2015: Challenges and Opportunities for Africa

February 25th, 2015

Present to business community in Tokyo

By Supee Teravaninthorn

Outline

1. Sustaining growth after the end of the commodity super cycle

2. Making that growth more inclusive

3. Rebuilding after Ebola and building better health systems

4. Promoting security and addressing new kinds of conflict

5. Managing the demographic boom and urbanization

6. Preserving the environment as the climate changes

7. Managing political risk in an election year

8. Business opportunity in transport sector

I. Sustaining growth with lower commodity prices

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1.7

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Actual Trend

Growth in GDP per capita in SSA by country groups, 1995-2013 (Output per capita index, 1995=1)

Buoyant commodity prices provided significant tailwinds to Africa’s rise during the 2000s.

I. Sustaining growth with lower commodity prices

50

60

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All Commodities Agriculture Energy Metals Crude Oil (WTI)

Tailwinds have turned to headwinds

• Oil prices have fallen by 50% in four months

• During 2014:• Iron ore price down by 47%• Copper price down by 23%• Cotton price down by 28%

• Africa is a net exporter of these commodities

I. Sustaining growth with lower commodity prices

Challenges:

• Lower output growth - as value of commodity production lower

• Fiscal contraction – fiscal revenues for a numbers of large oil producers reduce => recessionary pressure

• Currency devaluation – macro adjustment to negative ToT.

• Inflation (ambiguous) – expected to fall as oil price falls. Except countries with significant devaluations could cause inflation to rise

• Reduced FDI – FDI in Africa in the last decade was related to investment in extractive sector. If oil price remains low FDI inflow may pause

Opportunities:

• ToT gainers – Net importer of oil will benefit as imports are cheaper, their currencies might appreciate somewhat, signaling increase in real wages, moderately higher growth can be expected

• Manufacturing sectors and economic diversification may gain in countries negatively affected, as a result of devaluations that make their output more competitive => incentives for diversification

• Phasing out oil related subsidies can be achieved more easily when international oil price fall.

• Protecting the poor from adjustment – although the poor in oil exporting countries didn’t benefit much from the oil boom, they may now suffer the consequences of the bust => need to implement appropriate social protection policies

Oil \ other commodities Exporter Importer

ExporterDRC, Mauritania Nigeria, Angola, Chad

Importer South Africa, Zambia,

Mali, Ghana

Ethiopia, Kenya,

Rwanda

Impacts are heterogeneous

II. Making that growth more inclusive

a) Promoting growth in the places and sectors where the poor live and workb) Harnessing the power of growth taking place elsewhere for poverty reduction

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Total working

Agriculture Industry ServicesSource: World Bank, Africa’s Pulse vol. 10. International Income Distribution Database.Notes: The numbers correspond to working age (15-65) population weighted averages of the most recent survey between 2002 and 2012. Average of 33 (20) SSA countries and 66 (41) other developing countries for total working (working poor).

Sectoral composition of the labor force (15-65)

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Manufacturing Services

III. Rebuilding after Ebola and enhancing the resilience of health systems

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2014 Original Estimate 2014 December Estimate

2015 December Estimate

Priorities

• Getting to zero cases• Economic reconstruction• Strengthening health systems

Economic impact: catastrophic in the core three countries; more muted elsewhere.

IV. Promoting security given new kinds of conflict

Conflict is (once again) on the rise in SSA

• Increase in attacks against civilians (over 4,000 events in 2014). Targeting of civilians at over 60% of organized violence in Central African Republic, Sudan and Nigeria. Number of civilian fatalities also increased in 2014 to over 13,500 fatalities, a significant rise from over 9,400 civilian fatalities in 2013.

• Political militias were the most active armed group in 2014, accounting for 38% of organized armed violence. In this category are groups such as BokoHaram in Nigeria; and Seleka and Anti-Balaka in the Central African Republic.

• 2014 experienced a significant rise in remote violence. ACLED defines it ‘as a violent event where a spatially removed group determines the time, place and victims of attack using an explosive device’. High prevalence in Somalia, Nigeria, and Sudan.

Fatalities in Nigeria by Category, 1998-2014

Source: Nigeria Social Violence Project.

V. Managing the demographic boom and urbanization

• Africa’s population growth rate remains the highest in the

world, at 2.65% p.a.

• Eighteen countries have fertility rates > 5.

• Urbanization:• 1.23 billion urban residents by 2050?

• Can Africa shape its cities for better livability and higher productivity?

• Are the biggest cities too dominant?

VI. Preserving the environment as the climate changes

• Increasingly frequent droughts bring food insecurity to millions of people (37 droughts in 2005-09; 27 in 2010-2014)

• Health impacts of urban air pollution (indoor and outdoor) among highest in the world

• High dependence on natural resources → about 30% of incomes for the poorest quintile comes from forests, rangelands, or fisheries

• Land degradation rates rising → reducing agricultural yields

• Climate change - annual 1-2 % loss of the region’s GDP and will escalate absent adaptation (IPCC estimates)

Source: WHO (2007): Global Burden of Disease Project Report

Share of Disease Burden associated with Environmental Sources

VII. Managing political risk in an election year

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BFA

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2016

2015

Elections in Sub-Saharan Africa

General and presidential elections are scheduled in 12 of the region’s countries in 2015, and in an additional 10 countries in 2016.

Nigeria’s ballot is scheduled for this February, with President Goodluck Jonathan running for his second four-year term.

In the Central African Republic, which faces a critical transition to stabilize the country, elections were postponed from February to June –July of this year.

Burkina Faso has scheduled elections in October, after President Blaise Compaore(who was in power from 1987 to 2014) resigned over protests against his attempts to change constitutional term limits.

VIII. Business Opportunity in Transport SectorLending plan in the next 3 years

• Eastern Africa – fastest growing: Ethiopia: Expressway, Urban Transport in Addis Ababa Kenya: Secondary Road, Nairobi airport expansion Tanzania: Dar es Saalam Port Improvement, Urban transport Uganda: Albertine Oil Infrastructure S. Sudan, Rwanda, Burundi – Small but good potential

• Southern cone: Malawi, Zambia, Mozambique

• DRC – Goma airport, opening up of priority road program

• Cameroon and CEMAC area – An IBRD loan to Cameroon

• Western Africa: Cote d’Ivoire - good opportunity to engage in urban transport and railway Ghana – Major roads PPP potential Mali – rural access Senegal- Urban transport

• Regional Integration and transport corridor projects Kenya-south Sudan road link EAC transport corridor – connection around the Great Lake Victoria Gulu – Kisangani road Dakar-Bamako railways