Regional Brief

Regional Brief last updated April 2008

Overview

There is a new glow about Africa. The continent is seeing its strongest economic growth since the 1970s. This year, 15 African countries entered a second decade in which they posted strong annual economic growth rates of 5.3 percent, higher than many industrialized economies. A global commodity boom has triggered great interest in Africa’s oil, gas and mining sectors.

Notwithstanding the progress, challenges abound. For example, headlines about war, famine, disease and misery have tended to overshadow the kind of recognition deserved by the 13 African countries that have attained middle income status and the five others which are on the verge of reaching that threshold. Despite strong economic performance, the commodity boom, and positive trends in school enrollment rates, health, education and social sectors,

Sub-Saharan Africa remains the only region not on track for achieving the Millennium Development Goals by 2015.

Africans feel confident they have their finger on the pulse of change. A poll in Ethiopia, Ghana, Cote d’Ivoire, Kenya, Mali, Nigeria, Senegal, South Africa, Tanzania and Uganda revealed that a majority of Africans consider that they are better off than they were five years ago. Africans, the poll showed, are the most optimistic in the world. They were also the most confident in the belief that tomorrow will bring prosperity. Poverty – though widespread – is seen by Africans as a temporary obstacle to the continent’s future of prosperity.

For a continent as diverse as Africa, progress has been uneven and slippages are inevitable. The fifth annual edition of “Doing Business 2008” – which ranks 178 economies on the ease of doing business based on 10 indicators of business regulation – found that Africa fell from third place to fifth in ranking by region on the pace of reforms, and was overtaken by South Asia and the Middle East and North Africa regions. At the country level, Ghana – a top 10 reformer for the second year running – and Kenya, both ranked among the top 10 reformers worldwide; however, the progress achieved in Kenya is likely to suffer setbacks due to the post-election violence. Mauritius tops Africa’s list of the most business-friendly country. Confirming the link between business and good governance, Mauritius also topped the Ibrahim Index, the ranking developed for the Mo Ibrahim Foundation by Harvard University’s Kennedy School of Government.

A World Bank report (Governance Matters 2007: Worldwide Governance Indicators 1996-2006) which measures the quality of government in 212 countries, found that African nations had shown the greatest improvement and taken the biggest steps in reducing corruption over the past 10 years.

IDA maintains ability to provide interest-free credits and grants

Any fears about a solid 15th replenishment of the World Bank’s soft lending arm – the International Development Association (IDA) – came to naught last December when rich countries pledged a record US$25.1 billion in support of IDA, guaranteeing that IDA-15 will, in total, provide US$41.6 billion. That amount is an increase of US$9.5 billion over the previous replenishment (IDA-14) which provided US$32.1 billion.

The World Bank Group for the first time contributed a record US$3.5 billion to IDA, funded equally by the International Bank for Reconstruction and Development (IBRD) and IFC (International Finance Corporation), the Bank’s private sector arm. The transfer to IDA reflects a strong push to leverage the financial strength of the Bank Group as a whole to the global poverty reduction agenda, and efforts to build an inclusive and sustainable globalization.

The solid IDA-15 replenishment means that IDA’s ability to continue providing interest-free credits and grants to the world’s poorest countries – 39of which are in Africa – is not hurt by the deepening of debt relief over the last few years. Donors were expected to provide an additional financing – estimated at US$2.9 billion – to ensure replacement of credit flows lost due to the Multilateral Debt Relief Initiative (MDRI). Under the MDRI, US$37 billion in debt, the bulk of it owed by African countries, will be written off over the next 40 years for countries with sound financial management and a commitment to poverty reduction.

In 2007, the World Bank Group approved the biggest simplification and reduction in loan charges in nine years for the 79 credit-worthy low- and middle-income countries that are clients and shareholders of IBRD. The move has returned loan pricings to the levels in effect prior to price increases in 1998.

The World Bank has also continued to campaign for a ramping up of both the quantity and quality of aid. Development assistance is unlikely to expand quickly enough to handle the huge challenges. Today, more than 314 million Africans – nearly twice as many as in 1981 –live on less than US$1 a day. Thirty-four of the world’s 48 poorest countries, and 24 of the 32 countries ranked lowest on UNDP’s Human Development Index, are in Africa. More than three million Africans are killed each year by HIV/AIDS and malaria.

The World Bank – Leading financier of Africa’s development

The World Bank Group remains the leading financier of development projects in Africa. In fiscal year 2007, it committed a record US$5.7 billion in IDA resources to Sub-Saharan African countries. The amount is $1billion more than in fiscal year 2006 and enabled the Bank Group to retain its ranking as the region’s largest provider of development assistance. Funding from IDA in fiscal year 2006 of US$1.2 billion in grants and US$4 billion in credits already achieved a doubling of aid compared to fiscal year 2000. In addition, the IFC provided US$1.38 billion in financing for its own account and mobilized an additional US$261 million in financing through syndications.

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. In fiscal year 2007, the Bank committed US$2.4 billion of IDA funds to infrastructure projects, of which US$660 million was lending for the energy and mining sectors, and US$870 million was transport sector lending.

In 2005, the World Bank adopted its Africa Action Plan, focused 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 Africa Action Plan 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. Regional projects accounted for a record US$707 million in fiscal year 2007. By helping to integrate Africa’s small, fragmented economies, these projects are critical to establishing an enlarged economic space for countries in the region, while providing critical links especially for economically vulnerable, landlocked countries. The newly created Africa Catalytic Growth Fund agreed to support five projects with projected disbursements of US$148 million by addressing specific constraints that may be holding countries back or blocking progress on the MDGs. The Africa Action Plan promotes expansion of public-private partnerships and innovative financing approaches to address some of Africa’s most persistent development problems.

Creative resolution of old development challenges

To facilitate its work in conflict-affected areas, the World Bank Group adopted a new Rapid Response Policy in March 2007 under which the Bank can swiftly deliver assistance to countries emerging from or severely affected by conflicts. The policy extends to countries emerging from a major adverse economic and social setback associated with man-made or natural crises. The Bank pursued its collaboration with the New Partnership for Africa’s Development (NEPAD) to achieve peace and stability, both of which are indispensable to accelerate growth, attract investments, and increase exports. It also sustained its commitment to increase transparency and reduce illegal trade in commodities such as oil, gas, diamonds, timber, and other precious resources that fuel conflicts.

The World Bank and the U.N. Office on Drugs and Crime have agreed to a new Stolen Asset Recovery initiative committing to ensure that cross-border flow of illicit proceeds of corruption and corporate wrongdoing are intercepted by rich countries and returned to the poor. The STAR initiative also helps recover money secreted away in international bank accounts. The scheme follows fresh research showing massive international flows of illicit funds, estimated to be worth more than US$1 trillion a year. The World Bank estimates that 25 percent of Africa’s GDP is lost to corruption every year, amounting to US$148 billion. Capital flight from Africa accounted for up to 7.6 percent of the continent's GDP between 1991 and 2004, according to the U.N. Conference on Trade and Development, which warned that about US$400 billion in capital has flowed out of Africa since the 1970s, a number far higher than the continent’s debt burden estimated at about US$215 billion.

The World Bank Group has put on notice the so-called vulture funds that prey on the poor and reverse the benefits brought about by the debt relief initiative. By the end of 2005, more than a third of the countries receiving debt relief had been targeted with lawsuits by at least 38 litigating creditors representing these vulture funds. Judgments awarded in 26 of these cases were estimated to be US$1billion, and further judgments are pending.

Through a US$250 million Forest Carbon Partnership Facility, the World Bank will continue 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.

Priority Number One: Infrastructure

Significant hikes in commodity prices like copper and gold have helped several mineral-rich African nations to cushion themselves from the record oil prices, while higher foreign currency reserves and a lower debt burden have helped absorb the burden stemming from high oil prices.

One of the key threats high oil prices may have imposed on Africa is to infrastructure projects, including many ongoing thermal power projects which were planned under the assumption that oil prices would remain at around US$25 a barrel.

Recognizing the challenge, the World Bank launched a plan to provide inexpensive, safe and cleaner lighting to 250 million people in sub-Saharan Africa who lack access to electricity. The project is designed to replace costly and inefficient fuel-based lighting sources, such as kerosene lamps, that pose fire hazards and cause pollution. The initiative will expand the use of small battery- and solar-powered lighting systems. A major conference on “Lighting Africa” will be held in Ghana, May 5-8, 2008.

Coordination, harmonization, curbing transaction costs

The Bank supports implementation in Africa of the 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 lower 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 is calling on donors to raise 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.

Contacts: Herbert Boh, hboh@worldbank.org