Regional Brief

Regional Brief last updated September 2009

OVERVIEW

The global economic crisis, which hit in the wake of the food and fuel crises in 2007–08, is having a major impact on African countries through declines in commodity prices, tourism earnings, exports, remittances, and private capital flows. Remittance inflows, which were about $20 billion a year to the region before the financial crisis, have fallen by 4 to 8 percent, hitting countries such as Lesotho, where remittances normally account for 29 percent of gross domestic product (GDP), particularly hard. Private capital flows—which had surged to $53 billion in 2007 and were financing much-needed infrastructure and commodity-based investments—fell by 40 percent in the second half of fiscal 2009.

Growth in Africa, which had accelerated from 3.1 percent in 2000 to 6.1 percent in 2007,  is now projected at only 1.7 percent for 2009 – down from the projected 6.4 percent, and far below the average growth rates of 5.3 percent posted by the continent’s best 15 performing countries for more than a decade. This will slow progress toward the Millennium Development Goals (MDGs), even for countries like Ghana that were close to halving poverty by 2015.

Key to poverty reduction, growth had accelerated in Africa as a result of improved macroeconomic policies, favorable commodity prices, and significant increases in aid, capital flows, and remittances. Economic performance was also accompanied by improvements in governance and accountability. The continent made headway toward reducing poverty and achieving the MDGs. The proportion of Africans living on less than $1.25 a day fell from 58 percent in 1996 to 50 percent in the first quarter of 2009. The prevalence of HIV/AIDS stabilized, primary school enrollment increased, and progress was being made in other areas of human development.

African leaders are among the first to admit that sustaining this progress will require staying the course of the difficult but rewarding reforms of the past decade. This is especially true as the continent struggles to weather the storm brought about by the worst global recession since the Great Depression.
The seventh edition of “Doing Business” – which ranks 183 economies on the ease of doing business based on 10 indicators of business regulation – saw Rwanda emerge as the top reformer, being the first time a Sub-Saharan African country wins that spot. Rwanda made it easier to start businesses, register property, protect investors, trade across borders, and access credit. In addition, Liberia was one of four newcomers among the global top ten reformers in Doing Business 2010.

World Bank, Africa’s leading financier

The World Bank Group has responded decisively to help African countries deal with the crises. It is supporting countries in preparing contingency plans. It is also providing advisory support on policies thatcould help sustain the momentum of reforms and maintain progress on critical institutional and governance issues, including through the Extractive Industries Transparency Initiative Plus Plus (EITI++) approach aimed at improving the management of the commodity value chain in resource-rich countries such as Mozambique and Zambia.

Thanks to a solid 15th replenishment of the International Development Association (IDA) – the Bank’s soft-lending arm – grant, credit and lending to the region reached a record level, increasing 44.3 percent in fiscal 2009 (which ended June 30, 2009) to $8.2 billion, an amount that supported 99 projects: $362 million in loans from IBRD and $7.9 billion in IDA commitments, including $2 billion in grants and $45.5 million in HIPC grants. A significant factor in the Bank’s increased commitment is an expanding investment in infrastructure—particularly electricity generation—badly needed to sustain healthy growth in the higher-performing economies, and to raise productivity in slow-growth countries.

Fiscal 2009 lending to Africa included fast tracking and front loading of IDA support to countries with urgent financial needs, for example, the Central African Republic and Ghana. IDA also provided a $100 million fast-track credit to the Democratic Republic of Congo to finance infrastructure maintenance and teachers’ salaries.

The Bank increased its involvement with Africa’s middle-income countries through advisory support and deployed new, more flexible financing instruments to help these emerging economies better weather the crisis. For example, IBRD supplemented a development policy loan to Mauritius with a deferred drawdown option. In addition IFC – the Bank’s private sector arm - committed $300 million in top-up financing for viable privately funded infrastructure projects experiencing financial distress.

Two African countries—Côte d’Ivoire and Togo—reached the Heavily Indebted Poor Countries (HIPC) Initiative Decision Point, and Burundi and the Central African Republic reached the HIPC completion point.

The Bank supports implementation in Africa of the Accra Agenda for Action adopted at the Accra High Level Forum in September 2008 following a review of the 2005 Paris Declaration, which recognizes that governments must design and own development priorities, and their international partners must scale-up and provide dependable and outcome-oriented financial flows at the lowest cost. That approach requires donors to work together, in coordinated partnership, in ways that reduce rivalry and prevent wasteful duplication of efforts. In parallel, the World Bank Group has sustained the campaign, calling on rich countries to increase overseas development aid to 0.7 percent of GDP, a target agreed to at the Monterrey Summit.

One area where that teamwork has taken on a new dimension is in the drive to achieve the MDGs. Along with other donors – the United Nations Development Program, the African Development Bank, the European Commission, the International Monetary Fund, etc. – the World Bank is a member of the MDG Africa Steering Group established by U.N. Secretary General Ban Ki-moon to re-focus attention on achieving the MDGs by 2015.

Boosting Agriculture, Weathering the Food Crisis

Africa was a major focus of the Global Food Crisis Response Program (GFRP), which has provided emergency assistance to several of the countries hardest hit by the food crisis. GFRP financed safety net programs, school feeding and food-for-work programs, and seed and fertilizer purchases. The program also provided budget support to governments whose fiscal balances were impacted by the food and fuel price spikes.

In total, the Bank committed approximately $1.4 billion in new lending to accelerate agricultural growth and productivity in fiscal 2009, a threefold increase over fiscal 2008. In Cameroon, Niger, and Nigeria, support was provided to small- and medium-scale producers of cereals, horticultural products, fish, meat, and dairy products to make operations more competitive and to boost sales and earnings. The East Africa Agricultural Productivity Program, approved in June 2009, will support cooperation among Ethiopia, Kenya, and Tanzania in generation and dissemination of new technology, notably pertaining to wheat, rice, fodder, cassava, and dairy cattle.

Strengthening Health Systems, Combating Diseases

Since 2001, the Multi-country HIV/AIDS Program (MAP) has provided $1.8 billion to Africa (including $218 million in commitments in fiscal 2009) for prevention and treatment in more than 30 countries. The first phase of MAP reached about 200 million people through HIV prevention programs, gave access to services for the prevention of mother-to-child transmission to more than 1 million women, and supported orphans and vulnerable children in 22 countries.

Through concerted country and donor efforts, more than 2.1 million people in Africa are now receiving HIV/AIDS treatment, and 16 countries have reached 25 percent coverage of services supporting the prevention of mother-to-child transmission.

To combat malaria, the Bank committed more than $1 billion in fiscal 2009 for Phase II (2009–12) of its Booster Program for Malaria Control in Africa. The first phase contributed significantly to the provision of bed nets to 72 percent of households in Zambia (up from 5 percent coverage in 2004), more than 90 percent of households in Ethiopia (up from 5 percent in 2004), and the entire under-five population of Benin.

Under Phase II, the Bank will focus on two of the most harshly impacted countries in Africa—the Democratic Republic of Congo and Nigeria - which together account for 30 to 40 percent of all malaria deaths worldwide.

Supporting Education

As with the health sector, the Bank’s support to Africa’s education sector in Africa leverages other partners’ contributions and scales up government-owned programs. In fiscal 2009, IDA commitments for the education sector and training amounted to $697 million, up from $368 million the previous year. In addition, the Bank processed grants from the Education for All Fast Track Initiative Catalytic Fund amounting to $359 million to support basic education in nine countries in fiscal 2009, bringing the total number of African countries that benefit from the Catalytic Fund to 20, and the total amount of grants to $1.4 billion.

Analytical work, non-lending technical assistance, and policy dialogue complement the Bank’s IDA/IBRD operations in Africa. For example, the New Economy Skills in Africa Program, which initially focused on information and communications technology, was launched in eight African countries—Ghana, Kenya, Madagascar, Mozambique, Nigeria, Rwanda, Senegal, and Tanzania. Building on the study Accelerating Catch Up: Tertiary Education for Growth in Sub-Saharan Africa, the region launched a tertiary education program that will help countries advance policy dialogue on higher-education financing.

Scaling up Infrastructure, Regional Solutions

The Bank’s infrastructure lending rose to $3.3 billion in fiscal 2009 (twice the level of 2006) to help reduce the impact of the financial crisis on the state of infrastructure, and set the stage for post-crisis recovery and growth.

The Bank is increasing its support to regional projects in pursuit of the regional infrastructure priorities outlined by the African Union, the New Partnership for Africa’s Development, and the Regional Economic
Commissions, and in close partnerships with the African Development Bank and other bilateral and multilateral institutions.

The Bank invested a total $1.4 billion in the energy (includes mining) sector in Africa in fiscal 2009. That amount supported institutional reform, capacity expansion, transmission, and rural and renewable energy, including $181 million for the Southern Africa Power Pool and investments in countries such as Benin, the Central African Republic, Côte d’Ivoire, Kenya, Mali, and Nigeria. IDA and IBRD commitments for transportation in Africa were $1.1 billion in fiscal 2009.

Investments in water supply and sanitation and urban development benefited Burkina Faso, Burundi, the Democratic Republic of Congo, Lesotho, and Liberia. Information and communication technology investments were approved for Malawi, Mozambique, Rwanda, and Tanzania.

The work of the Bank in Africa is guided by the Africa Action Plan (AAP) adopted by the Bank in 2005, which focuses on achieving development results in key sectors such as good governance, closing the infrastructure gap, building capable states, and ensuring that the benefits of development are shared more equitably. The AAP sees regional integration as one of the main pillars on which prosperity will be achieved on a continent with 15 landlocked economies and a gross domestic product the size of Belgium’s.

Responding to Climate Change

Africa is facing an annual loss of 1 to 2 percent annual GDP because of climate variability. Global temperature increases are expected to lead to reduced rainfall, water shortages, and compressed growing periods in Western and Southern Africa, and to increased rainfall, heavier flooding, and fiercer and more frequent cyclones in Northeast Africa.

In fiscal 2009, the Bank prepared a strategy to better integrate climate change in its activities in Africa, and started mainstreaming this strategy into investments and analytical work, initially in Ethiopia and Mozambique.

Through a US$250 million Forest Carbon Partnership Facility, the World Bank continues to encourage more investment from public and private sector bodies and governments of developing countries to stop deforestation in return for access to carbon credits. Forests are excluded under the Kyoto Protocol, although deforestation, especially in the tropics, contributes about 20 percent of man-made global carbon emissions.