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AFRICA’S NEW FRONTIER: INNOVATION, TECHNOLOGY, PROSPERITY

THE INTERNATIONAL DEVELOPMENT RESEARCH CENTER – FEBRUARY 4 -5, 2010

Punam Chuhan-PoleThe office of the Chief Economist, Africa RegionThe World Bank Group

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Sub-Saharan Africa has seen a remarkable turnaround in economic performance

Introduction

• Average annual GDP grew from 2.5% in 1990s to 6% in 2003-2007.• Increased private sector activity• Progress on reducing poverty and on achieving the MDGs• Stronger leadership, greater focus on governance, more involved citizenry,

local solutions from local knowledge• Better policies, improved business environment, innovation and market-

based solutions, local solutions from local knowledge• However, there are several challenges:

o large differences among country performanceso little economic diversification and weak integration in the global

economyo history of volatile economic performance

• Recent crises threaten hard-won gains• A decade of progress points to Africa’s economic potential

3

-4

-2

0

2

4

6

8

10

12

14

2000 2001 2002 2003 2004 2005 2006 2007 2008

Mozambique Tanzania Ghana Botswana

-2

0

2

4

6

8

10

2000 2001 2002 2003 2004 2005 2006 2007 2008

Mozambique Tanzania Ghana Botswana

Strong and sustained economic growth 2000-08

Real GDP growth rates% of change

Source: Development Economics

Real GDP growth rate: select countries

Source: World Bank

Growth in LICs, MICs and oil exporting countries in SSA

Growth, %

Source: World Bank

% of change

Real GDP per capita growth rate: select countries% of change

Source: World Bank

4

30

35

40

45

50

55

60

65

1981 1984 1987 1990 1993 1996 1999 2002 2005

Declining poverty rate

Declining poverty rate in recent years

• A decade of sustained and accelerating growth led to declining poverty rate and improvements in some human development outcomes.

• The proportion of Africans living on $1.25 a day fell from 58 percent in 1995 to 50 percent in 2005. On current trends, poverty would fall to 38 percent in 2015. Well short of the MDG target of 28.8 percent.

Source: Development Economics Data, World Bank

Poverty rate in %

SSA

5

Progress towards education MDG

83.0 82.583.5 85.7 86.2 86.5

86.9

50556065707580859095

100

2001 2002 2003 2004 2005 2006 2007

Net E

nrol

lmen

t Rat

e (%

)

Source: UNESCO Institute for Statistics in EdStats, July 2009

WLD SSA

Net Enrollment Rate (primary education)

40

45

50

55

60

65

2000 2001 2002 2003 2004 2005 2006 2007

Primary completion rate, total (% of relevant age group)

Primary completion rate

Africa has made rapid progress in expanding educational coverage

Over 60 percent of children are completing primary school

The gender gap in primary schools continues to narrow

Source: WDI, World BankSource: UNESCO

In %

6

Primary school completion rates by country

0 20 40 60 80 100

KenyaZambia

Cape VerdeZimbabwe

Sierra LeoneLesotho

GhanaNamibia

Sao Tome and PrincipeSwaziland

NigeriaCongo, Rep.

Gambia, TheBenin

GuineaMadagascarMauritania

TogoCameroon

MalawiLiberia

UgandaMali

Congo, Dem. Rep.Comoros

SenegalSudanEritrea

MozambiqueEthiopia

Cote d'IvoireNiger

BurundiBurkina Faso

RwandaCentral African Republic

ChadGuinea -Bissau

Source: EdStats

Latest year

• There are large differences across countries in Sub-Saharan Africa

• Some countries in the region are unlikely to meet the education MDG

Primary Completion Rates SSA in %

King, E. 2010. Education Sector Strategy 2020

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Progress on controlling HIV HIV prevalence in SSA (1990 – 2007)

The prevalence rate of HIV/AIDS is stabilizing and declining in some countries

There has a been a rapid increase in measles immunization and progress in curbing malaria

There has been progress in reducing child mortality: child mortality fell in 24 countries

However, there has been little progress on reducing maternal mortality, which remains very high

Sub-Saharan Africa is off-track on meeting the health MDGs

Source: Africa Action plan 2009

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Favorable trends in trade and investmentMedian Private Investment in SSA (1970 – 2006) Trade Openness in SSA (1970 – 2006)

Source: Regional Economic Outlook, IMF

Source: Regional Economic Outlook, IMF

Source: Regional Economic Outlook, IMF

Exports from SSA (2000 – 2009)

9

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005 2006 2007

Foreign direct investment, net inflows in reporting economy (DRS, current US$)

Rising foreign direct investment inflows; record levels in 2008

FDI net inflows in SSA (2000 – 2007)• FDI inflows into Africa increased by 27% in 2007

• Inflows rose in 29 SSA countries• Increase was spurred by high commodity

prices and search for natural resources and record M&A investments

• Developed countries remained the main sources of FDI with an increased share coming from developing countries especially China.

• Several countries adopted policies that promoted private investment such as free industrial zones, privatizations and partnership with OECD countries

Source: WDI, World Bank

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2000 2001 2002 2003 2004 2005 2006 2007

Foreign direct investment, net inflows (% of GDP)

FDI net inflows as a % of GDP (2000 – 2007)

(US$ billion)

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Success in growth of ICT, especially mobile communications

• The annual growth rate between 2003 -2008 in both Internet and mobile services has been twice that of the world

• This dramatic growth is mainly in mobile telephony and voice services, but there has also been progress on internet usage

• In 1998 only South Africa had an operative mobile network with less than 4,000 subscriptions.

• By 2006, mobile subscriptions were around 100 million; in 2008 there were 246 million subscribers.

• Countries like Botswana, Mauritius, Seychelles and South Africa are approaching full mobile coverage

ICT growth in Africa and the world, 2003-08

3 6 11 18 3254

90132

201

8 11 1417

21

34

40

42

45

0

50

100

150

200

250

300

2000 2001 2002 2003 2004 2005 2006 2007 2008

Africa excluding South Africa South Africa

Mobile cellular subscriptions in AfricaICT penetration levels in Africa, developing countries and the world in 200

Source: International Telecommunications Union, 2009 Source: International Telecommunications Union, 2009

Source: International Telecommunications Union, 2009

2.4

47.0

30.6

2.5

23.0

17.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

Fixed telephone lines Mobile cellular subscriptions Internet users

Africa World

Millions of people

In percent

59.0

19.023.0

6.0 6.0

49.0

13.0 15.0

3.0 2.0

32.0

1.04.0

0.1 0.90.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Mobile phone subscriptions

Fixed telephone lines Internet users Fixed broadband subscribers

Mobile broadband subscribers

World Developing countries Africa

Prer100 inhabitants

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M-PESA– an innovative application

• An innovative application of mobile telephony is M-PESA, Kenya’s mobile money service. Customers can use their phones to:

• transfer money• check account balances• pay bills• make deposits and withdrawals from their personal accounts

• Since its introduction in 2007, $1.6 billion (equivalent) in transfers have been conducted through M-PESA

• M-PESA has successfully tapped into the demand by urban Kenyan’s remit funds to to their families in the rural areas

• The market for mobile money transfer systems is growing—e.g., Zap money (Zain) which can be used to make payments at super markets

• Other applications are being developed

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Signs of financial deepening, but financial markets remain shallow

Source: Beck and Domrigic-Kunt, 2009Note: this graph shows the median of liquid liabilities to GDP, bank deposits to GDP, and private credit to GDP across SSA for each year

Financial deepening in SSA 1995 - 2007

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Quality of policies and institutions—the CPIA

3.3 3.3 3.3

3.4 3.4

3.3

3.2 3.2 3.23.2

3.23.1 3.1 3.1 3.1

3.03.0 3.0 3.0 2.9

2.7

2.8

2.9

3.0

3.1

3.2

3.3

3.4

3.5

2004 2005 2006 2007 2008

Economic management Structure policies

Social Policies Public management and institutions

Average per cluster of CPIA scores (2004-2008)

Source: World Bank Group

Improved performance on macroeconomic managementGovernance and public sector capacity remain weak

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Transparency, accountability and corruption

KK Regulatory index for select SSA countries (2004 – 2008)

Corruption Perception Index for select countries in SSA (2004 – 2008)

0

1

2

3

4

5

6

7

2005 2006 2007 2008 2009

Average Mauritius Sudan Ghana

Botswana Nigeria Congo, Rep.

On

a s

cale

of

1-7

(7 b

ein

g b

est)

In %

Source: Transparency International

Source: WDI, World Bank Group

0

10

20

30

40

50

60

70

80

2004 2005 2006 2007 2008

Mauritius Ghana Cape VerdeAverage Nigeria SudanCongo, Rep.

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Improving trends in competitiveness

Source: Global Competitiveness report, 2010

Improved business environment in SSA (2004 – 2008)

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0 2 4 6 8 10 12 14

Cameroon

Botswana

CAR

Gambia, the

Togo

Ethiopia

Liberia

Mauritius

Burkina Faso

Senegal

Madagascar

Rwanda

2008 2010

SSA 2008 average

Reformed business environment

0 20 40 60 80 100 120 140 160 180

Mauritius 24 to 17; 6 reforms

Mali 162 to 156; 5 reformsSierra Leone 156 to 148;

5 reforms

Burkina Faso 155 to 147; 5 reforms

Zambia 90 to 99 Liberia 159 to 149; 5 reforms

Rwanda 143 to 67; 8 reforms

Madagascar 144 to 134; 2 reforms

Who reformed the most in Africa in 2008/2009?

Improvement in the ranking on the ease of doing business, DB 2009-DB2010

Share of economies making at least 1 reform improving the business environment in the past 5 years(%)

Source: Doing Business Report, 2010

Number of days to open a business (2008-2009)

SSA 2010 average

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Even without the crisis, Africa faces many development challenges

0

50

100

150

200

250

300

350

Paved road density

Total road density

Generation capacity

Electricity coverage

Improved water Improved sanitation

Infrastructure deficit

SSA’s LIC Other LICs

Source: Africa Action Plan 2009

Source: Africa Action Plan 2009* Road density is in kilometers per kilometer squared; telephone density is in lines per thousand population; generation capacity is in megawatts per million population; electricity, water and sanitation coverage are in percentage of population

• Despite progress in many areas, the region faces serious development challenges

• A large infrastructure deficit, especially in energy and transportation, and constraining business regulations

• Little growth in productive employment —particularly troubling since 7-10 million young Africans enter the labor force each year

Measure of Infrastructure*

Population Pyramid in SSA in 2005 (UN)

10 5 0 5 10

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

Age

Male (%) Female

Population Pyramid in More developed regions in

2005 (UN)

10 5 0 5 10

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

Age

Male (%) Female

Youth unemployment

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Agricultural productivity

• Agricultural sector is finally growing after decades of stagnation: agricultural GDP accelerated from 2.3 percent in the first part of this decade to nearly 4 percent in the second part. Agricultural output per worker has also been rising: 13 countries saw growth of over 3 percent a year in 2003-07

• Lagging agricultural productivity; high dependence on rain-fed agriculture—only 5% of cultivated land is irrigated--increases vulnerability to extreme weather events. Use of technology for development will be key.

• Africa may be the continent worst hit by climate change. Climate change threatens Africa’s hard-won gains and prospects.

• The delivery of basic services continues to fail poor people

• Cutting across all these factors is weak governance and public-sector capacity

Source: African Action Plan 2009

100

120

140

160

180

200

220

240

260

280

100 120 140 160 180 200 220 240 260 280Area (1961-65=100)

Yie

ld (

1961-6

5=

100)

ASIAAFRICA

2001-04

2001-04

2.8

0.40.2

2

0

0.5

1

1.5

2

2.5

3

Area expansion Yield Increase

SSA Other LDC

Lagging agricultural productivity

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A slowdown in growth has serious consequences in the continent …

• The global crisis has impacted Africa: growth fell from 5.1% in 2008, to an estimated 1.1% in 2009

• Growth is expected to rebound in 2010 to 3.8% and rise to 4.6% in 2011, but will remain below trend growth rates

• Virtually all countries in the region experienced a significant slowdown in economic growth in 2009

• Per capita GDP is estimated to have declined in 2009, the first time in a decade• An additional 8 million to 10 million people may have fallen into poverty and

higher number of hungry people• An additional 30,000 to 50,000 infants are likely to die before their first birthday• School enrollments will suffer—especially for girls• Such setbacks in nutrition, health, and education can have serious irreversible

effects on human development outcomes• Hard-won gains on the MDGs are at risk

20

-4.9

-10.3

-2.2

-8.7

1.5

5.1

-2

-12

-10

-8

-6

-4

-2

0

2

4

6

SSA Oil- exporting LIC Nigeria Cote d'Ivoire Liberia Senegal

6.5%8.1%

1.1%

7.4%

3.4%

35.2%

8.2%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

SSA Senegal Sierra Leone Liberia Guinea-Bissau Gambia Nigeria

The main channels through which the crisis is impacting Africa Lower remittances in 2009

Decline in tourism – % change in tourist arrivals inJan – April 2009 from equivalent prior year period

-35

-30

-25

-20

-15

-10

-5

0Gambia Tanzania Mauritius* Kenya Senegal

Source: Africa Action plan 2009Notes:* Time period from Jan 09 – March 09

Change in current account as a percent of GDP: difference between the average of years 2004-08 and 2009 projections

Source: Sub-Saharan Africa Weathering the Storm , Regional Economic Outlook, IMF (2009)

Source: Protecting Progress: The Challenge Facing Low-Income Countries in the Global Recession, World Bank, 2009; Migration & Remittances database, Development Prospects Group.Note: *2009 (Jan – Dec) estimation

SSA Selected countries

• The crisis is hurting Africa through: reduced capital inflows—FDI fell from a peak of $32.7 billion in 2008 to around $26 billion in 2009; declining remittances and tourism; and weak export demand and lower commodity prices

• The impact of lower remittances on countries such as Senegal, Togo, Lesotho, and Sierra Leone, that receive more than 5 percent of GDP in remittances, could be severe

• Balance of payments and fiscal positions are being affected, especially those of Africa’s mineral exporters

% o

f ch

an

ge

% o

f ch

an

ge

% o

f ch

an

ge

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Response to the crisis

Generally, African governments have continued to pursue sound policies in the face of crisis. The focus is to minimize growth shortfall, protect the poor and prepare for the growth recovery• Countries with fiscal space (e.g. South Africa, Tanzania, Zambia) running modest fiscal

deficits• Those without (e.g. Ghana), contracting• Those with well-functioning safety nets (e.g. Ethiopia, Sierra Leone, Liberia), scaling up• Some countries (e.g. Nigeria) accelerating reforms

The World Bank Group has moved quickly to supporting countries through a range of lending and advisory activities; the mix of instruments is country specific

• Front-load IDA in FY09 to a total of $7.8 billion (17 countries at 110+ percent of FY09 allocation)

• Knowledge assistance on contingency planning, protecting the poor and benefiting from a global recovery

• Initiatives such as the Global Food Price Response Program to fast track support• Partnerships—collaborating with MDBs and other development partners to leverage IDA

resources to achieve common development objectives

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The way forward

An effective global response requires

i) Mobilizing additional resources

The region needs additional concessional resources ($20-30 billion)• $20 billion short of Gleneagles pledges• Need for additional resources beyond existing ODA commitments• Additional $8 billion to restore losses from crisis

» Losses in revenue to finance pro-poor expenditures» Losses in income of those who fall below the poverty line

ii) Other key priorities

A multilateral trading system more supportive of development—successful completion the Doha Round

Agriculture and food security—success requires a multidimensional approach (as demonstrated by the GFRP); LÁquila Initiative

Provision of timely and flexible support for LICs following crises

Strengthening regional integration and seeking regional solutions