Africa’s growth would be lower
than projected. The fragility of export markets, notably in Europe, and of global financial
markets also remains a risk.
Subdued global growth is expected to gradually strengthen, supported by increased
export demand. It is projected to accelerate to 3.5% in 2015 and 3.7% in 2016 from 3.3%
in 2014, mainly driven by the United States and a gradual recovery in Europe and Japan.
Among emerging markets, China and India should remain the fastest growing economies
but at a slower pace than in the past decade. World trade volume growth should recover
from 3.1% in 2014 to 3.8% and 5.3% in 2015 and 2016 respectively (IMF 2015). The lower oil
price is boosting growth in oil-importing countries but several, notably in the euro area,
still struggle with high debt levels and weak demand. Strengthened global growth will
support Africa’s exports but this will be more subdued than during earlier recoveries
when global growth was stronger and commodity prices were higher.
African participants in the Ifo Institute’s World Economic Survey1
predicted an
improvement in 2014 amid positive expectations. But in early 2015 both the assessment
of the current situation and expectations for the first half of 2015 deteriorated, which
shows that prospects are uncertain.
Africa’s growth is driven by changes on the demand side and the supply side.
Domestic demand has continued to boost growth in many African countries while
external demand has remained mostly subdued because of flagging export markets,
notably in advanced countries and to a lesser extent in emerging countries. Export
values of goods were also depressed by lower export prices (Figure 1.4). African exports
are expected to strengthen in 2015 and 2016 as the world economy improves. In 2014,
domestic demand was in most African countries boosted by private consumption and
public infrastructure investment with the latter also increasingly financed by issuing
international sovereign bonds (see Chapter 2).
On the supply side, many African countries have improved conditions for doing
business, which enhance long-term growth prospects. Benin, Côte d’Ivoire, Democratic
Republic of the Congo, Senegal and Togo are even in the top ten countries worldwide with
the most reforms making it easier to do business. Africa’s supply side growth in 2014 was
mainly driven by agriculture, extractive industries, construction and services, and to
a lesser extent by manufacturing. But sectoral growth should not be seen in isolation,
as there are important spillovers between sectors. Furthermore, modernisation and
structural transformation is also happening within some sectors.
Agriculture is Africa’s largest economic sector and accounts for around 60% of
Africa’s employment and about one quarter of its GDP. In recent years agriculture’s
GDP share has declined significantly in some countries, such as in Ethiopia, Ghana and
Nigeria. It has however increased in others, such as in Angola and Kenya. The sector
remains vulnerable to erratic weather and to international farm prices. In 2014, weather
conditions were quite good in most African countries although there were exceptions
such as Angola, Gambia and Mauritania. This, together with higher investment,
contributed to good harvests. The increased supply and lower import prices for food
also reduced prices for consumers. At the same time farmers’ export revenues were
depressed by lower international prices for products, notably cotton.
Resource-rich countries continue to depend on extractive industries although their
GDP share has declined in recent years. In 2014, these sectors were important drivers of growth in Algeria (oil), Botswana (diamonds), Democratic Republic of the Congo (copper,
gold, diamonds, oil), Republic of the Congo (Congo) (oil), Namibia (mining), Sudan (gold
and oil) and Tunisia (phosphate). In Ghana, oil production continued to increase but gold
production declined in response to the lower gold price. In Nigeria, the largest oil producer
in sub-Saharan Africa, oil production remained below target. In Zambia, a key copper
exporter, production stagnated. But Nigeria and Zambia achieved relatively high growth
due to buoyant non-extractive sectors. In Equatorial Guinea, which depends heavily on
extractive industries, the decline of oil and gas production and of GDP continued for
a second year. With the expected moderate recovery of the global economy and some
increase in international commodity prices, extractive sectors will continue to support
growth in 2015 and 2016 in most of Africa’s resource-rich countries even if its GDP share
may continue to decline.
Construction is an important driver of growth. Its share in GDP has increased in
recent years in most countries and is in some countries as large or even larger than the
manufacturing sector. This is due to booming infrastructure and housing investment.
The services sector is a principal engine of growth in most African countries. New
information and telecommunication technologies are boosting growth and productivity.
With more people in remote regions becoming connected and able to using mobile
banking, the technology also supports economic and social inclusion. Traditional
services, such as transport, trade, real estate, and public and financial services also
continue to grow and provide new jobs although often in the informal economy. In recent
years in many countries the shares of services in GDP has increased and in Nigeria it has
doubled since 2008.
Manufacturing remains relatively small in most African countries although this
varies. It tends to be smallest in less developed countries and where natural resources are
abundant. Although there is large potential to develop labour intensive manufacturing in
Africa, the sector is hampered in many countries by a lack of skilled labour, poor transport
infrastructure and unreliable and expensive energy (see Annex 1.A1. Energy sectors in
Africa: Problems and opportunities). In recent years, the share of manufacturing in GDP
has increased in several oil-rich countries, such as Angola, Chad, Gabon and Nigeria,
although from low levels. In some countries with above-average manufacturing, such
as in Morocco, the sector has expanded, while in others, notably South Africa, Lesotho
and Mozambique its share in GDP declined. In 2014 growth in several countries – such as
Kenya, Malawi, Morocco, Nigeria, United Republic of Tanzania and Tunisia – was boosted
by increased manufacturing production. But in other countries, such as Mauritania,
South Africa and Zambia, manufacturing’s performance cut growth. In Ghana the sector
suffered from extensive power outages.
Tourism is an important industry and it has been affected by economic weakness
in key markets, notably Europe, the Ebola outbreak and security problems in some
African countries. According to preliminary data, international tourist arrivals in
Africa increased in 2014 by around 2%, down from 4.8% in 2013 and less than half of the
2005-08 average of 5.8%. The 2014 increase was due to higher arrivals in sub-Saharan
Africa (around 3%). In North Africa tourist arrivals stagnated. In the Ebola affected
region of West Africa, tourist arrivals declined sharply, and almost halved in Sierra
Leone after years of double-digit growth, although from a low base. In North Africa,
arrivals increased 2% in Morocco but decreased again in Tunisia, by 3%.
In other countries tourism was adversely affected by domestic problems, such
as political uncertainty and security problems in Egypt and security concerns after
militant attacks in Kenya. The Ebola outbreak also reduced in tourism countries such
as Burkina Faso, Côte d’Ivoire, Gambia and Senegal which are around the epicentre of
the epidemic. Sluggish growth in Europe and other key origin markets affected tourism
in Mauritius, Namibia and Seychelles. But tourism remained strong in countries such
as Benin and Tanzania and boosted growth. The projected gradual improvement of the
global economy should help Africa’s tourism recover in the near future. For 2015, the
United Nations’ World Tourism Organization expects international tourist arrivals in
Africa to increase between 3% and 5% (UNWTO, 2015). Economic growth varies across Africa reflecting many factors such as differences
in income levels, availability of natural resources, macroeconomic policies, and
political and social stability. Growth remains highest in East, West and Central Africa,
respectively and lowest in North and Southern Africa. The main challenges in all regions
are to diversify and make growth more inclusive.
Central Africa’s growth accelerated in 2014 to 5.6% from 4.1% in 2013. Economic
conditions are, however, quite different between countries. The Central African Republic
is affected by a political and security crisis. Despite some moderate growth, GDP will
remain much lower than before the conflict broke out at the end of 2012. In Equatorial
Guinea, GDP continues to fall due to lower oil production. All other countries in the
region should remain on a relatively high growth path. Despite some damage from lower
commodity prices, the mining sector and related investment remain the main engines
of growth in the region. But in some of the countries, such as in Cameroon, Democratic
Republic of the Congo, Gabon, and Sao Tome and Principe, growth is broader based.
East Africa’s growth accelerated in 2014 to more than 7%, from below 5% in 2013. It
is projected to decelerate to 5.6% in 2015 and accelerate again to 6.7% in 2016. East Africa
will then again become the continent’s fastest growing region. East Africa recorded the
highest increase in foreign direct investment in 2014 (see Chapter 2). Fluctuations in East
African average growth are due to volatile development in South Sudan, where armed
conflict cut oil production and GDP in 2013. It recovered in 2014 but is projected to decline
again in 2015, although forecasts for this country are highly uncertain and depend on
the evolution of the peace process. Ethiopia, Kenya, Rwanda, Tanzania and Uganda kept
up their relatively high growth. As these countries have small mining sectors and their manufacturing is also not very large, or has declined as a percentage of GDP, their growth
is more driven by services and construction. But countries are achieving growth with
different degrees of sectoral transformation. In Ethiopia structural changes are most
pronounced with the share of agriculture in GDP shrinking (although remaining higher
than in the other countries) and services expanding more than in the other countries.
In Sudan, growth remains weaker as the economy is still coping with the shock of South
Sudan’s secession in 2011 and the loss of oil revenues.
North Africa’s growth remains uneven as fallout from the uprisings of 2011 is still
affecting countries. Libya is highly unstable with power struggles between different
groups and a collapse of political and economic governance. Its oil production declined
again in the first half of 2014. Despite some recovery in the second half, growth was
again negative in 2014 and prospects are highly uncertain. By contrast, in Egypt
and Tunisia greater political and economic stability is helping to improve business
confidence. The gradual recovery of export markets and improved security should
support growth, including in tourism, although in Tunisia terrorist attacks in March
have created new concerns. Algeria’s oil production increased for the first time in eight
years and is boosting growth together with the non-oil sector. In Morocco, agricultural
production declined in 2014 from its exceptionally high level in 2013 and reduced GDP
growth. But assuming normal harvests and better export markets, growth is expected
to accelerate. Mauritania continues to achieve the highest and steadiest growth in
the region, supported by favourable macroeconomic and structural policies. This was
mainly boosted in 2014 by parts of the mining sector (iron ore) and construction and
on the demand side by private consumption and private investment. The exceptionally
high total investment of around 45% bodes well for future growth.
Southern Africa’s growth slowed to below 3% in 2014 and only a moderate recovery
is projected for 2015 and 2016. The subdued performance is due to the relatively poor
growth in South Africa. The key economy’s growth fell to 1.5% in 2014 from 2.2% the
previous year. It suffered from weakened demand in trading partners and lower prices
for its raw materials, while labour unrest and electricity shortages disrupted economic
activity. South Africa’s growth is projected to recover gradually on the back of more
buoyant export markets and improved competitiveness due to the large depreciation
of the rand. In Angola, growth also decelerated due to the oil price fall, a temporary
reduction in oil production as well as a drought, which reduced agricultural production.
Angola’s growth is projected to remain lower than for most of the past decade as
government expenditures are depressed due to lower oil revenues. Mozambique and
Zambia are achieving the highest growth in the region. Mozambique is mainly driven by
so-called mega projects and large infrastructure investment, financed by foreign direct
investment and the government. In Zambia, good harvests boosted 2014 growth and
mitigated the effect of lower growth in mining, manufacturing and services. Growth is
expected to remain strong in both countries but more efforts are needed to broaden the
economy and make growth more inclusive.
West Africa achieved relatively high GDP growth of 6% in 2014 despite the outbreak
of Ebola in the region. The virus significantly reduced growth in the most affected
countries, Guinea, Liberia and Sierra Leone (Box 1.2). In Nigeria, Africa’s largest country,
growth accelerated to 6.3%, from 5.4% in 2013. It was again driven by the non-oil sector,
notably services, manufacturing and agriculture, which shows that Nigeria’s economy
is diversifying. Its oil and gas sector has declined to around 11% of GDP and is now a
similar size to manufacturing at around 10% of the total. Benin, Côte d’Ivoire, Niger and
Togo also remained on a relatively high growth path. But growth slowed in Ghana and
Gambia’s economy shrank slightly. West Africa’s growth is projected to become more
moderate in 2015 and to strengthen again in 2016, driven mainly by Nigeria. Commodity prices, which had started to edge down in 2013, fell sharply during the
second half of 2014. Weak demand from industrialised countries and emerging countries
such as China met with higher supply. Some commodity prices are now 40-50% down
from their peak level but are still higher than before the commodity price boom started.
Prices should gradually increase again during 2015/16 as the global economy strengthens
but this assumption is surrounded by a relatively high risk.
Oil prices have lost more than half the price of over USD 100 a barrel in mid-2014
to go below USD 50 at the beginning of 2015. The international oil supply has increased
significantly, notably due to higher US production of oil from shale, or “fracking”, while
traditional producers, notably Saudi Arabia, did not cut output in response to lower prices.
The higher supply of oil with the appreciation of the US dollar met with lower demand
due to subdued global growth. The AEO 2015 economic forecast for Africa is based on the
assumption that the price of oil will remain on average slightly below USD 60 per barrel,
around 40% lower than its 2014 average. For 2016 we assume a moderate increase to an
average of around USD 65 a barrel. The lower oil price affects economies through a number of channels. First it puts
downward pressure on other fuel prices, particularly natural gas. The lower prices
reduce costs for heating, transport and energy intensive sectors including agriculture.
As a result household purchasing power increases, and – if spent on domestic products –
GDP increases. Model simulations indicate that the fall in oil prices – if sustained – could
have a significant positive impact on world GDP.2
African countries benefit from lower oil prices, which eases inflation, increases real
incomes and strengthens export markets. However, Africa’s oil exporters have to cope
with lower government revenues. As oil profits decline, investment and exploration
could be cut which would reduce production in the longer-term. The oil price decline has
also weakened the currencies of oil-exporting countries, putting upward pressure on
inflation and reducing countries’ capacity to borrow. Monetary authorities in countries
with strong foreign reserves can mitigate currency depreciation by intervening in
exchange markets, although there are limits as foreign reserves are depleted.
Given these various transmission channels from oil prices to economic activity it
is difficult to quantify the overall impact of the lower oil price on economic growth in
Africa’s oil-exporting countries. Model scenarios produced by the African Development
Bank suggest that a permanent oil price decline of 25% causes GDP growth shortfalls
of between 0.6% and 2.7% for Africa’s main oil exporters (Table 1.2). As the AEO 2015
projections are based on a larger oil price decline, the impact could be more significant.
However, such simulations illustrate long-term effects on growth using general ceteris
paribus assumptions. So far, most African oil-producing countries have been relatively
resilient to the price decline and achieved relatively high growth in 2014. Oil production
often increased and growth was also boosted by non-oil sectors. The main adverse effect
has so far been on government revenues. If oil prices remain low this will reduce growth
in coming years, as governments will have to cut spending.