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Global Economic Prospects: Sub-Saharan Africa

Growth in Sub-Saharan Africa rebounded sharply in 2010. Supported by the global economic recovery and developments on the domestic front, GDP in Sub-Saharan Africa grew by 4.8 percent in 2010—up from the 2 percent advance of 2009 and just shy of the region’s 5 percent pre-crisis average growth. Excluding South Africa, the largest economy in the region, Sub-Sahara Africa grew by 6.0 percent, one of the fastest growth rates among developing regions.

Recovery in exports. African export revenues, which had fallen to some 51 percent of their pre-crisis August 2008 levels by January 2009, had almost recovered by November 2010, reaching 93 percent of earlier peaks. Much of the increase was due to the surge in commodity prices (see Commodity annex) as in volume terms, exports increased by a moderate 7.5 percent in 2010.

Among the biggest winners from the terms of trade changes were the oil exporters in the region, with incomes gains of upwards 10 percent of GDP in Angola, Congo, and Gabon. Among oil importers in the region the picture was mixed. In general, exporters of commodities whose price increases were higher than the increase in crude oil prices also benefitted. This includes exporters of metals such as copper (Zambia), as well as exporters of agriculture products such as rubber (Liberia), and cotton (Burkina Faso, Benin, and Mali). However, even though the prices of the principal merchandise exports of many oil importing Sub- Saharan countries improved in 2010, they still suffered a deterioration in their terms of trade, as in general, the recovery in prices was not sufficient to compensate for the sharp rebound in oil prices. Nonetheless, the impact of terms of trade changes on growth in 2010 remains mixed as stronger growth was associated with countries that recorded both favorable as well as unfavorable terms of trade changes, implying that there is more to the Sub Saharan African growth story than developments in commodity prices.

Rebound in capital flows. Thanks to recovery in the global economy, as well as an increasing recognition by investors of the opportunities presented in a rapidly growing developing region, net private capital inflows to Sub Saharan Africa increased from $35.8bn in 2009 to an estimated $41.1bn in 2010 and are projected to rise to $48.6bn in 2011 (see Capital flows table).

The leading destination of FDI inflows, in value terms, is to the capital intensive mining sector. Indeed, higher commodity prices and the global competition to secure supplies of commodities have spurred investments globally in the natural resource sector. Sub Saharan Africa, a region with a high proportion of known mineral resources with great potential for further development is benefitting from this trend. This has been facilitated by improvements to regulatory regimes in some countries. Capital raisings by African resource companies are reported to have increased by 240 percent compared to 2009.1  Much exploratory activity has been ongoing in several countries during 2011, with new discoveries and production coming on stream. 

Recent mineral discoveries and production
Discoveries in the 1st quarter of 2011
Natural resourceCountry
OilGhana (West Cape Three points)
GoldTanzania (Handeni region)
Iron OreLiberia (Bopulu and Timbo)
ManganeseGabon (Ndjole)
DiamondSierra Leone (tongo)
Natural gasTanzania (offshore)
New production to come on stream in 2011
Natural resourceCountry
CopperZambia (Konkola North)
Source: Africa Mining, various issues.

These resource flows have supported growth by creating new jobs, increasing government revenues and helping to finance current account deficit. Yet in countries with poor governance and weak institutions, the natural resource sector which exists as an enclave in many countries, can be a deterrent to growth, as rents generated by the sector are appropriated by the elite minority, often leading to conflict. This so-called resource-curse need not be the norm. Twenty-one Sub-Saharan countries have sought to maximize the potential benefit from resource exploitation and reduce the potential for corruption by joining the Extractive Industries Transparency Initiative. Five are currently considered compliant to the initiative (the Central African Republic, Ghana, Liberia, Niger, and Nigeria), while another 16 countries are candidates.

Even though, natural resources and energy are the most important destination for Sub-Saharan FDI by value, combined they represent only 16 percent of the total number of new FDI projects.2 Motivated by higher GDP growth rates, fast growing populations and a rising middle class, the bulk of new investment projects were in the non-natural resources sector. Developments in the telecommunications (see note on Telecom developments) and retail sectors epitomize the interest in non-extractive industries in the region. In retail for instance, large South African retail firms have been busy opening up shopping malls across the region. Walmart, the world’s largest retailer, is currently in the process of acquiring MassMart, a South African chain with operations in 14 countries in the region.

Portfolio equity flows to Sub Saharan Africa rose by 10 percent in 2010, reaching $11 billion. The strong growth performance of Sub Saharan African countries over the last decade (5 percent per year) coupled with increasing political stability and reforms that have lowered barriers to entry, have begun to place Sub Saharan African countries on the radar screens of portfolio equity managers. This is evidenced in the recent establishment of a number of Africa-focused private equity funds. Not surprisingly, South Africa receives the largest share of such inflows. However other economies, including Nigeria, with its fast growing economy and large population; Kenya, which is often viewed as the gateway to the $84 billion East African economy, and Ghana, with its stable political environment and fast growing economy, are of particular interest.

Africa Focused Funds
US$ millions
ECP Africa Fund613
Pan African Investment Partners II492
Aureos Africa Fund381
Leapfrog Microfinance Inclusion Fund136
Evolution One Fund91.0
Africinvest Financial Sector43
Source: Africainvestor, November/December 2010.

South Africa also dominated bond flows to the region, accounting for almost all of the $4.7 billion in regional bond sales during 2010. However, with an estimated $93 billion annual infrastructural deficit, and a funding gap of $31 billion, a number of countries in Sub Saharan Africa (Ghana, Kenya, Tanzania, Zambia) continue to express interest in tapping the euro-bond market. In January 2011, Nigeria issued a $500 million debut Eurobond, which was oversubscribed. In March 2011 Zambia received a “B+” credit rating from international credit rating agencies. Several other countries are revamping their laws to tap into the nearly $1 trillion Islamic financial market. Senegal has indicated that it plans to raise $200m in Islamic financing in 2011. Increasingly, foreign investors are participating in local bond markets, notwithstanding the foreign exchange risk. Ghana’s February 2011 auction of GHS 400 million ($263m), in 3-year bonds attracted significant global interest and was oversubscribed by 88 percent. Kenya auctioned a 9-year infrastructure bond worth 31.6 billion shillings ($380m) in August 2010, and the country is likely to continue to tap the market in 2011. Indeed, local currency bond supply in Sub Saharan Africa is estimated to have increased from $7bn in the 1990s to almost $20bn by 2008. Improving liquidity is also supporting the extension of the yield curve in a number of countries, with Nigeria offering 20-year maturities and Kenya up to 30-year maturities.3  

1 Peter Guests, “Resource Deals to Africa”, in This is Africa, Financial Times Business, April/May 2011.
2 “Who’s investing in Africa”, Ai, November- December 2010, Vol. 8 issue 6.
3 Gail Mwamba, “Structuring Local Solutions”, in This is Africa, Financial Times Business, April/May 2011.

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Sub-Saharan Africa regional note
Published June 2011

Growth in Sub-Saharan Africa rebounds close to pre-crisis average

Percent growth GDP

Source: World Bank.

Terms of trade changes in Sub-Saharan Africa countries

Share of GDP (%)

Source: World Bank.

Impact of terms of trade on growth is mixed

Net private capital inflows to Sub-Saharan Africa rebounds after crisis

US$ billion

Source: World Bank.