AFRICA: MACROECONOMIC OVERVIEW

A major economic transformation has taken place in Sub-Saharan Africa in the pastdecade. Thirty-five out of 48 countries in the region are undertaking reform programsaimed at stabilizing their economies, liberalizing exchange rates, freeing the productiveenergies of the private sector and opening up to trade and investment. A number ofcountries are achieving impressive results. However, economic transformation in Africaremains fragile.

Most African countries enjoyed favorable terms of trade and adequate growth in theyears following independence from colonial rule. However, much of Africa encounteredeconomic difficulties by the end of the 1970s and crises of serious proportions by theearly 1980s. The combination of poor economic management and external shocks such asdrought, the oil crisis and the collapse of international prices for key exportcommodities of many African nations caused an overall decline in per capita income, suchthat the 1980s is considered a difficult decade for Africa.

In the mid-1980s many African countries undertook programs of economic reform withguidance from the International Monetary Fund and the World Bank, but reform efforts hadineffective results. A number of strong reformers recently have registered more impressiveresults, reflecting the growing consensus among African leaders, bilateral donors andmultilateral institutions on the measures required to stimulate sustainable economicgrowth and development.

Economic reform is paying off in the form of revived growth. After years of stagnationand declining per capita income, economic growth has outstripped population growth since1995. Real GDP growth averaged 3.4 percent in 1995, 5.6 percent in 1996, and is estimatedat 4.5 percent for 1997. This compares with average population growth of 2.4 percent.Growth in Africa is increasingly widespread, and 31 Sub-Saharan countries registeredpositive per capita income growth in 1996. Inflation has dropped to moderate levels inmost countries.

Nevertheless, Africa continues to face challenging economic problems. Almost half ofthe region's population falls below a basic standard of poverty, living on less than $1 aday. The World Bank estimates that sustained growth of at least 8 percent or 9 percentannually is needed to make significant progress in reducing poverty.

Sub-Saharan Africa carries the heaviest debt burden -- relative to debt servicecapacity -- of any region in the developing world. The stock of external debt owed by theSub-Saharan countries -- $235 billion at year-end 1996 -- is small relative to the levelof global capital flows to developing countries, but it represents nearly three times theregion's annual exports of goods and services. Debt service payments absorb resources thatmight otherwise be available for spending on health and education.

Many African countries retain economic policies with a bias against exports and theprivate sector, although this is changing. Africa lags the rest of the developing world inliberalizing tariff and investment regimes. In addition, high transportation andcommunication costs contribute to keep Africa's share of global trade and investment flowsat a low level. Accelerating Africa's integration with the global economy will help bringsustained growth and improved living standards to Africa's people.