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Viewing cable 05PRETORIA4352, SUB-SAHARAN AFRICA: REGIONAL ECONOMIC

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Reference ID Created Released Classification Origin
05PRETORIA4352 2005-10-27 15:02 2011-08-24 01:00 UNCLASSIFIED Embassy Pretoria
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 03 PRETORIA 004352 
 
SIPDIS 
 
DEPT FOR AF/S; AF/EPS; EB/IFD; EB/TPP 
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND 
TREASURY FOR BCUSHMAN 
DEPT PASS USTR FOR PCOLEMAN 
 
E.O. 12958: N/A 
TAGS: EFIN EINV ETRD PREL ECON SF XA
SUBJECT: SUB-SAHARAN AFRICA: REGIONAL ECONOMIC 
OUTLOOK 
 
1. (U) Summary. In discussing the IMF's first ever 
Regional Economic Outlook for Sub-Saharan Africa, 
IMF officials announced that the outlook for real 
GDP growth in SSA was good, with 2004 registering 
5.3% growth and 2005 and 2006 expected to register 
growth of 4.6% and 5.3%, respectively.  Rising 
commodity prices for oil, metals, diamonds, 
agricultural products, and other commodities 
stemming from strong import demand from more 
advanced economies contributed to the positive 
regional outlook for growth.  Improved growth and 
higher per capita income continued to make inroads 
on poverty.  Notwithstanding, economic growth 
remained below the level required for sub-Saharan 
Africa to reach the Millennium Development Goal of 
halving poverty by 2015, and was much lower than 
other developing country regions.  The IMF noted 
an overall improvement in the quality of both 
economic and political institutions in the region. 
End Summary. 
 
2. (U) On October 12, the Development Bank of 
Southern Africa (DBSA) and the International 
Monetary Fund (IMF) hosted presented the IMF's 
World Economic Outlook and the IMF's first ever 
Regional Economic Outlook for Sub-Saharan Africa 
(SSA).  Presenters included IMF Deputy Director 
for Research David Robinson as well as Michael 
Nowak and Sanjeev Gupta of the IMF's Africa 
Department.  Mr. Nowak delivered the presentation 
on the Economic Outlook for SSA. 
 
OUTLOOK FOR ECONOMIC GROWTH 
--------------------------- 
 
3. (U) Nowak announced that the outlook for real 
GDP growth in SSA was good, with 2004 registering 
5.3% growth and 2005 and 2006 expected to register 
growth of 4.6% and 5.3%, respectively.  Oil 
producing countries led the way, with the 
economies of countries such as Equatorial Guinea, 
Chad, Nigeria, and Angola expanding strongly. 
Rising commodity prices for oil, metals, diamonds, 
agricultural products, and other commodities 
stemming from strong import demand from more 
advanced economies contributed to the positive 
regional outlook for growth.  Slower growth in 
Chad, Nigeria, and Equatorial Guinea was the main 
reason for the expected lower real GDP growth in 
2005.  In South Africa, real GDP growth rose 3.7% 
in 2004 and was expected to grow another 4.3% in 
2005.  Growth in South Africa was the result of 
strong consumer and investor confidence, fueled by 
low interest rates, controlled inflation, and 
wealth effects from increases in commodity and 
residential property prices.  Nowak added that non- 
oil producing countries that had adopted economic 
reforms in an effort to improve the climate for 
private investment grew at faster rates than those 
that did not. 
 
OUTLOOK FOR POVERTY REDUCTION 
----------------------------- 
 
4. (U) Nowak said that improved growth and higher 
per capita income continued to make inroads on 
poverty in SSA.  In 2004, real per capita GDP in 
SSA rose by 3.4%.  The IMF projected that real per 
capita GDP would increase by 2.6% in 2005 and 3.4% 
in 2006.  Nowak noted that GDP per capita had 
grown faster in recent years and was strongly 
correlated with poverty reduction. 
Notwithstanding, economic growth remained below 
the level required for SSA to reach the Millennium 
Development Goal of halving poverty by 2015, and 
was much lower than other developing country 
regions.  GDP growth per capita in six countries 
(Cote d'Ivoire, Gabon, Central African Republic, 
Comoros, Guinea-Bissau, and Zimbabwe) continued to 
decline in each of the past three years, 
indicating an increase in poverty. 
 
OUTLOOK FOR INFLATION 
--------------------- 
 
5. (U) Nowak pointed out that inflation in SSA had 
fallen to an historical low of 9.4% in 2004, and 
although the IMF expected inflation to pick up 
slightly -- to 9.9% in 2005 due to higher oil 
prices and poor harvests -- it also expected 
inflation to fall to 8.3% in 2006.  Continued low 
inflation, low interest rates, and prudent 
monetary policy in an increasing number of SSA 
countries contributed to single digit inflation 
for the balance of the region.  Thirty countries 
were expected to register inflation rates in 
single digits during 2005, as compared with just 
10 countries a decade ago.  In 2004, only Angola 
and Zimbabwe experienced inflation above 20%.  In 
South Africa, inflation averaged 4.3% in 2004 
(Note:  this refers to consumer price inflation 
less mortgage costs).  In 2005, the IMF expected 
South Africa's inflation to be 4.1%, well within 
the South African Reserve Bank's target range of 3- 
6%. 
 
CURRENT ACCOUNT ANALYSES 
------------------------ 
 
6. (U) The IMF expected oil producing countries to 
log significant current account surpluses in 2005, 
reaching 7.7% of GDP in 2005 from 2.3% in 2004. 
The average external current account deficit of 
oil-importing countries was projected to rise, 
from 3.5% of GDP in 2004 to 4.3% in 2005, although 
oil price pressure on current accounts would be 
somewhat mitigated by international exchange rate 
adjustments and rising commodity prices.  In South 
Africa, strong domestic demand should widen the 
current account deficit by 0.5% to 3.7% of GDP in 
2005.  South Africa's current account deficit 
should lessen in 2006. 
 
RISK FACTORS 
------------ 
 
7. (U) Nowak explained that the following five 
risk factors could change IMF projections for 
2006: 1) fragile political security in the Great 
Lakes region and West Africa might not be 
maintained; 2) lower commodity prices, 
uncertainties in the oil markets, and higher than 
expected oil prices could play havoc with current 
account deficits; 3) weaker than expected growth 
in more developed countries could impact SSA 
exports; 4) regional droughts and other natural 
disasters could be a problem; 5) the high 
prevalence of HIV/AIDS could begin to affect the 
prospect for economic growth in some countries. 
 
FOREIGN ASSISTANCE 
------------------ 
 
8. (U) Nowak noted that foreign assistance, 
including debt relief to SSA, continued to 
increase.  Excluding South Africa and Nigeria, 
official grants as a share of GDP were projected 
to increase to 3.2% of GDP in 2005, from 3.1% in 
2004.  The average external debt burden was 
expected to continue declining as a share of GDP 
as more countries receive debt relief under the 
Heavily Indebted Poor Countries Initiative.  Nowak 
explained that increased development assistance 
and the reduction in debt could enhance prospects 
for regional growth and poverty reduction, 
assuming that the right policies were implemented 
to ensure that additional resources were used 
efficiently. 
 
INSTITUTIONS 
------------ 
 
9. (U) According to Nowak, the existence of strong 
institutions was an important determinant of long- 
term growth.  Nowak cited recent evidence that the 
quality of political institutions fostered 
political stability and in turn influenced the 
quality of economic institutions and thus economic 
performance.  Research also showed that strong 
institutions led to better IMF program 
implementation.  Nowak noted an improvement in the 
overall quality of both economic and political 
institutions in SSA. 
 
REGIONAL TRADE AGREEMENTS 
------------------------- 
 
10. (U) Nowak observed that African policymakers 
seemed to use Regional Trade Agreements (RTA) as a 
substitute for broad-based trade reform.  The 
practice had resulted in an overlapping network of 
30 RTA's that sometimes created contradicting 
commitments.  So far, African RTAs had little 
significant impact on Africa's export performance 
with the rest of the world.  The continent's share 
in global trade had declined from about 4% in the 
1970's to about 2% today.  Furthermore, African 
RTAs had failed to increase Africa's international 
competitiveness or attract foreign direct 
investment to the region.  Nowak though that this 
was because the benefits of RTAs had been limited 
by high trade barriers, small market size, poor 
transport infrastructure, high border-crossing 
costs, and inadequate efforts to facilitate trade. 
Nowak suggested that African countries rationalize 
their RTA membership. 
 
CHALLENGES 
---------- 
 
11. (U) Nowak emphasized that the most challenging 
question facing SSA was how to accelerate economic 
growth and reduce poverty.  An analysis by the IMF 
suggested a strong correlation between economic 
growth and sound economic policies, a focus on 
exports, the ability to attract investment, 
relative trade liberalization, as well as 
political liberalization.  The World Bank's 2006 
World Development Report highlighted that reducing 
the costs of doing business and lowering policy- 
related risks and barriers to competition were 
central to improving the developing country 
investment climates.  Nowak added that the report 
listed 20 countries with the most difficult 
investment climates in the world, 16 of which were 
located in SSA. 
 
TEITELBAUM