Sub-Saharan Africa Economic Policy and Outlook for Growth

• Author: Ernesto Hernández-Catá
• Position: Associate Director of the IMF's African Department

In recent years, improved policies in many sub-Saharan African countries have led to better economic performance. As policymakers in the region work to sustain high growth rates and reduce poverty, how can they most effectively meet the challenge of globalization and create a favorable environment for domestic and foreign private investment?

AFTER a long period of weak performance, the economic situation in sub-Saharan Africa has improved significantly in the last few years. According to the latest available data, for the region as a whole:

* Real GDP growth averaged 4¼ percent a year during 1995-98, up from less than 1½ percent during 1990-94. Per capita output rose at an average annual rate of 1 percent during 1995-98, compared with an average decline of 2¼ percent a year during the first half of the 1990s.

* After peaking at 47 percent in 1994, annual inflation dropped to 10 percent in 1998.

* The overall fiscal deficit (excluding grants) fell from almost 9 percent of GDP in 1992 to less than 5 percent in 1998.

These improvements in economic performance are encouraging because they resulted mainly from improved policies in a number of sub-Saharan African countries and not from favorable external developments. In fact, the region's aggregate performance in 1994-98 was substantially weakened by developments in 1998 that were entirely beyond the control of the national authorities, including falls in the world prices of several commodities (notably, oil), the impact of El Niño, and-for South Africa-the adverse effects of the international financial crisis. Armed conflicts in some sub-Saharan countries, in particular the Democratic Republic of Congo, also seriously affected economic activity in 1998.

The regional averages conceal large differences in performance among countries. For example, if Nigeria and South Africa (two countries that account for approximately one-half of the region's GDP) are excluded, it becomes clear that there has been a significantly stronger improvement in the rest of sub-Saharan Africa, where per capita GDP grew by 2 percent annually during 1995-98, following a 2½ percent annual drop during 1990-95. Moreover, a group of countries (including Ethiopia, Mauritius, Mozambique, Rwanda, and Uganda) experienced annual per capita GDP growth averaging well above 4 percent during 1995-98. By contrast, several countries experienced falls in their real per capita incomes, in some cases because of armed conflicts and the attendant economic disruptions, during 1995-98.

During the 1990s, many African countries have moved to implement important structural reforms: price controls have been abolished or liberalized; some inefficient public sector monopolies have been dismantled and many state enterprises privatized; nontariff barriers have been eliminated and import duties lowered; exchange rates have been freed and unified; and direct controls on bank credit have been eliminated and market-determined interest rates...