Is African growth sustainable? Louis Kasekende Chief Economist, AFDB

Outline of Presentation and Key Messages 1.Highlights of Macroeconomic Developments Key Message: Economic Activity continues on an Upward Trend 2.Is Growth Sustainable? Key Message: A Cautious Yes – at least in the short term. But growth not high enough to attain MDGs ;other emerging challenges 3. The role of AFDB and partners

1.Highlights of Macroeconomic Developments

Introduction  “Africa is ready for business” given its changed landscape in recent years.  With sustained macroeconomic and structural reforms, economic fundamentals are catching up with other parts of the world.  Democracy is growing; conflicts have reduced significantly.  Pessimism on the continent is being replaced by greater optimism - the 21 st century will be the “African century”.

Some Positive Developments with Sources of Growth Progress towards Macroeconomic Stability External Conditions Favourable Progress towards political stability 1) Africa’s Economic Growth Rate continues on upward trend…… Macroeconomic management is improving: Inflation under control amid moderate rise; emerging varying challenges...

Public finance management is generally good and improving…….  External balances are quite stable……

2.Is Growth Sustainable?

Selected countries with real GDP growth above 5%; and real GDP per capita above 2%

Frequency distribution  Fewer countries recording negative growth  Increasing number growing at rates per capita above 2 % (34 Countries) and at real rate above 5% (23 Countries)  Population growth remains high Africa : Real GDP Growth Rates Africa : Real GDPper capita Growth Rates (Number of Countries) a/ a/ Negative16911 Negative to Above Above Not available1222 Above Total53 Total53

….. African economies face major development challenges and are still vulnerable……  Meeting the MDGs – a major challenge for most African countries  Only 12% satisfactory rate towards reducing extreme poverty by half  Global imbalances  Commodity prices volatility (increased oil prices, decreasing cotton prices…)  Exchange rate uncertainties: $ depreciation, euro appreciation,  Trade challenges: difficulties in reaching agreements on the Doha Round; developing Africa’s capacity to trade; new competitors  Domestic sources of instability  Limited diversification  Unfinished reforms agenda  Natural Hazards – drought; locust invasion

…….Further Reforms and Policy Actions Needed……. Maintain stable macroeconomic framework Maintain stable macroeconomic framework Redefine sources of Growth Redefine sources of Growth Prudent use of windfall gains is essential Prudent use of windfall gains is essential Increase momentum of structural reforms and improve investment climate Increase momentum of structural reforms and improve investment climate Regional cooperation and integration efforts need to be strengthened Regional cooperation and integration efforts need to be strengthened More efficient use of resources for human capital development More efficient use of resources for human capital development More coordination between Development partners More coordination between Development partners

3. The Role of the AfDB and Partners

Background  Africa’s premier financial institution, est. in 1964/AAA Rating  Third largest source of multilateral assistance to Africa

 Strategic Orientation of the Bank  Lending operations continue to focus on poverty reduction and sustainable economic growth, but with a sharper focus on  Infrastructure  Regional integration  Private sector  Governance  In 2006, overall Bank Group approvals for loans, grants, guarantees, equity investments and debt relief amounted to US$3.9 billion  Fragile states: the Bank is taking a lead in engaging with fragile states

 The Bank is one of the prime movers in ensuring that key policy contours of NEPAD are clearly defined and implemented  The Short-Term Action Plan (STAP) provides the primary basis for the Bank’s intervention in regional infrastructure.  STAP is complemented with capacity building projects, infrastructure services and development and facilitation programs with investment projects worth more than US$8 billion.  For the medium to long term, the Bank is defining the NEPAD Infrastructure Medium to Long Term Strategic Framework (MLTSF).

 To fast track regional infrastructure project preparation a multi-donor Project Preparation facility( i.e. NEPAD IPPF). Has been established.  By the end of 2006, funding of approximately USD 3.7 million has been approved for the preparation of eight physical projects.

Conclusion Africa doing better – due to favorable external environment but, as importantly, due to internal factors Africa doing better – due to favorable external environment but, as importantly, due to internal factors Prospects for sustained improvement are good Prospects for sustained improvement are good African countries need to deepen reforms and carry out remaining structural reforms; African countries need to deepen reforms and carry out remaining structural reforms; Africa’s development partners should maintain support in line with commitments Africa’s development partners should maintain support in line with commitments