W440xH280( 背厚 8mm)

Development Challenges in Africa Towards 2050

JICA Research Institute June 2013

Development Challenges in Africa
Towards 20501

This report is in draft and will be finalized to reflect feedback
from planned discussions.

1

Table of Contents
CHAPTER 1: INTRODUCTION AND OVERVIEW .....................................................................................6
CHAPTER 2: MACROECONOMICS ...................................................................................................... 13
Introduction ............................................................................................................................................ 13
Broad trends in Africa’s Economic Performance (1960 – 2011) ............................................................. 14
Investment and Savings Needs for Sustained High Growth ................................................................... 34
A Macroeconomic Policy Framework for Sustainable High Growth and Inclusion ................................ 40
CHAPTER 3: 2050 SCENARIOS ........................................................................................................... 45
Introduction ............................................................................................................................................ 45
Convergence vs. Business-as-usual ......................................................................................................... 45
Downside Scenario.................................................................................................................................. 48
Conclusion ............................................................................................................................................... 48
CHAPTER 4: DEMOGRAPHY .............................................................................................................. 50
Introduction ............................................................................................................................................ 50
Demographic Context ............................................................................................................................. 52
Future Population Growth ...................................................................................................................... 62
Demographic Vision for 2050 ................................................................................................................. 81
Agenda for Realizing the Vision .............................................................................................................. 82
CHAPTER 5: POVERTY AND INEQUALITY............................................................................................ 85
Introduction ............................................................................................................................................ 85
Evolution of poverty in Africa ................................................................................................................. 85
Inequality of outcomes and opportunities ............................................................................................. 86
Recent trends of income inequality in Africa.......................................................................................... 87
Scenario for 2050 .................................................................................................................................... 96
Action Agenda ......................................................................................................................................... 99
CHAPTER 6: URBANIZATION ........................................................................................................... 102
Introduction .......................................................................................................................................... 102
Urban Transition ................................................................................................................................... 104
Urban Policy Challenges........................................................................................................................ 106
Vision for 2050 ...................................................................................................................................... 109
Action Agenda ....................................................................................................................................... 110
3CHAPTER 7: NATURAL RESOURCES ................................................................................................. 117
Introduction .......................................................................................................................................... 117
Historical Context.................................................................................................................................. 118
A vision for Africa’s extractive industries in 2050 ................................................................................. 130
Policy measures to achieve convergence for Africa’s resource-rich countries .................................... 131
APPENDIX: Model for Developing Global Growth Scenarios ............................................................ 142
Annex 1: Methodological Notes...................................................................................................... 147
Annex 2: Demographic Indicators Estimated by the United Nations for 2010 and 2005-2010 and Most
Recent Fertility Estimates from 2009-2012 Surveys, by Sub-Region ................................................. 148
Annex 3: The 2010 United Nations Assumptions on Population and Urbanization ............................ 150
Annex 4: Urban Land Cover Projections for Countries of Africa, 2010-2050 ...................................... 154
Annex 5: Reserves of Oil, Gas and Coal ........................................................................................... 157
Annex 6: African Resource-Rich Countries....................................................................................... 158
Annex 7: Geographical Advantage for Crude Oil Refining ................................................................ 159
Bibliography .................................................................................................................................. 160

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ABBREVIATIONS AND ACRONYMS
CAEMU

Central African Economic and Monetary Union

CESCity Enabling System

CPR

Contraceptive Prevalence Rates

DHS

Demographic and Health Surveys

DRC

Democratic Republic of the Congo

ECSC

Ethiopia’s Civil Service College

EITT

Extractive Industries Transparency Initiative

FDI

Foreign Direct Investment

HIPC

Highly Indebted Poor Countries

ICT

Information and Communication Technology

MDRI

Multilateral Debt Relief Initiative

PPP

Purchasing Power Parity

SACN

South African Cities Network

SSA

Sub-Saharan Africa

TFP

Total Factor Productivity

TFR

Total Fertility Rates

WAEMU

West African Economic and Monetary Union

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CHAPTER 1: INTRODUCTION AND OVERVIEW
Africa is at a critical turning point. After decades of disappointing performance, growth has been strong
over the last decade and offers the foundation for transforming the continent over the next twogenerations. The recent improved performance has also raised the aspirations of Africans across thecontinent and renewed global interest in Africa, including FDI. What Africa, its leaders, and its partners
do now will determine whether the rising aspirations of Africans and global expectations are met or not.
This report lays out a broad Africa 2050 scenario in which Africa catches up (or converges) with the restof the world to narrow the gap in terms of living standards and productivity. It describes a future for
Africa of individual prosperity in cohesive societies, competitive economies, and strong regional-global
interaction. Under such a scenario, by 2050 per capita incomes would grow six-fold, moving from one
quarter of the global average to one half. The number of poor would be reduced ten-fold to fewer than
50 million. The majority of Africans would join the middle class. Africa’s share of global GDP would
triple to 9 percent. This is a vision of what could be but it is not a prediction. It is only one of several
possible scenarios and actions taken today will be key to determining which is realized.
Action will be required in many domains to realize the Africa 2050 convergence scenario described in
Chapter 3. Complementing JICA’s flagship report Inclusive and Dynamic Development in Sub-SaharanAfrica2, this report examines five issues that are important for turning such a scenario into reality:
macroeconomics, poverty and inequality, demography, urbanization, and natural resources.
The first two chapters set the macroeconomic framework and 2050 scenarios which underlie the entire
report. The subsequent four chapters examine specific issues (demography, poverty and inequality,
urbanization, and natural resource revenues) that are incorporated into the scenarios and which cut
across the sector issues addressed in other work.3
Macroeconomics (Chapter 2)
The chapter on macroeconomics provides both an assessment of Africa’s economic performance since
the independence of much of Africa in the 1950s and 1960s, and the macro-economic policy frameworkthat would provide the foundation for its robust development in the next forty years. In the broadest
terms, Africa’s economic performance since the 1960s can be divided into three periods. The first
decade after independence showed a strong but short-lived rebound in growth rates. Then from 1970 to
1995, a combination of unsustainable economic policies, external shocks, failure to adjust to changing
economic conditions, and increasingly exclusionary politics produced 25 years of decelerating growth,which culminated in a stagnation of progress in most social indicators. Since the mid-90s, painful
economic adjustment, stronger macroeconomic management, and greater openness to trade andprivate sector activity, substantially aided by the dramatic improvement in commodity prices in the last
decade, have led to a steady acceleration of per capita growth rates. In addition to growing faster over2

The JICA Flagship report coverage includes agriculture, industrial development, infrastructure, health andeducation, state building and conflict prevention, and climate change.
3
In addition to the above-mentioned JICA report, see the Emerging Markets Forum’s “Africa 2050: Realizing theContinent's Full Potential."

6the last decade, most African economies were also relatively resilient to the 2008 global financial crisis—some because of large external reserves generated by natural resource exports, others because of little
integration with the global economy—which also makes them poor, and for a leading few because ofstrong macro management, banking reforms, and export diversification.
Over the same 50 years, many other developing regions—especially Asia—showed uninterrupted,
higher economic growth and slowing population growth. As a result, Asia’s per capita GDP has soared
relative to the world average while Africa’s has stagnated. The Asian performance beginning with thesustained high growth of Japan, followed by that of the newly industrialized Asian tigers, and now ofChina and India, shows that sustained high growth is possible, even in countries that are strikingly
different in size, resource endowment, initial human capital, culture, and political regimes. Based on thisAsian experience and also both the successes and difficulties faced by Lain America over the past 40
years, the macroeconomic chapter puts forth a macroeconomic policy framework that would be thefoundation of a higher and more sustained growth of African economies between now and 2050,
including by ensuring macro-economic balances, higher savings and investment rates as well as a much
more conducive business environment that will make Africa a haven for private investment and ensure
continuous growth in productivity. This framework guides the work on all elements of this study andunderlies the scenarios for Africa in 2050.
2050 Scenarios (Chapter 3)
Three scenarios of Africa’s future economic trajectory through 2050 are presented in Chapter 3: the“Convergence” scenario, the “Business as Usual” scenario, and the “Downside” scenario. The scenarios
were developed with Centennial Group International’s Global Economy Model which was also used in
the Asia 2050 and Latin America 2040 studies. The convergence scenario assumes strong reform action,
including in the five areas addressed in this report. Under such a scenario per capita incomes in Africa
could grow by 4.6 percent annually over the next 40 years and exceed US$17,000 (2010 PPP US dollars)in 2050. Africa-wide per capita income would be higher than that of Russia, Malaysia or Turkey today.
Under such a scenario, Africa’s average per capita income would rise from 27 percent of the world
average today to 52 percent. Such sustained growth would set in motion many changes which would
genuinely transform the lives of Africans and Africa’s role in the world. The size of the middle classwould increase more than 100-fold and increase to 69 percent of the population from 12 percent today.
The number of poor would decline to 53 million (or under 3 percent of the population) from 384 million(or 36 percent) today. In global terms Africa’s share of world GDP would more than triple from less than
3 percent today to 9 percent in 2050.
The business-as-usual scenario assumes that Africa’s higher investment rates of recent years continue,
its labor force continues to grow, commodity prices remain high, and the generally improved policies ofthe last 10-15 years are maintained—but there is no sustained action on the remaining policy andinstitutional reform agenda and therefore these determinates of growth would not improve further. As
a result, on the productivity front nothing much changes. The opportunity cost borne by average
Africans would be enormous if the African economies fail to realize the convergence scenario andremain stuck in the business-as-usual scenario -- per capita income lower by more than US$10,000,
7some 40 percent of the population (895 million) unable to reach middle class status, and an additional
15 percent of the population (325 million) mired in poverty.
The business-as-usual scenario is, however, by no means a low-case scenario. A much more dire or“downside” scenario is also plausible and could be triggered by an increase in fragility and conflict,growing inequality, a failure to slow population growth, or commodity price swings. Under the downside
scenario per capita income would grow by less than one percent a year, reaching only US$4,000 (2010
US dollars PPP) in 2050. But, given faster growth in the rest of the world, it would fall to only 15 percentof the world average. One in three Africans would still be in poverty. On the global stage Africa would
have only 2 percent of world GDP. Such a scenario must be avoided at all cost.
The convergence scenario is feasible but will be realized only if there is vigorous and sustained
implementation of policy and institutional reforms. This scenario requires sustained, higher productivity
growth for most countries over the next 40 years. Countries in other regions (particularly many in East
Asia) have achieved such sustained productivity growth, but not many. African leaders therefore must
focus on realizing the convergence scenario.
Demography (Chapter 4)
Chapter 4 highlights both the major demographic changes that will shape the continent and theimportance of accelerating the demographic transition. Over the next 40 years, Africa’s population is
likely to at least double, reaching 1.9 to 2.5 billion, and the number of youth will increase from 205
million today to anywhere from 330 to 450 million. These demographic shifts can lead to higher
productivity and per capita incomes or to unmanageable social tensions, violence, and conflict. The
chapter thus assesses one of the key parameters for the macroeconomic modeling, the prospects forpoverty reduction, and the dimensions of urban growth dealt with in other chapters
The potential for a demographic dividend is clear. Africa’s share of the world labor force will grow and, if
fertility declines, its dependency ratio will fall. This creates the potential for a rapid rise in per capita
incomes—a demographic dividend—as both worker productivity and the share of the population that is
employed increase.
In the simplest terms, realizing the potential depends on people finding higher productivity jobs. One
key question is jobs for how many people? Under the UN’s low-fertility variant, Africa’s working age
population would increase by 630 million—from 470 million today to 1.1 billion by 2050—and its
dependency ratio would fall from 119 today to 76 in 2050. Even with no change in productivity thiswould yield nearly a 25 percent increase in per capita incomes as a result of the greater number ofworkers for every child or elderly person, and a virtuous circle of increased income to increased savings
to increased investment to even higher income.
In sharp contrast, under the UN’s high-fertility variant, the working age population would increase by
780 million by 2050 and the dependency ratio would fall only to 98 from 119 today. With no otherchanges, the result would be only around a 10 percent increase in per capita incomes. Under the high-8fertility variant, which already assumes a decline in fertility from today’s levels, it is highly unlikely that
Africa would be able to increase jobs and productivity enough to raise per capita incomes substantially.
Similarly, the increase in the number of children to be cared for is directly related to the pace of fertility
decline. Under the UN’s low fertility variant, in 2050 Africa would have roughly 100 million morechildren than today to be educated, kept healthy, and housed. Under its high fertility variant, there
would be more than 400 million more. Providing quality and health, education, and other services to
100 million more children may be a challenge but is doable. Trying to provide them for more than 400
million more is likely to put an unbearable strain on both institutional and fiscal capacity and hence
deprive these children of the skills needed to create and prosper in a dynamic Africa of 2050. Fertility
issues are also directly related to poverty and inequality as the poorest segments of society frequently
have the highest fertility and suffer most from the lack of quality education and other services.
The population will continue to increase but the pace of fertility decline is a key determinant of thenumber children to be educated, the number of jobs needed, and the number of young and old
supported by every working adult. The difference in these numbers across fertility scenarios is verylarge. If fertility were to stay at today’s levels or even decrease to the UN’s high-fertility variant, it isvery unlikely that Africa could produce either the required access to quality education or jobs.
How many jobs and what kind of jobs? Job creation is both more uncertain and more amenable to big
changes than population growth. Even the low-fertility scenario implies a need for 12-15 million newjobs every year just to absorb the increase in the working age population. Big increases in jobs will haveto come from the private sector. Given rudimentary social protection systems, unemployment is not an
option for most and household enterprises are likely to stay the residual source of employment. It isvery likely that people will be employed; the question is whether they will be employed in lowproductivity traditional agriculture and household enterprises (survival jobs) or in higher-productivity
agriculture, manufacturing, and services jobs that are transformational. The answer depends onwhether workers have the needed skills and private investors have the confidence to invest.
Poverty and Inequality (Chapter 5)
The poverty and inequality chapter argues that Africa’s sustained growth both requires the mobilizationof the totality of the society’s human resources and provides the only effective means for social mobility
and reduced outcome disparities. Such a reduction in disparities is key for realizing the 2050
convergence scenario developed in Chapter 3.
While poverty rates have declined over the last decade in much of Africa, inequities and disparities arestill growing nationally, regionally, and with respect to the rest of the world. At the national level,
inequality, as measured by Gini coefficients, increased over the last decade in two-thirds of the Africancountries for which data are available. As a result, income inequality in Africa is now higher than in any
other region of the world except Latin America (where income inequality is finally declining). The
earnings of the richest 20 percent of the population are 11 times those of the poorest 20 percent in
Africa compared to only 7 times greater in Asia. At the regional level, per capita incomes in the fiverichest African countries are 30 times those of the poorest five countries today, compared to 16 times
9greater twenty years ago. Finally, African per capita incomes are a smaller share of the world averagethan they were at independence and this share has remained stagnant over the last decade. Thus evenas concerns about the number of people living in absolute poverty are alleviated over time, inequities
and disparities will and must remain a major concern to economic policy makers and political leadersalike throughout Africa.
Access to basic services, such as education, health and sanitation, has again improved considerably overthe last decade. Like reductions in poverty, however, the overall improvement in access masks large andsometimes growing disparities in access based on gender, rural or urban location, and family income
level. They deserve much greater attention.
The Africa Progress Panel has clearly stated the implications of inequities and disparities: “Not all
inequalities are unjust, but the levels of inequality across much of Africa are unjustified and profoundly
unfair. Extreme disparities in income are slowing the pace of poverty reduction and hampering thedevelopment of broad-based economic growth. Disparities in basic life chances— for health, educationand participation in society—are preventing millions of Africans from realizing their potential, holdingback social and economic development in the process.” Any further growth in inequities would likely
spur social unrest, ranging from possible collapse in fragile countries to increased social tension in morestable countries to large population movements across borders.
Sustained high growth as envisioned in the convergence scenario for 2050 would make a significant
impact on poverty and on the share of Africa’s population moving into the middle class. Given thedimensions of the problem, increasing the opportunities for the most vulnerable is the only way to bothsustain overall growth and reduce disparities. Jobs may be the vehicle for people to move out ofpoverty, but disparities in access to quality education, health, and other services must be reduced
dramatically for the poor to board this vehicle. Current disparities of opportunity range from unequal
access to health and education services almost everywhere to dualistic labor markets in richer countries.
These concerns and their resolution are reflected throughout the report which focuses particularly on
inclusive growth and the challenge of creating millions of well-paying jobs each year and of training
Africa’s young and fast growing labor force to meet the requirements of these jobs.
Urbanization (Chapter 6)
Chapter 6 highlights that if people have skills, if cities function well, and if economies are open tocompetition, then Africa’s cities—which will triple in size from a population of 400 million today to atleast 1.1 billion in 2050—will be the loci of job creation. The size of urban markets, rising income ofurban residents, and concentration of economic activity could make cities dynamic centers for higher
productivity jobs—offering the prospects of a better life to more than one billion people. On the other
hand, if people are illiterate and unskilled, cities dysfunctional, and economies trapped in extractive
activities and/or crony capitalism, urban areas would be poor and violent— offering only thedesperation of hopelessness to residents.
All the prospective health gains, all the potential for a dramatically expanded and enhanced skills base,and the possibilities for generating jobs and attracting investment in Africa, will depend on how
10effectively cities function—how well, and to what level of quality, services are sustainably delivered—since it is the urban areas where most of the future population will live and where the jobs will have tobe created. African cities are already the fastest growing in the world, and by 2050, the continent could
be home to fifteen mega-cities of more than 10 million inhabitants.
Larger urban populations also mean that cities will occupy more land to accommodate businesses,
housing, public spaces, and circulation. Physical expansion will require increased capacities of theassociated water and sewerage systems, sanitation and solid waste management, roads and drainage,
parks and recreation, electricity supply—all of which are to be provided on a massive scale by cities
which, for the most part, have failed to meet much less pressing service demands to date. Recent
studies have shown that despite the economic gains made by Africa over the past decade, and unlike
Asia, there has been a significant increase in urban slums and a worsening of urban poverty levels.
Moreover, experience worldwide shows that urban service demands cannot be sustainably deliveredfrom the center, but have to be driven and managed by city government. This is a significant challenge
in Africa where most political environments do not provide the enabling policy, fiscal frameworks, andlegal and regulatory regimes necessary for cities to function effectively. In addition, city governments
only operate effectively if there are clear lines of accountability and consequences between them andtheir constituents.
Cities may be the locus of most economic activity but it is private sector firms that will drive growth andjob creation. Cities must not only provide traditional urban services to their residents but be very
focused on creating the environment required to attract and grow private businesses.
The most critical area for action over the next ten years will be institutional—introducing and making
operational key systems of local government that are essential to effective city management.
Establishing such systems requires action on five broad fronts. First, there must be clear definition of
the functional responsibilities assigned to urban government. Second, sound legal and regulatory
frameworks for functional and fiscal operations must be established. Third, predictable sources of local
revenue need to be identified, including a transparent architecture for central-local fiscal transfers.
Fourth, effective social contracts between urban local government officials and their communities must
be built to support good governance and strengthened accountability. Finally, urban local government
capacity needs to be strengthened through a process of “learning by doing”.
Natural Resources (Chapter 7)
Chapter 7 addresses three main issues related to natural resources. First, how Africa can sustain, andeven raise, the growth rates it has experienced recently by increasing the share of revenues accruing to
the country from the production and export of natural resources. Second, how best to preserve andinvest these revenues. And finally, how best to diversify the economies over time in order not to rely
too heavily on natural resources to continue its growth.
Africa is well-endowed with mineral resources. It accounts for more than 5 percent of both production
and reserves of oil, gas, bauxite, titanium, copper, and gold. In addition, many of its reserves are of11particularly high quality. As a result, natural resources play a big part in the regional economy.
Hydrocarbon and metals exports account for more than 50 percent of exports in 14 African countries
that are home to 39 percent of the continent’s total population. Similarly, resource extraction rents
represent more than 2 percent of GDP in 27 countries that account for 72 percent of the population.
Commodity prices have historically played a big role in growth. Roughly one-quarter of African GDP
growth over the last decade is attributable to commodity price increases.
Hydrocarbon and mineral wealth is intrinsically a blessing but one that can easily become a curse. Africa
has examples of such resources being managed efficiently and thus contributing to dramatic
improvements in wellbeing, such as in Botswana. But there are also examples where these resources
have fueled wars, such as in Sierra Leone or the Democratic Republic of the Congo (DRC), or led towidespread corruption and poverty, such as in Nigeria.
Extracting non-renewable resources is, by definition, not a sustainable source of growth over the longrun and creates few jobs. The source of either the blessing or the curse is that natural resource
extraction generates revenues that are much greater than the cost of extraction, what economists
would refer to as “rents”. Everything depends on who gets the rent and how they use it. They can bestolen (and frequently sent abroad), consumed, or invested.
Countries can get more (or less) of the rent depending on the risks and costs of doing business in theircountry, the extent of transparency to reduce corruption, and the expertise they mobilize in contract
and taxation matters. The risk is that even then such rents can lead to boom and bust cycles in theeconomy linked to fluctuations in commodity prices, to an overvalued exchange rate that makes
diversification and the associated job creation difficult, or to unsustainable consumption that ends when
the resources are depleted. The opportunity is to transform mineral assets into human, physical, andfinancial capital that could transform the continent and its people. The chapter offers specificrecommendations as to how resource rich African countries can do so. The recommendations coverboth, measures related to natural resource rents and their management, and broader economic
management to enable inclusive development and private sector-led diversification of the economies.

12CHAPTER 2: MACROECONOMICS
I.

Introduction

The 1960s was a decade when many African countries gained independence. Driven by the desire toraise living standards across the continent, African leaders adopted a development strategy that reliedheavily on an extensive system of government interventions and controls for the purposes of economic
management. Price controls, import licensing, foreign exchange restrictions, controls on bank credit andinterest rates, the taxation of the agricultural sector, and the establishment of public enterprises instrategic sectors were the main instruments of economic management.
In Sub-Saharan Africa (SSA), although in the 1960s there was a modest increase in per capita income andexport growth was strong, there was a marked deterioration of economic performance during the1970s. The growth rates of real GDP and per capita income decelerated, and aggregate export volume
trended downward. In the 1960s there was an upswing in the terms of trade followed by a downturn inthe 1970s (in the wake of a surge in oil prices). In North Africa, where the average growth rate was lower
than in the SSA region in the 1960s, growth performance improved in the 1970s.
Beyond the adverse effects of the oil price shock, most countries began to experience the paralyzing
influence of government interventions and controls. Savings and investment rates were woefully
inadequate to meet the needs of human resource and infrastructure development, unprofitable public
enterprises became an unsustainable burden on the budget, and the private investments needed for
agricultural and industrial development were not forthcoming. The state-administered system ofcontrols on domestic prices, crop marketing, credit allocation and bank interest rates, and the allocationof import licenses and foreign exchange made it extremely difficult for the private sector to function.
Following a rethinking of development strategies in SSA, an increasing number of countries began toimplement far-reaching reforms to achieve macroeconomic stability and eliminate the government
interventions that impeded economic activity, especially in the private sector. Economic performance
was disappointing throughout the 1980s with a decline in per capita income. In the first half of the
1990s inflation rates accelerated. The first signs of economic recovery emerged only in the mid- 1990s.
Throughout this protracted period of 15 years, investment-savings gaps and fiscal imbalances remainedlarge and were financed by substantial inflows of foreign aid and external debt relief. Growth
performance also weakened in North Africa during the 1980s and the 1990s.
Notwithstanding the disappointing overall economic performance of African countries during this period(1980-95), there was some evidence that countries that had improved their macroeconomic policies andimplemented reforms in a sustained manner performed better than countries that were less successful
in implementing structural adjustment programs. In SSA reform efforts implemented over an extended
period by an increasing number of countries had led to an increase in the number of successful adjusters
or countries with improved growth performance. In addition, the Franc Zone countries of West andCentral Africa, where growth performance was chronically weak because of a highly overvalued
exchange rate, launched new adjustment programs based on a substantial devaluation of the exchange
rate in August 1994. Their economic performance improved with a short lag.
13

Section II traces the economic performance of Africa since 1960, distinguishing between two subperiods; 1960-mid-1990s and the strengthened performance from the mid-1990s to date. Section III
focuses on investment and savings performance. It starts by reviewing recent trends in investment andsaving rates and then presents policy recommendations to raise these rates to the levels that are
required in the coming decades to underpin sustained high growth rates. The concluding Section IV
outlines the macroeconomic policy framework for sustainable high growth and inclusion, i.e., to achieve
the Africa 2050 vision.

II.

Broad trends in Africa’s Economic Performance (1960 – 2011)

During the 12-year period from 1957 to 1968 thirty three African countries joined the international
community as independent nations. Eight more countries gained independence over the period 197480. Only a few countries had gained independence prior to the 1950s: Liberia (1847), Egypt (1922) and
Morocco (1927) were the earliest forerunners. A notable exception is Ethiopia, which was never undercolonial rule. A. The deterioration in economic performance between the 1960s and the mid-1990s
The deterioration in economic performance between the 1960s and the mid-1990s
In the 1960s Africa’s new leaders relied on highly interventionist economic policies to promote rapid
economic development. These policies sought to achieve rapid industrialization by curtailing importdependence, establishing public enterprises to control and manage economic activities in strategic
sectors, and putting in place wide-ranging regulations to control prices, restrict imports through strict
licensing and other trade barriers, and control the availability and allocation of bank credit and foreignexchange. Governments relied on the taxation of agriculture and often on exports to raise resources forthe financing of their economic development plans. Many countries were able to mobilize financial
support for their development plans from foreign development partners (including both bilateral andmultilateral institutions).
Despite the challenges of transition to new Governments and the extra caution required to work withthe basic economic database of the 1960s, it is useful to report briefly on the early assessments thatexist of broad economic trends in the post-independence years. The data for this study are drawn
mainly from various past issues of the World Bank’s African Development Indicators, the IMF’s World
Economic Outlook and the UNCTAD database.
Worsening economic growth performance
Africa’s overall growth performance in the 1960s was encouraging and reflected several positive trends(Figure 2.1). In both Sub-Saharan Africa (SSA) and North Africa real GDP growth was on averagesomewhat faster than population growth, although reportedly slower than the average for otherdeveloping countries.4 However, economic growth weakened substantially during the 1970s, especiallyin the non-oil and non-mineral producing countries of SSA. In North Africa the average growth ratecontinued to improve in the 1970s.

4 The World Bank (1989) – “Sub-Saharan Africa: From Crisis to Sustainable Growth.”

14

Figure 2.1: Growth rates of Real GDP and Per Capita Real GDP
10

6
4
2
0
-2

1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009

Annual growth (%)

8-4
GDP growth - all Africa

Per capita GDP growth - all Africa

Source: UNCTAD databaseIn the 1960s per capita GDP increased in both regions at an average annual rate of somewhat more than
2 percent (Figure 2.1). During this decade the growth in agricultural production (2.7 percent) was
roughly the same as population growth in SSA countries and agricultural exports increased at about 2
percent a year.5 Moreover, the volume of total exports from SSA reportedly grew on average at 6
percent a year, led mainly by oil exports. A surge in commodity prices in 1967 boosted exports andstrengthened growth performance. The available data for North Africa (covering 1965-69) indicate thatduring this five year period annual growth rates (in real terms) averaged 8 percent in industry (inclusiveof oil and other mining) and 4 percent in agriculture (which was noticeably faster than population
growth).6
During the 1970s the decline in economic growth rates in SSA reflected a deceleration of growth rates in
the non-oil and non-mineral producing countries following a substantial worsening of their terms oftrade. In these countries the increase in per capita GDP was barely equal to the population growth rate.
Aggregate export volume trended downward following the 1973 oil shock for all SSA countries (including
oil exporters). The share of Africa’s total exports in world exports declined and its share of world exports
of primary commodities fell even more sharply. Agricultural exports from Africa’s non-oil primarycommodity exporters were on a declining trend. The non-oil primary commodity exporters of Africa hadremained narrowly concentrated on a few agricultural commodities and had yet to tap into the growing
markets in other developing countries (especially Asia). Mauritius and Kenya are notable exceptions
where efforts were made to diversify away from exports of primary commodities.

5

Ibid.
Global Coalition for Africa (2003/04): “The 2003/04 Annual Report – African Social and Economic Trends.” Thispublication cites World Bank data as its data source.
615

In the 1960s and the 1970s in both sub-regions growth performance was accompanied by a volatility ofannual growth rates (Figure 2.2).7 The relatively undiversified structure of Africa’s production andexports made it difficult to moderate (or mitigate) the negative impacts of both external and internal
shocks.
Figure 2.2: Average Variability in Growth Rate - all Africa
65Percent

4
Average Variability
3
Average annual growth
rate

2
1
0
1960s

1970s

1980s

1990s 2001-10

Source: Derived from UNCTAD data used in Figure 2.1

The deterioration of performance during the 1970s was due to serious structural weaknesses. The oilshock of 1973 and the terms of trade losses of subsequent years (especially the early 1980s) were only
part of the reason underlying the protracted slowdown in growth performance in the SSA countries.
Savings and investment ratios were well below what was needed to address the pressing challenges of
economic development and growth. Substantial deficits in the public sector and terms of trade losses
had weakened domestic savings. 8 Moreover, investments were costly due to poor transport services,
adverse taxation and other policies; also the returns to investment (as measured by the incremental
capital-output ratio) were lower than in other regions.9 Even among Africa’s oil exporting countries
where substantial resources were derived from higher oil prices there was little success in diversifying
production and exports.10
Higher public investments and savings were necessary to increase expenditures for both humanresource and infrastructure development. The efficiency of public investments needed to be improved.
Private sector investments in agriculture and industry were not adequate to spur growth. An enabling
regulatory environment and more efficient infrastructure services were required to promote private
sector development. Stronger efforts were needed to boost private savings through urgently needed

7 Variability is measured by the average deviation from the mean.

8

Ibid.
The World Bank (2000) – “Can Africa Claim the 21st Century?”
10
Ibid.
9

16

reforms in the financial sector. Greater priority needed to be given to capacity building in both the
public and the private sector.
A rethinking of the interventionist economic development strategy was triggered by the urgent need for
economic recovery. From the second half of the 1970s through the 1980s an increasing number ofcountries began to implement far-reaching economic reforms to achieve macroeconomic stability andremove the structural distortions that resulted from official price controls and state-owned monopolies
in agricultural marketing, the taxation of agricultural exports, overvalued exchange rates, the extensive
reliance on restrictive import licensing and other trade and foreign exchange restrictions, and the rigid
controls on interest rates and credit allocation that inhibited efficient financial intermediation. Reforms
also sought to restructure and privatize public enterprises in banking as well as in other sectors to
improve economic efficiency, reduce the fiscal burden of unprofitable enterprises and, mostimportantly, to support private sector development. From only a few countries in the early 1980s thenumber of SSA countries with IMF-supported programs increased sharply by the early 1990s (to cover
24 countries).
The results of the reform efforts took time to bear fruit across Sub-Saharan Africa as the pace andintensity of reforms varied widely across countries. In Sub-Saharan Africa (SSA) average annual growth
rates continued to decline through the 1980s and until the mid-1990s. During this 15-year period theaverage annual growth rate of per capita GDP was negative as recovery began only in the second half of
the1990s. In the 1980s and the early 1990s economic performance was particularly disappointing in the
CFA franc zone countries of West and Central Africa where the problems associated with unsustainablefiscal and external deficits were compounded by a highly overvalued exchange rate. These countries,
which had a fixed peg to the French Franc, devalued their exchange rate in August 1994 and adopted
structural adjustment programs that laid the basis for their subsequent economic recovery in the latter
half of the 1990s. In North Africa, where growth rates declined during the 1980s, the annual
improvements in per capita GDP (less than 1.5 percent) were on average much less than the previous
two decades.
The discussion that follows indicates that throughout the economic reform process Africa faced serious
macroeconomic challenges: tackling large fiscal and external current account imbalances, reducing
inflationary pressures, increasing domestic savings and investment, and addressing external debt
management problems. Once there was adequate progress in establishing macroeconomic stability,
economic performance improved over an increasing number of countries.
Weak Savings and Investment Efforts
Africa’s savings rate has remained virtually stagnant for almost four decades 1960s-1990s. The
investment rate has been higher than the savings rate for most of the period under review. After adecade of stagnation in the 1960s, the investment rate increased sharply in the early 1970s but
subsequently trended downward over the subsequent three decades (Figure 2.3). The financing gaps
resulting from these trends were covered by aid inflows and foreign borrowing with aid flows mainly

17benefitting the SSA countries. Fiscal deficits remained large and were financed by foreign aid and debt
relief operations.

% of GDP

Figure 2.3: Ratios of Investment and Savings to GDP (%)
35
30
25
20
15
10
5
0
-5
-10
-15

Gross domestic savings (% of GDP) - all Africa
Gross capital formation (% of GDP) - all Africa
S - I gap (% of GDP) - all AfricadSource: UNCTAD database

In SSA savings ratios remained basically low and stagnant in the 1960s and showed only a modest
improvement in the 1970s. The investment rate rose in SSA through the 1960s and at a slower pace inthe1970s. Thereafter, the savings and investment ratios of the SSA region trended downward during
the1980s. There was no visible improvement in the investment rate (18 percent) and the savings rate
(15 percent) in the 1990s, which remained well below the levels of the 1970s. The trends in savings andinvestment in North Africa were similar. Savings ratios remained basically low and stagnant in the 1960s
and showed only a modest improvement in the 1970s. In North Africa investment ratios rose markedly
in the second half of the 1970s and subsequently trended downwards through the 1980s and early
1990s, but savings ratios remained lower and showed virtually no improvement. Consequently, annual
investment-savings gaps (although declining) remained large in these countries.
Growing Inflationary Pressures, Monetary Expansion and Exchange Rate Policies
As measured by the GDP deflator, in the 1960s annual inflation rates were relatively low in SSA (about 6
percent} and North Africa (about 2 percent).11 However, inflation rates were markedly higher in the
1970s in both the SSA countries (13 percent) and North Africa (about 9 percent). The inflation rate
accelerated further in the 1980s in the SSA region where it ranged between 20 to 30 percent. In North
Africa inflation remained around 10 percent. For Africa as a whole the inflation rate was double-digit
during the 1980s (in the range of 10 to 20 percent).

11

Ibid

18

There was a surge in Africa’s inflation rate in the first half of the 1990s followed by a steep reduction
during 1995-97, again reflecting a similar trend in the SSA region (Figure 2.4). The average annual
inflation rate declined in SSA in the latter half of the1990s with significant progress in reducing
inflationary pressures in an increasing number of countries.12 In North Africa, inflation rates in Algeria,
Egypt and Libya declined below 10 percent in the latter part of the 1990s while Morocco and Tunisia
continued to maintain their low-inflation environment.13
Figure 2.4: Consumer Prices Inflation Rate (%)

Inflation rate (%)

50
40
30
20
10

Africa

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

1980

0

Sub-Sahara

Source: IMF WEO database

The movements in the inflation rate reflected closely the rates of monetary expansion in Africa (Figure2.5). In particular, both indicators moved sharply up in the early 1990s and then declined during 199597.

60
50
40
30
20
10
0

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997

Percent

Figure 2.5: Growth rates of Broad Money and the Inflation rate (in percent)Africa - increase in broad money
Sub-Sahara - increase in broad money
Africa - inflation rate
Source: IMF WEO database
12 International Monetary Fund (October, 2004): “Sub-Saharan Africa Regional economic Outlook.”
13 International Monetary Fund (October 1999): “World Economic Outlook.”

19

The inflation experiences of African countries with fixed exchange rates differed from those that had
more flexible exchange rate regimes. For example, inflation rates in the CFA Franc Zone countries
averaged well below 10 percent during 1975-89 while double digit inflation rates were not uncommon
in this period in the countries with flexible exchange rates (such as in Ghana, Sierra Leone, Uganda andZambia). Low inflation in the CFA franc countries is the result of their special monetary and financial
arrangements, which include not only a fixed exchange rate but also a high degree of openness of theexternal capital account and an independent common central bank. In this situation, domestic credit
expansion does not lead to monetary expansion and inflationary pressures. The impact of large fiscal
deficits and investment-savings imbalances is channeled through a build-up of foreign debt and/or
drainage of foreign reserves; there is little or no spillover in to inflation. In countries with flexible
exchange rate regimes the main cause of inflation was fiscal deficits entailing substantial monetaryfinancing. In these cases, exchange rate devaluations can aggravate inflationary pressures by raising thecost of imports (especially of imported inputs), more so if domestic supply elasticity is low.
The inflationary impact of the 1994 CFA franc devaluation (50 percent in foreign currency terms)
implemented by 14 Franc Zone countries was large for a short period following the devaluation. All the
14 countries implemented the devaluation simultaneously and quickly launched macroeconomic
programs to maximize the gains from the devaluation. This explains the temporary upturn in Africa’s
inflation in 1994 and the subsequent drop in inflation during 1995-1997.
In other countries too, exchange rate devaluation per se has not always led to inflationary pressures.
Where countries had large differentials between the official exchange rate and the rate in the parallelmarket, devaluations have tended to close this gap without significant inflationary effects whenappropriately tight macroeconomic financial policies were in place. This is because domestic prices
already reflected the parallel market exchange rate prior to the devaluation. The experiences ofcountries that moved from fixed to flexible exchange rate regimes such as Ghana, Sierra Leone, Uganda
and Zambia indicate that high inflation and thriving parallel markets prevailed before the reform of theirexchange rate regimes in the 1980s. Devaluations in these cases tended to align the official rate with theparallel rate and in some cases alleviated fiscal pressures by increasing government revenues. Thus
these exchange regime reforms contributed little to inflationary pressures.
Many African countries implemented structural reforms of the financial sector. Central banks were
granted more autonomy in conducting monetary policy. Interest rates were liberalized and credit
allocation systems were phased out. Strict limits were introduced on government borrowing. The
solvency of banks was improved by restructuring measures, and bank supervision and auditing practices
were strengthened. Steps were also taken to shift from direct to indirect monetary policy
implementation.
In the aftermath of the August 1994 devaluation the CFA franc countries implemented several financial
sector reforms. Crop credit was included under an overall credit ceiling. Credit controls were eliminatedand a new rating system for assessing creditworthiness was introduced to guide the refinancing policy ofthe central bank. A system of indirect monetary management was launched within the framework of aregional interbank and money market. Money market auctions and a central bank discount window
20

were introduced. To provide liquidity for banks a form of repurchase agreement was created. Interest
rates were liberalized. Bank supervision capabilities and regulatory and prudential standards were
substantially improved and their enforcement was strengthened.
Persistence of large Fiscal Deficits
From the beginning of the 1970s to the early 1990s, Sub-Saharan Africa’s fiscal deficits have fluctuatedbetween 5 and 9 percent of GDP without a clear trend towards a narrowing of the deficit (Figure 2.6). A
sharp reduction of the deficit was achieved during 1994-1997. For Africa as a whole the time profile ofthe overall fiscal deficit has been very similar to that of the SSA countries (Figure 2.7).
Figure 2.6: Sub-Saharan Africa: Ratio of Fiscal Deficit to GDP (in percent)0-1-2% of GDP

-3
-4
-5
-6
-7
-8
-9
-10
1970

1975

1980

1985

1990

1995

Source: IMF database

Figure 2.7: Ratio of Fiscal Deficits to GDP (%)
0-1-2% of GDP-3-4

Africa-5

Sub-Sahara

-6
-7
-8
-9
1980

1985

1990

Source: IMF database

21

1995

Reform efforts in the 1980s and 1990s included various fiscal measures. Public investment programming
was integrated within a coherent budgetary framework and supported by improvements in project
selection and public expenditure management systems. In prioritizing government expenditures more
attention was given to human resource development (through emphasis on health and education) andpoverty reduction objectives. Measures were implemented to restructure the public enterprise sector,
privatize some of these enterprises, and reduce this sector’s reliance on budgetary subsidies anddomestic bank credit. A number of countries (The Gambia, Ghana, Lesotho and Mali) took steps toreduce the civil service wage bill as a percentage of GDP and improve the wage structure.
On the revenue side, steps were taken to improve tax administration, broaden the tax base andrationalize tax structures. Efforts were made to reduce reliance on taxation of foreign trade and shift
towards taxes on domestic transactions and sources of domestic income. In The Gambia, Kenya,
Madagascar, Niger, Senegal, Tanzania and Togo, reforms of import tariffs included reducing the number
and the highest level of the duty, reduction of exemptions and the conversion of specific to ad valorem
taxes. In some cases, broad-based sales taxes replaced a multiplicity of sales tax rates and several
countries (Kenya, Malawi, Mali, Niger and Senegal) took steps to introduce value-added taxes. Personal
income taxation was simplified in some countries (Kenya, Madagascar, Malawi and Tanzania) bylowering the highest marginal rates, reducing the number of rates, reducing exemptions and deductions,and shifting to improved definitions of income.
Prolonged Deficits in the External Current Account of the Balance of Payments
As a result of the fiscal imbalances, Sub-Saharan Africa’s external current account deficits were
substantial as a proportion of exports throughout the 1970s and the 1980s (averaging about 23
percent); these deficits began declining around the mid-1990s (Figure 2.8). For Africa as a whole theexternal deficits were smaller as a ratio of exports because of the lower ratios in North Africa.
Figure 2.8: Ratio of the External Current Account Deficit to Exports of Goods and Services (in percent)
0
-5
-10

Percent-15
Africa-20

Sub-Sahara

-25
-30
-35
-40

1981

1986

1991

Source: IMF/WEO database

22

1996

A growing debt problem and repeated recourse to debt relief
The large deficits in the fiscal and external current accounts were financed by substantial foreign
borrowing in Sub-Saharan Africa. Consequently, Sub-Saharan Africa’s external debt to GDP ratio
increased from 24.9 percent in 1973 to about 70 percent of GDP by the mid-1990s (Figure 2.9). The
external debt service ratio to exports for the SSA region rose from 8 percent in 1974 to about 20 percent
by the mid-1990s. For Africa as a whole these ratios followed similar trends.
Figure 2.9: External Debt Indicators (in percent)
90
80
70

Africa - debt/GDP

Percent

60
Sub-Sahara - debt/GDP

50
40

Africa - debt
service/exports

30
20

Sub-Sahara - debt
service/exports

10

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997

0

Source: IMF/WEO database

Bilateral official creditors sought to alleviate Africa’s debt burden through repeated reschedulingoperations on increasingly concessional terms, mainly (but not exclusively) for the low-income
countries. In 1990 bilateral official creditors granting debt relief through the Paris Club introduced its
Houston terms for the benefit of eligible middle-income countries. Houston terms provided for longer
grace and repayment periods than the traditional classic terms which rescheduled debt at appropriate
market rates. In December 1994, the Paris Club introduced its Naples terms under which eligible
countries could get 50 percent to 67 percent of their eligible debt cancelled. In 1996 the Highly Indebted
Poor Countries (HIPC) initiative was launched by the IMF and the World Bank to provide broader debt
relief to heavily-indebted poor countries with severe debt burdens and to strengthen the links between
debt relief, poverty reduction and social policies. The HIPCs include 30 African Countries. The Paris Club
created its Cologne terms in June 1999 for the benefit of countries that are eligible for assistance underthe HIPC initiative. Cologne terms allow for higher levels of debt cancellation than Naples terms (90percent of eligible debts). Finally, the Multilateral Debt Relief Initiative (MDRI) was launched in 2005 to
supplement the HIPC initiative and help speed up progress toward the UN’s Millennium Development
Goals (MDGs). The MDRI provides countries completing the HIPC process with 100 percent debt relief on
eligible debts owed to the IMF, the World Bank and the African Development Fund (ADF).

23

As a result of substantial foreign aid inflows and debt relief from bilateral and official development
partners, African countries were able to not only finance their fiscal and external imbalances but also
gradually build up a much-needed (albeit modest) cushion of foreign reserves. In SSA reserves increased
from less than one month of imports in 1980 to slightly more than 2 months of imports (Figure 2.10).
Figure 2.10: Ratio of Foreign Reserves to Imports of Goods and Services
35
30

Percent

25
20
15
10
5

Africa

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

1980

0

Sub-Sahara

Source: IMF/WEO database

The contribution of reform efforts to economic recovery
Success in implementing reforms differed widely across countries as well as across the various areas ofpolicy reform. Assessments of Africa’s progress in implementing reforms and achieving the intended
economic results were periodically undertaken by both the World Bank and IMF staff as well as bydevelopment economists in academic institutions. A World Bank study examined the experience oftwenty- nine countries and reported that the six countries with the most improvement inmacroeconomic policies between 1981-86 and 1987-91 achieved the strongest improvement ineconomic performance.14 These countries achieved a strong recovery in the growth rate of per capita
GDP along with substantial increases in their industrial and export growth rates. Agricultural growth
rates also accelerated in countries that reduced the tax burden on farmers. While noting that reforms
were uneven across countries, the report concluded that the countries studied had in general been
more successful in improving their macroeconomic, trade and agricultural policies than reforming their
public and financial sectors. A later IMF staff study reviewed the adjustment experiences of two groupsof countries during 1986-93, namely countries that had implemented broadly appropriate policies under
their programs for at least three years (the sustained adjusters) and those that were less successful insustaining the implementation of their programs (weak adjusters). It reported that the countries
classified as sustained adjusters improved their external competitiveness and implemented structuralreforms (to cushion the impact of terms of trade losses) and performed better than the countries
14 World Bank (1993) – “Adjustment in Africa: Reforms, Results and the Road Ahead.”24

classified as weak adjusters. The group of strong adjusters achieved positive and higher rates of percapita real GDP growth, higher rates of government savings and investment growth. By contrast the
weak adjusters experienced negative per capita income growth and declines in domestic savings andinvestment in both the public and private sectors.15
As a growing number of countries implemented reform programs, often over extended periods,
evidence of improved economic performance emerged gradually across an increasing number ofcountries. An IMF staff study found that the economic performance of SSA countries had improved
markedly between the periods 1981-84 and 1995-97. 16 It noted that after recording negative growth
rates of per capita GDP through most of the 1980s and the five-year period 1990-94, the growth rate of
per capita real GDP rose to 1.2 percent during 1995-97. In the latter period growth rates picked up in 37of the sample of 46 countries examined in the study. Compared with the number of countries that had
achieved increases in per capita GDP during 1990-94 (16 countries), there were more than twice as
many countries experiencing positive growth rates during 1995-97. This overall turnaround in theeconomic performance of SSA countries masks the significantly weaker growth performance in countries
affected by past or continuing political turmoil. The growth rates in these conflict affected-countries(including in Burundi, Comoros, the Democratic Republic of the Congo, Rwanda, Sierra Leone, Swaziland,
and Zambia) remained negative or declined.

B. Strengthening of macroeconomic performance since the mid -1990s
1. Growth and Inflation
Africa’s macroeconomic performance improved markedly over the last decade and a half, not only interms of higher growth rates but also in terms of important gains in reducing inflation and thus inmacroeconomic stability. Africa’s GDP growth increased considerably from the early- to mid-1990s, andhas averaged around 4.6 percent a year since then (Figure 2.11). Moreover, despite the weak global
economic environment that followed the onset of the global financial crisis of 2008-09, annual growth
averaged of 4.8 percent during 2007-11. This performance is remarkable, even it is somewhat lower
than in the previous few years. Most countries shared in this solid expansion.

15 International Monetary Fund (IMF, 1995) Occasional Paper 118: “Sub-Saharan Africa – Growth, Savings and Investment,

1986-93.
16 IMF Working Paper 99/51 (1999): “Adjustment and Growth in Sub-Saharan Africa.”

25

Figure 2.11: GDP Growth: Africa and Selected Groups of African Countries, 1990-2011 (in percent)10

GDP growth (%)

5
Africa
0
1990

1995

2000

2005

2010

Early convergers
Late convergers-5

Fragile-10-15

Source: Centennial Group International
Note: The sharp drop in the growth rate of fragile countries mainly reflects the major decline in GDP
experienced by Libya.

The improvement in economic performance is—to a considerable extent--the result of important policy
efforts, including the wide-ranging reforms implemented by many countries prior to and in the context
of the HIPC and MDRI Initiatives, which helped lower fiscal deficits and public debt to sustainablelevels.17 These reforms, which were also carried out by a number of non-HIPC eligible countries, were
instrumental in introducing dynamism to the economies, as evidenced by higher economic growth and aremarkable strengthening in resiliency (Figure 2.12).18 19 Africa’s growth performance also benefited
from a considerable improvement in its terms of trade in recent years, and the associated increase inproduction of natural resources in several countries.

17 While there were significant concerns about the adverse effects resulting form donors reducing their assistance after having

provided debt relief to a country, this problem did not materialize on average. ODA flows to Africa (in 2010 prices and exchange
rates) actually increased from an average of US$30.7 billion a year during 1990-99 to US$37.4 billion a year during 2000-09 andUS$48.1 billion a year during 2010/11. See OECD, Development Aid at a Glance, Statistics by Region, Africa, 2013.
18 In the aftermath of the global financial crisis, Sub-Saharan Africa’s GDP growth fell to 1.6 percent in 2009 but it rebounded to
4.6 percent in 2011, reflecting the strengthening in resiliency. The focus here on Sub-Saharan Africa is an attempt to isolate theimprovement in the region’s resilience from the adverse economic impact on some Northern African countries associated withthe “Arab Spring”.
19 Boorman, Jack et al, The Centennial Resilience Index: Measuring Countries’ Resilience to Shock, February 2013. The index
provides a measure of the capacity of an economy to cope with and bounce back after having been hit by a shock. The key
components of the index are Fiscal and Monetary Policy Soundness, Government Effectiveness, Overall Governance, BankSoundness, Export Diversity and Independence, External Robustness, Private Sector Debt, and International Reserves. In thisstudy, the average index for the 130 countries under review is set to 100.

26

Figure 2.12: Resilience: Africa and the World, 1997-2011
102
100

Resilience score

98
96
94

World

92

Africa90
88
86

Source: Centennial Group International

Africa’s inflation rate dropped markedly during the last decade and a half, even if it still remains higher
than that of the advanced countries and other regions (Figure 2.13).20 The relative increase in inflation
since 2007 most likely reflects rising food prices and the considerable incidence that food has in Africa’s
consumption basket. What is remarkable is the major improvement among the fragile countries,21 astheir inflation rate approached the average for the region by the late 1990s. Also noteworthy is thedecline in inflation among the late convergers, from about 25 percent in the mid 1990s to low single
digits during most of the period under review.

20 The decline in inflation from the mid-1990s in a number of countries reflects the tapering off of the impact of the large

devaluation of the CFA Franc in 1994.
21 For a list of the fragile African countries, see Appendix 1.

27

Figure 2.13: Inflation rates: Africa and Selected Groups of African Countries, 1994-2012 (in percent)50
45

Inflation rate (%)

40
35
30

Africa25

Early converger

20

Late converger

15

Fragile

10
5
0
1994

1998

2002

2006

2010

Source: Centennial Group International

It should be noted, however, that in 2011, the Sub-Saharan countries with conventional exchange rate
pegs recorded an inflation rate of 3.6 percent, whereas those without such a peg recorded an inflation
rate of 10.4 percent.22 Moreover, inflation in the Sub-Saharan oil importing countries (excluding South
Africa) was 13.2 percent, reflecting the jump in world oil prices.
Many African countries have improved considerably their monetary policy management over the last
decade and a half. Most of the countries without a conventional exchange rate peg have introduced
indirect instruments to control monetary aggregates, and some of these countries have adopted
inflation targeting frameworks. Those with exchange rate pegs have kept a prudent credit policy. Many
countries have increased the autonomy of their central banks, and thereby enhanced its capacity tocontrol inflation. Nevertheless, after important efforts, progress in containing inflation rates has been
limited in recent years. As mentioned above, inflation has been relatively high, suggesting that monetary
policies may need to be strengthened, even if part of the recent inflationary developments reflect the
impact of higher food and fuel prices. Monetary authorities need to prevent these inflation rates frombecoming entrenched.
2. Public finances
Fiscal Policy in Africa, as measured by the government overall balance, has been prudent during the last
decade, showing significant surpluses in the period 2004-08 (largely accounted for by the fragile and lateconverger countries) that turned into small deficits in the aftermath of the global financial crisis of 200809. While these deficits have been largely similar to those prevailing in other regions, Figure 2.14 showsthat Africa’s public finances were more severely affected by the crisis than the other regions. In
particular, government revenue fell considerably as government spending remained relatively stable(Figures 2.15 and 2.16).

22 IMF, Regional Economic Outlook, Sub-Saharan Africa, October 2012.

28

Figure 2.14: Government Overall Balance: Africa and Selected Regions, 2000-12 (in percent of GDP
6

Percent of GDP

4
2
0

Africa-2

Central and eastern
EuropeDeveloping Asia

-4-6

Latin America and the
Caribbean

-8

2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

-10

Source: Centennial Group International

Figure 2.15: Government Revenue: Africa and Selected Regions, 2000-12 (in percent of GDP)
40

Percent of GDP

35

Africa30
25
20

Central and eastern
Europe15

Developing Asia

105Latin America and the
Caribbean

2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

0

Source: Centennial Group International

45
40
35
30
25
20
15
10
5
0

AfricaCentral and eastern
EuropeDeveloping Asia
Latin America and the
Caribbean

2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

Percent of GDP

Figure 2.16: Government Expenditure: Africa and Selected Regions, 2000-12 (in percent of GDP)

Source: Centennial Group International

29

Not surprisingly, the region’s aggregates mask large differences between the various groups ofcountries. As noted, both the fragile and late convergers showed large overall surpluses during 2004-08(Figure 2.17). But the surpluses of the latter group turned into small deficit in the aftermath of the
global crisis; the overall balances of the fragile countries fluctuated significantly, but remained insurplus. The overall balances of the group of early converger countries showed a similar pattern, butwere in deficit virtually the whole period, weakening to around 5 percent of GDP since 2009.
Figure 2.17: Government Overall Balance by Group of African Countries, 2000-12 (in percent of GDP)
15

Percent of GDP

10
Africa5

Early converger0Late converger
Fragile

-5

2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

-10

Source: Centennial Group International

This performance reflects a considerable increase in government revenue since the early 2000s (Figure2.18), mainly attributable to the groups of fragile and late converger countries, as revenue of the early
converger group remained relatively flat. This increase may be related to the large proportion of
resource exporters among these countries.
Figure 2.18: Government Revenue by Group of African Countries, 2000-12 (in percent of GDP)
50
45

Percent of GDP

40
35
30

Africa25

Early converger

20

Late converger

15

Fragile105Source: Centennial Group International

30

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

0

Government spending also rose markedly in the early 2000s in all the subgroups (Figure 2.19). Although
all groups continued to increase government spending, the increases among the fragile and lateconverger countries have been significantly larger, indicating a remarkable correlation between
increases in government revenue and expenditure. Given the large proportion of resource-rich countries
in these groups, such a pro-cyclical behavior raises concern about the sustainability of macroeconomic
stability, especially in the event of a weakening in the terms of trade.23
Figure 2.19: Government Expenditure by Group of African Countries, 2000-12 (in percent of GDP)
40
35

Percent of GDP

30
25

Africa20

Early converger

15

Late converger

10

Fragile

5

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

0

Source: Centennial Group International

Moreover, as shown in Figure 2.16, Africa’s government expenditure is quite similar to that of Latin
America and the Caribbean but considerably higher than that of fast growing Asia. In view of the need toincrease expenditures in infrastructure and human capital, African policy makers will need to re-balance
the composition of government spending by containing the growth of other current expenditure andavoid rising total government expenditure excessively. Otherwise, the tax burden on the private sector
will be too heavy and thus affect adversely economic growth. Indeed, Africa’s government revenue ratio
to GDP, while similar to that of Latin America and the Caribbean, is considerably higher than that in fast
growing Asia.
Despite the overall positive performance, many African countries show enormous infrastructure gaps,
weak human development indicators, and poor income distribution. Fiscal policies should play a key rolein improving these conditions. To this end, there is a need to address structural weaknesses on therevenue and expenditure sides, and thereby prevent them from constraining growth potential.
3. Public debt
Africa’s public debt was reduced considerably as a ratio to GDP in the context of the HIPC and MDRI
Initiatives, as shown in Figure 2.20, thereby making the debt burden sustainable. While the public debt
ratio bottomed down in 2008, it increased significantly since then, owing to the fiscal stimulus packages
23

Loser, Claudio, Commodity Terms of Trade in Emerging Markets: A Fragile Blessing (forthcoming in Global
Journal of Emerging Market Economies).

31

adopted following the onset of the global financial crisis. This increase is largely attributable to thegroup of early converger countries (Figure 2.21). While all other regions also show an increase in 2009 or
2010, for similar reasons, their debt ratios stabilized immediately thereafter and—in Developing Asia-even returned to virtually the previous lower level by 2012.
Given the depressed economic situation of Europe—a continent that accounts for a large share of
Africa’s exports—it is understandable that the fiscal stimulus measures are difficult to unwind without
affecting economic activity, but African countries need carefully to rebuild their fiscal space andresilience and ensure debt sustainability.
Figure 2.20: Gross Public Debt: Africa and Selected Regions, 2000-12 (in percent of GDP)
80
70
AfricaPercent of GDP

60
50
40

Central and eastern
Europe30

Developing Asia

20
Latin America and the
Caribbean

10

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

0

Source: Centennial Group International

Figure 2.21: Gross Public Debt by Group of African Countries, 2000-12 (in percent of GDP)
90
80

Percent of GDP

70
60
Africa50

Early converger

40

Late converger

30

Fragile20
10Source: Centennial Group International

32

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

0

4. Balance of Payments
Mirroring the strengthened macroeconomic policies of the last decade and a half, as well as thecontribution of the improved terms of trade, Africa’s external current account showed large surpluses
until 2008, i.e., the onset of the global financial crisis. While the current account balances turned into
small, sustainable deficits, they have been more than financed by FDI and portfolio inflows. Developing
Asia and Latin America and the Caribbean show similar trends. By contrast Central and Eastern Europe
show the reverse trends as easy access to external borrowing led to a boom of consumption that was
reversed in the aftermath of the global crisis (Figure 2.22).

10
8
6
4
2
0
-2
-4
-6
-8
-10

AfricaCentral andeastern Europe
Developing Asia

2012

2010

2008

2006

2004

2002

2000

1998

1996

Latin America andthe Caribbean

1994

Percent of GDP

Figure 2.22: External Current Account Balance: Africa and Selected Regions, 1994-2012(in percent of GDP)

Source: Centennial Group International

The trends for the groups of late converger and fragile countries are considerably more pronounced(most likely reflecting a higher incidence of the gains in terms of trade). The group of early converger
countries also shows a strengthening of the current account balance until 2006 and steady decline
thereafter; although their deficit does not raise major concern, further declines may be worrisome(Figure 2.23).
Figure 2.23: External Current Account Balance by Group of African Countries, 1994-2012(in percent of GDP)
20

Percent of GDP

15
10

Africa5

Early converger0Late converger
Fragile-5

Source: Centennial Group International

33

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

-10

III.

Investment and Savings Needs for Sustained High Growth
A. Growth, Investment and Savings Recent Performance

1. Growth
The growth path for the group of early converger countries has been very similar to that of thecontinent as a whole, although with less volatility in recent years (see Figure 2.11). This volatility isgreatly influenced by the high instability of the fragile countries. Growth performance of the group oflate converger countries is significantly weaker than the other groups, with somewhat lower volatility
than the fragile group. More importantly and of greater concern is that the group of late convergers
shows a declining trend in GDP growth since the early 2000s.
While Africa is expected to maintain a moderate rate of growth over the next few years, including as aresult of new natural resource production in several countries, the weaker performance of recent years
also suggests that the important efforts noted above need to be reinforced for GDP growth toaccelerate, especially by creating the conditions for Africa’s low investment and savings ratios to risemarkedly.
2. Investment ratios
Africa’s investment as a ratio to GDP is too low to sustain high rates of real GDP growth for long. Having
fluctuated around 20 percent during 1980-2011, it has risen to about 23 percent of GDP since 2007.
While these ratios are quite similar to those of Latin America and the Caribbean, they are significantly
lower than the average for emerging market and developing countries, and markedly lower than thoseof the fast growing countries in developing Asia, as shown in Figure 2.24.
Figure 2.24: Investment in Africa and Selected Regions, 1980-2011
45

Investment (percent of GDP)

40
35

Africa30

Emerging market anddeveloping economies

25

Developing Asia

20

Latin America and the
Caribbean

15

1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010

10

Source: Centennial Group International

34

While the investment ratios of the group of early converger countries have been quite similar to thoseof the continent, the decline in the ratio of these countries over the last few years is disturbing, andcontrasts with the increases observed in the other two groups. The decline may reflect a drop in FDI
associated with the Euro-zone crisis. While the investment ratios for the group of fragile countries havebeen volatile and lower than the average during the period under review, the considerable increasesince the early 2000s is remarkable. By contrast, the investment ratios for the late convergers, while asvolatile, have been significantly higher than the average and show a major pick up since 2000. Perhaps
the higher ratios reflect the high proportion of resource exporting countries in this group, and thecapital-intensive nature of natural-resource production.24
Figure 2.25: Investment in Africa and Selected Groups of African Countries, 1980-2011
35

Savings (percent of GDP)

30
25
Africa20

Early convergers

15

Late convergers
Fragile

10
5

1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010

0

Source: Centennial Group International

3. Savings ratios
Like in the case of investment, Africa’s savings ratio to GDP is also too low and compares poorly withthose of other regions (except for Latin America and the Caribbean) and particularly the fast growing
countries, as shown in Figure 2.26. It averaged well below 20 percent of GDP during 1980-2011;
although it rose steadily from 2001 to about 23 percent in 2006-07, it declined to about 20 percent inrecent years. This decline is striking given the income gains arising from the significant improvements interms of trade.

24 It is interesting to note that investment ratios in the North African countries are markedly higher than those in the Sub-

Saharan countries, but real GDP growth rates are considerably lower. As this suggests a higher capital-output ratio (i.e., lower
productivity of capital) in the North African countries than in the Sub-Saharan countries, the former countries will need to raise
their investment ratios well above the average for the continent.

35

Figure 2.26: Savings in Africa and Selected Regions, 1980-201150

Savings (percent of GDP)45
40
Africa35
Emerging market anddeveloping economies

30

Developing Asia

25

Latin America and the
Caribbean

20
15

2010

2007

2004

2001

1998

1995

1992

1989

1986

1983

1980

10

Source: Centennial Group International

The regional averages mask very large disparities between African countries; for instance, about half of
the Sub-Saharan countries have currently a savings ratio of less than 15 percent of GDP.25 Moreover,Figure 2.27 shows that the group of early converger countries has had higher savings ratios than the
average for the continent as a whole for most of the period under review, but has experienced a sharp
deterioration starting in 2005 and surprisingly falling below that average in recent years. The savings
ratios of group of late convergers have experienced wide fluctuations, but their levels are considerably
higher than the average for the continent. Perhaps this reflects the high proportion of resource
exporting countries in this group, and the size and volatility of the rents obtained from such exports. As
would be expected, and like in the case of the investment ratios, the group of fragile countries has lower
savings ratios than the other groups, but the recent increase to just below the average for the continent
is noteworthy. The latter may reflect increased rents from exports of natural resources.

25 IMF, Africa Regional Economic Outlook, October 2012.

36

Figure 2.27: Savings in Africa and Selected Groups of African Countries, 1980-2011
40
35

Percent of GDP

30
25
Africa20

Early convergers
Late convergers

15

Fragile

10
5

1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010

0

Source: Centennial Group International

B. Policy Recommendations to Achieve Higher Investment and Savings Ratios
The low investment and savings ratios raise concern about the sustainability of Africa’s growthprospects. Thus, there is a need to create the conditions for Africa’s low investment and savings ratios torise markedly. The following sections propose a non-exhaustive list of needed steps and policies.
1. Investment
To achieve the goals of the vision for Africa in 2050, particularly sustaining a GDP growth rate of 6.5
percent a year as in the convergence scenario of that study, Africa will need to raise its investment to an
average of about 30 percent of GDP.26 Of course, a number of African countries, which already have highinvestment to GDP ratios--especially the capital-intensive natural resource producing countries--willneed to raise their investment ratios well above this figure. The increase in investment will help closethe existing wide infrastructure gap and build over time an infrastructure that supports the targeted rateof GDP growth. Moreover, the investment ratio of those countries that also need to invest in closing
very large gaps in housing and the associated infrastructure (water, sanitation, etc) will also need toincrease above the 30 percent ratio.
It is expected that the new, higher investment would be more productive as it would bring in newtechnology. This, together with the policies proposed in the Africa 2050 study--especially regarding
education and health--will raise Total Factor Productivity (TFP) growth and generate considerable

26 Such a ratio will still be lower than the average for the emerging market and developing countries (see Chart 24). The ratio isbased on the average ICOR of 4.8 recorded during 2007-11 and a TFP growth of 1.6 percent a year. The average investment
ratio envisaged in the growth model used for the Africa 2050 study is 30.4 percent of GDP.

37

employment opportunities. As TFP growth is expected to increase over time--as a consequence of thosepolicies--the investment ratio could decline somewhat without impacting adversely on GDP growth.
While an investment ratio of 30 percent of GDP is achievable, important efforts are needed to make it areality. These efforts are mutually reinforcing and create a virtuous cycle; they aim at developing anenvironment that establishes the basis for sustainable high economic growth. They include:
1. The implementation, or continued implementation, of a sound and stable macroeconomic policy
framework that allows both the government and the private sector to plan ahead and increase
investment. Moreover, the framework should generate mutual trust and confidence ineconomic policies. This would enable the private sector (domestic and foreign) to play a key roleas an engine of growth. An important aspect of the policy framework is a stable and efficient tax
regime (see below).
2. Higher public investment also to crowd in private investment. Poor infrastructure (especially inpower, water, communication, transportation and logistics) is one of the greatest constraints on
economic growth, and especially because it leads to high costs and loss of productivity.27 Thus,
policy makers need to re-balance government expenditure towards much higher public
investment. This will help crowd-in private sector investment (as a consequence of thecomplementarity between public and private investment) and lead to a more dynamic andgrowing economies. Moreover, given the limited resources available to governments, the rebalancing effort needs to be supplemented by the adoption of a (or strengthening of theexisting) legal framework that encourages (domestic and foreign) private sector participation inenhancing infrastructure, through PPPs and other such arrangements.
3. Development of constructive and collaborative relations between the state and the private
sector. This includes a reduction in the cost of doing business through the establishment of abusiness environment in which economic agents are not constrained by red tape andunnecessary regulations, and by poor public services. Regulatory certainty and institutional
reforms that enhance governance and the rule of law are critical to promote a dynamic private
sector.28 They also need to improve the state’s efficiency, effectiveness and responsiveness, byprofessionalizing and upgrading the competence of the public service, and strengthening
accountability. In such a context, the private sector should respond by building a morecompetitive economy.
4. The build-up of a well qualified labor force that is able to adopt and adapt, and eventuallydevelop new technologies associated with new investments. This will involve enhancing thequality of and access to education, as well as training. It may need to be supported byencouraging immigration of professionals.

27

Fujita et al (forthcoming), Policy Challenges for Infrastructure Development in Africa – The Way Forward forJapan’s Official Development Assistance (ODA). In Chapter: JICA TICAD Report (tentative).
28 In the case of resource-rich countries, policy makers also need to remove, inter alia, uncertainties over ownership, tax

treatment and allocation of mineral rights.

38

5. The development of a seamless Africa and open markets that allow the exploitation of
economies of scale. This can be complemented with greater competition in domestic andregional markets.
6. The above aspects would be also critical to attract foreign direct investment, but efforts arenecessary to give such investment equal treatment to domestically generated investment. FDI isgenerally associated with bringing new technologies, as has been the case of the foreign
involvement in the exploitation of natural resources, and therefore plays a key role in raising TFP
and growth.
7. An advanced and efficient financial system is essential to the development of capital markets
that finance investment activities. The rapid spread of pan-African banking systems, as well as
the introduction of a framework that facilitates taking advantage of portfolio capital inflows(frontier markets) should help in this regard.
8. Ensure environmental sustainability, within reasonable parameters of costs and benefits. In
water constrained countries, enhance water management and infrastructure, as this is an
essential step in expanding agriculture and agro processing and thus rural development.
2. Savings
Correspondingly, savings will need to rise to some 26 percent of GDP a year to avoid balance of
payments problems while allowing for the imports associated with higher investment.29 As in the caseof investment, a number of African countries, which already have high savings to GDP ratios --especiallythose obtaining high rents from natural resource production--will need to raise their savings ratios well
above this figure. The increase in savings needs to be supported by higher foreign direct investment(FDI), especially in non-resource extractive activities. Clearly, as growth rises on a sustainable basis,domestic savings will respond accordingly and become a more important financing source forinvestment, leading to a virtuous cycle of higher investment, savings and growth, as well as a sustainablebalance of payments position.
Like in the case of investment, important efforts are needed to promote savings. These include:
1. A sound and stable macroeconomic policy framework, aimed at fostering sustainable highgrowth, is critical to increase savings, both domestic and foreign. Such a framework is also
critical to help curb capital flight and even encourage the repatriation of the considerable
resources Africans are holding abroad. Just deposits held by Africans at the BIS reporting banks
amount to US$345 billion.30
2. The public sector should play an important role in increasing domestic savings. The government
would attain it by ensuring fiscal sustainability and re-balancing government spending to makeroom for higher public investment. The public enterprises should also add to public savings bybecoming more efficient and thus improving their profitability. More generally, public savings
29 The implied external current account deficit of 4 percent of GDP is expected to be more than financed by FDI and sustainable

external financing, and thus allow for some accumulation of international reserves.
30 This is only a portion of the assets Africans own abroad, as some financial assets are most likely held in, or channeledthrough, non-BIS reporting financial institutions; assuming that Africans also hold deposits in offshore financial centers in about
the same share as those in BIS reporting banks, some US$55 billion would need to be added to that amount. In addition, one
should add the value of real estate properties and other assets Africans own abroad, but that is difficult to quantify.

39

can be increased considerably by enhancing the public sector’s effectiveness and governance. In
the case of resource-rich countries, stabilization and wealth funds, as discussed in the Africa
2050 study, need to play an important role in this regard.
3. Similarly, efforts to reduce the cost of doing business, especially those associated with having todeal with red tape, unnecessary regulations, and poor public services and infrastructure should
promote a dynamic private sector and thus higher corporate savings.
An efficient, competitive, and well-regulated financial system will help encourage financial savings,
which are relatively low in Africa.31 Higher financial savings will help deepen financial intermediation
and, eventually, develop a dynamic domestic capital market.32 This could be supplemented by acomprehensive social security system that includes affordable compulsory membership for all
employees.

IV.

A Macroeconomic Policy Framework for Sustainable High Growth and Inclusion

Undoubtedly the policy reforms and associated hard won improvements in macroeconomic
performance African countries have attained need to be preserved, but further efforts are needed toensure and strengthen the sustainability of these improvements and thus achieve high growth. The
following sections address the macroeconomic areas where such further efforts may need to beconsidered.
It is important to acknowledge that it is difficult to propose a single macroeconomic policy framework
for all African countries, given the diversity of stages of development, circumstances, institutions andendowments. Nevertheless, it is generally recognized that for economic activity to expand rapidly andequitably on a sustainable basis, macroeconomic policies need to ensure stability and predictability, as
these aspects are critical to create an environment that enables economic agents to plan ahead,
fostering high private sector investment and thus promoting high economic growth.
Stability and predictability require a clear commitment from policy makers to implement sound fiscal
and monetary policies, consistent with debt and balance of payments sustainability. The ideal would be
for these policies to be supported by a flexible exchange rate regime, given that such a regime allows for
an independent monetary policy and provides countries with a critical policy instrument to help absorb
external shocks. However, it is important to note that many African countries have had a fixed exchange
rate regime or have belonged to a currency union for years, and that such arrangements may also help
support macroeconomic stability, if properly managed.
The following sections broadly discuss the various policies, and, where possible, propose specificapproaches appropriate to certain country circumstances.

31 For example, in 2011 the average ratio of bank assets to GDP was 48 percent in Sub-Saharan Africa, compared with 60

percent in Latin America and the Caribbean and in the Middle East and North Africa, and 163 in Asia.
32 In the case of the smaller economies, consideration could be given to the development of regional capital markets in order totake advantage of economies of scale.

401. Fiscal policy
From a macroeconomic point of view, sound fiscal policies call for the maintenance of relatively overall
fiscal deficits that ensure public debt sustainability and thus preserve macroeconomic stability. From a
microeconomic point of view, sound fiscal policies call for an effective and equitable revenue
mobilization system, as well as an efficient resource allocation process that is geared at improving
human and physical capital and at reducing inequality. From both points of view, governments should
provide the certainty that future fiscal policies will remain sound. This certainty should help lower thecost of capital and thus foster higher private investment and savings, promoting faster economic growthand contributing to the development of an inclusive society. Good governance requires that fiscal
policies be conducted in a framework of transparency and accountability. In the case of mineral
extracting/exporting countries, sound fiscal policies also involve the need to deal with revenue volatility
as well as with sustainability and intergenerational equity considerations.
There is no doubt that the current provision of public goods and services does not meet the population’s
needs in many countries, in terms of both quality and quantity, given the very severe gaps in education,
health, and infrastructure gaps. These gaps are mainly a consequence of pressures caused by growing
other current expenditures (including very large generalized subsidies in a number of countries). And theconcern is that these gaps are likely to widen as current spending continues to rise with the size of
bureaucracies and inefficient outlays, and eventually with population aging.
The priorities and goals of fiscal policy need to change. They should help establish an environment forsustainable, high and inclusive economic growth, and thereby achieve three critical objectives: 1)
increase employment, 2) reduce inequality, and 3) improve equity:
1. By closing the enormous gap in infrastructure (e.g., transport, logistics, energy, water resource
development, schools, hospitals, and sanitation), public investment (including through PublicPrivate Partnerships) will help create employment directly (in the formulation and constructionof projects, the production of inputs for the projects, and the operation and maintenance ofthe new facilities).33 Public investment also crowds-in private investment and thus creates
employment indirectly by improving the efficiency of the economy and laying the basis forstepped-up growth. This is the multiplier effect. Moreover, given Africa’s rich human factor
endowment, labor-intensive construction methods—where appropriate—should be given
preference over capital-intensive ones.
2. Government spending to enhance human capital needs to increase. As in the case of South
Africa and other African countries, the current quality of education denies many the skills
needed to access employment, and thereby reduces the dynamism of the economy. Poor
health care denies many the future. By improving the quality of education (at all levels)34 andhealth will endow the population with the necessary tools to take advantage of opportunities
and thus reduce inequality. Thus, there is a need for allocating the resources necessary to
improve school infrastructure, educational materials and equipment, clinics, hospitals, medical

33 World Bank. Africa’s Infrastructure: A Time for Development, 2009.
34 This should also encompass training, including early-stage entrepreneurship and artisan training.

41

supplies and equipment, it is imperative that budgets provide adequate resources to build thehuman resources for the education and health sectors of the future. Similarly, assistance tofarmers through extension services and improved irrigation infrastructure will help develop a
more prosperous rural population. The same applies to supporting financial co-ops or otherfinancial entities that would enable small farmers to enter formal value chains. Of course,
employment will be increased through all these efforts.
3. Policies that raise growth can significantly advance social equity goals. However, this needs tobe supported by direct policies, such as enhancing social protection, food security andnutrition. In some countries (like South Africa), government may play a role in the developmentof low income housing, within its budget constraint. In view of the success of the conditionaltransfers programs implemented in Latin America, African policy makers may also want toconsider establishing such programs. Such transfers have not only reduced poverty, but also
increased economic activity, creating important centers of development.
To address the infrastructure and human capital gaps and reduce misallocation and waste, there is aneed to improve public expenditure allocation and management, including the public procurement
process, and to implement a targeted system of subsidies where they are considered essential. But thismay not be enough to provide the necessary room to cover the much-needed increase in public
infrastructure investment, education and health. While Africa will be potentially benefiting from its
demographics in the next decade or two, over time, its population will begin to age and therefore
countries will see increases in spending associated with aging, which could be significant. This involves astrong safety net (which should be affordable as countries become richer (some will be prosperous
middle-income countries). One approach would be to entrench a social security system that covers all
working people, with special protection for the poor using conditional transfers, as mentioned earlier.
Accordingly, to avoid widening the overall fiscal deficit, government revenue will need to rise
considerably, even after assuming that gains in efficiency spending and subsidy reduction could besignificant.35 Revenue will also need to rise in order to eliminate Africa’s aid dependency.36
The tax structure in African countries needs to serve the objective of raising revenue, while promoting
economic growth, the following tax structure may be considered. We recognize that it is difficult topropose an ideal tax structure to a continent with such a diversity of countries and with so different
endowments as the African one, but it is possible to outline some key features:

A flat corporate income tax with rates that make the countries competitive and attractive to
Foreign Direct Investment (FDI);
A relatively progressive personal income tax with only a limited number of brackets and low
threshold;35 In addition, the elimination or even important reduction of implicit subsidies, especially those on fuel consumption, should

yield considerable revenue gains. Of course, there will be a need for measures to ameliorate the impact of the subsidy
elimination or reduction on the most vulnerable segments of the population. Over time, as the population becomes richer,even such measures should be eliminated to make room for other priority spending, including that related to population aging.
36 In 2011, budgetary grants amounted 2.4 percent of GDP for Sub Saharan Africa (excluding Nigeria and South Africa) and 0.75
percent for the continent as a whole.

42





A value added tax that applies uniformly to all consumer goods and services; andA set of selected excise taxes, especially on fuel consumption and low import duties, an up-todate system or real estate taxes (administered by local governments).
A contributory social security system.

The tax system should have virtually no exemptions nor preferential treatments to avoid tax planning(avoidance) and evasion. The pros and cons of any exemptions or preferential treatments will need tobe evaluated carefully against their opportunity costs, including a potential proliferation of such
exemptions or preferential treatments that would undermine the integrity and efficiency of the tax
system. The tax system will need to be supported by an effective and efficient tax administration, using
best practices and latest technologies, and avoiding discrimination among taxpayers.37
2. Monetary and exchange rate policies
The long-term nature of this study would suggest that there is no need to address monetary policy,
given its relative short-term focus. However, experience has made abundantly clear that price andfinancial stability are essential to establish and maintain the basis for sustained, strong economic
growth.
As noted above, many African countries have improved considerably their monetary policy management
over the last decade and a half, especially as a result of increasing the autonomy of their central banks,
and thereby enhanced its capacity to control inflation. Those countries with flexible exchange rate
regimes have introduced indirect instruments to control monetary aggregates and have implemented
successfully; some have adopted inflation targeting frameworks. Those with conventional exchange rate
pegs have kept prudent credit policies. Nevertheless, Africa’s higher inflation rates than those in otherregions suggest that monetary policies may need to be strengthened, especially because the poor are
hurt the most by the inflation tax and to prevent these inflation rates from becoming entrenched.
How monetary policy needs to be conducted and the tools to be used depend very much on
the exchange rate regime and the degree of development of the financial system:38
For countries with a flexible exchange rate regime and a more developed financial system,
the adoption of an inflation-targeting framework would be advisable. Such a framework has
proven to be quite successful in reducing inflation and keeping it low. Adoption of thisframework requires a high degree of independence or autonomy of the Central Bank in
conducting monetary policy and that government deficits do not condition the growth ofmoney supply (i.e., no fiscal dominance). As mentioned, some African countries have been
implementing such a framework quite successfully; South Africa has been a leader in thisarea among emerging markets.
For countries with a flexible exchange rate regime, but with an underdeveloped financial
system, the Central Bank will need to target directly the monetary aggregates in the initial

37 While many countries have followed the advice of International Financial Institutions and centered their efforts on large

taxpayers units, these efforts may have encouraged firms to remain small and thereby forgo the benefits of scale and possible
access to credit and new technologies, thus hampering growth potential.
38 We take the view that a flexible exchange rate regime is preferable to a fixed one because it provides the authorities with animportant macroeconomic policy instrument and because it allows the exchange rate to act as a shock absorber.

43

stage and as the financial system develops and an interbank becomes operational, theCentral Bank may start to control such aggregates through indirect instruments such as
open market operations. As the financial system becomes more developed, the monetary
authorities should move towards creating the basis for the adoption of, and subsequently
adopt, an inflation-targeting framework.
For the countries that have a fixed exchange rate regime or are part of a currency union,
most notably those in the West African Economic and Monetary Union (WAEMU) and theCentral African Economic and Monetary Union (CAEMU), the authorities will need to assess
if these exchange arrangements are serving well their countries. If these regimes were tocontinue, it would be important that credit policy remain cautious and consistent withpreserving external competitiveness.

As elaborated in the chapter related to natural resources, it is important to note that the conduct ofmonetary policy in resource-rich exporters, under any exchange rate regime, will be considerably
facilitated by the establishment of a stabilization/liquidity fund that removes the pro-cyclicality of fiscal
spending associated with fluctuations in export earnings. Similarly, the establishment of a sovereign
wealth fund would help reduce the excessive pressure on domestic resources that a natural resourceboom typically causes. Moreover, the combination of these two funds will lead to a more stable
macroeconomic environment and therefore less significant exchange rate tensions than otherwise.
Please note that this combination provides a strong foundation for monetary policy based on an
Inflation-targeting framework.
The conduct of monetary policy will also be strengthened by a sound and developed financial system, asa precursor to an advanced capital market. To this end, it would be critical to adopt a regulatory andsupervisory framework that is in line with international best practices. Such a financial system will
facilitate the external liberalization of capital markets.
As financial integration spreads worldwide, African countries will inevitably have to prepare for eventual
integration to that framework. That being said, liberalizing capital markets without adequate
preparation in terms of structural reforms and financial soundness would be premature and costly. The
costs and benefits as well as the timing of such external liberalization should be carefully weighed. The
potential benefits of integration into external trading systems and the associated modern financial
technologies ought to be weighed against the likely costs of substantial volatility of capital flows.
Countries will have to be prepared with an appropriate strategy for managing capital flows, perhaps
with a focus on encouraging stable, long-term inflows rather than potentially volatile short-term inflows.

44

CHAPTER 3: 2050 SCENARIOSI.

Introduction

Three scenarios—convergence, business-as-usual, and downside—are outlined here to illustrate thebroad range of outcomes possible. These scenarios are based on a model of the global economy andmethodology prepared by Centennial Group International, which projects long term evolution of GDP of
186 countries as a function of labor force, capital stock, and total factor productivity (see Appendix 1:
Model).39
This chapter presents the economic outcomes associated with the vision Africa 2050 –based onconvergence with emerging market economies. The chapter also presents two other scenarios-business-as-usual and downside—to illustrate the broad range of outcomes possible. These scenarios
are based on a model of the global economy and methodology prepared by Centennial GroupInternational, which projects long term evolution of GDP of 186 countries as a function of labor force,
capital stock, and total factor productivity (see Appendix 1: Model).40 The chapter includes anassessment of the opportunity cost of continuing with “business as usual” vs. achieving convergence.
The chapter concludes with a discussion of the more pessimistic downside scenario.

II.

Convergence vs. Business-as-usual

Africa’s recent improved performance (see Figure 3.1) forms the basis for the convergence scenario, in
which convergence in standards of living is driven by trade that reduces factor price differences
between rich and poor countries, capital deepening in countries with lower capital/ labor ratios, andaccelerated TFP growth to catch up with TFP levels in advanced economies. The scenario assumes that
19 African countries are “early convergers”41 whose TFP growth begins to converge with that ofadvanced countries this decade, that 15 are “late convergers”42 whose TFP growth begins to converge inthe following decade, and that the remaining 20 countries currently considered “fragile”43 transition outof fragility over the next 30 years.

39 The Centennial growth model is further explained in Kohli, Szyf, and Arnold (2012) and its results are reflected in numerous

studies including Mexico 2042—Achieving Prosperity for All, Asia 2050—Realizing the Asian Century, India 2039—An Affluent
Society in One Generation, and Latin America 2040—Breaking Away from Complacency.
40 The Centennial growth model is explained in Kohli, Szyf, and Arnold (2012) and its results are reflected in numerous studies
including Mexico 2042—Achieving Prosperity for All, Asia 2050—Realizing the Asian Century, India 2039—An Affluent Society in
One Generation, and Latin America 2040—Breaking Away from Complacency.
41 Four countries (Botswana, Cape Verde, Mauritius, Mozambique) with 25 years of per capita GDP growth greater than 3.5
percent plus 15 countries with annual TFP growth over the last decade greater than one percent.
42 Fifteen non-fragile countries with annual TFP growth over the last decade of less than one percent.
43 The 20 countries classified by the African Development Bank and the World Bank as being in “fragile situations”.

45Figure 3.1 African GDP growth has greatly increased since 1995 (real GDP growth)

Under the convergence scenario per capita incomes in Africa could grow by 4.6 percent annually overthe next 40 years and exceed US$17,000 (2010 PPP US dollars) in 2050 (Figure 3.2). Africa-wide percapita income would be higher than that of Russia, Malaysia, Mexico, or Turkey today. Under such a
scenario African per capita incomes would begin to converge with the rest of the world, moving from 27
percent of the world average today to 52 percent.
Such sustained growth would set in motion many changes that would transform the lives of Africans andAfrica’s role in the world. The size of the middle class44 would increase more than 10-fold in absolute
numbers, and to 68 percent of the population from 12 percent today. The number of poor would decline
to 53 million (or under 3 percent of the population) from 380 million (or 37 percent) today. Africa’s
share of world GDP would more than triple from less than 3 percent today to 9 percent in 2050 (seeFigure 3.2).
The charts on the following page compare these outcomes of the convergence scenario with thoseunder the business-as-usual scenario. The latter assumes that Africa’s higher investment rates of recent
years continue, its labor force continues to grow, commodity prices remain high, and the generally
improved policies of the last 10–15 years are maintained—but there is no sustained action on the policy
agenda described above. As a result, unlike the convergence scenario, productivity growth does not
accelerate. Four countries with consistently high growth for the last 25 years45 continue to converge, but
the other 30 non-fragile countries do not converge46, and the fragile countries stay fragile.

44 Middle class defined as per capita income greater than US$10.80 and less than $100 a day (2010 PPP US dollars).
45 Botswana, Cape Verde, Mauritius, and Mozambique.
46 Their TFP growth matches that of the long-run TFP growth of the advanced economies (1 percent).

46

Figure 3.2: There is a high opportunity cost for not achieving the convergence scenarios

Under the business-as-usual scenario per capita incomes continue to rise at 1.9 percent annually andreach more than US$6,000 (2010 US dollars PPP) by 2050 (see Figure 3.2). Given growth in the rest of
the world, however, Africa’s per capita incomes would actually diverge further from those in the rest of
the world, falling to 20 percent of the world average by 2050. The size of the middle-class would
increase but after 40 years would still be only 27 percent of the population. Nearly one in five Africans
would, correspondingly, still be mired in poverty. Finally, given growth elsewhere in the world, Africa’s
share of global GDP would stagnate at around 3 percent.
The shaded area in the charts indicates the enormous opportunity cost to Africans if Africa follows thebusiness-as-usual scenario and fails to realize the convergence scenario. Per capita income would belower by more than US$10,000, some 40 percent of the population (900 million) would be unable toreach middle class status, an additional 15 percent of the population (325 mil-lion) would be left inpoverty. with most African countries approaching 100 years of independence, a continent with a quarterof the world’s population but only 3 percent of its economic activity is not only highly unattractive but
47

poses serious threats to the social and political stability. The threat is acute because such an outcome
diverges so far from the aspirations of Africans.

III.

Downside Scenario

The business-as-usual scenario is, however, by no means the pessimistic scenario. A much moreworrisome downside scenario could arise, for example, if Africa’s terms-of-trade were to deteriorate
because of commodity price changes and if fragility and conflict were to spread to more countries. It isdifficult to model such a scenario but the downside scenario shown in Figure 3.2 assumes that, as aresult of commodity price fluctuations, Africa’s terms of trade cyclically fall by 15 percent over five years
and then recover 15 percent over the following decade (hardly dramatic when seen in the perspective ofthe last 40 years), that an additional five countries slip into fragility and conflict, and that all the middleincome countries are stuck in the middle-income trap and do not converge with today’s advanced
economies.
In such a scenario per capita income would grow by less than one percent a year and would in 2050 be
only around US$4,000 (2010 US dollars PPP). Given faster growth in the rest of the world, Africa’s per
capita income would have fallen to only 14 percent or one seventh of the world average, the worst ever.
one in three Africans, some 690 million people, would still be in poverty and the middle class would
have grown to only 18 percent of the population. On the global stage Africa would be marginalized with
only 2 percent of world GDP. In 2050 Africa would still have many low-income countries and few highincome ones (see Figure 3.3). Under such a scenario the aspirations of Africans would be crushed.

IV.

Conclusion

The downside and the business-as-usual scenarios paint a very unattractive future. The convergence
scenario is feasible but will be realized only if there is vigorous and sustained implementation of theaction agenda outlined in this report. This scenario requires sustained, higher productivity growth formost countries over the next 40 years. Countries in other regions, though not many, have achieved suchsustained productivity growth. Success with a 40-year agenda depends most on institutional
development and political resolve for sustained implementation.
Such a strategy would be a clear break with the past and requires a cultural change. African leaders need
to focus on realizing the convergence scenario and be willing to be judged on their success in deliveringresults. To be able to do so, however, they need to have established a new social contract with theircitizens—one that cuts across political, ethnic and religious lines and that promises the Africa in 2050
described above but recognizes that delivering it depends on an unrelenting focus on the action agenda
set out in this report.

48

Figure 3.3: The high opportunity cost for not achieving the convergence scenario, as shown in income
levels49

CHAPTER 4: DEMOGRAPHY
I.

Introduction

Today, most developing countries have achieved quite low levels of mortality and fertility and much
lower rates of population growth than in the 1960s. The situation is quite different in Africa, andespecially in sub-Saharan Africa (SSA). In several SSA countries, mortality declines have stalled, or evenbeen reversed in the 1980s and 1990s because of the impact of HIV/AIDS and civil unrest. In addition,
fertility declines generally associated with mortality declines, in what is called the demographictransition, are occurring in most African countries much later than elsewhere in the world. As a result,most African countries still have very high levels of fertility, high rates of population growth, and very
young populations.
Because of these trends, most African countries must today confront two major population-related
challenges. First, most countries in the region will need to tackle the doubling or the tripling of theirworking age population. This exceptional increase of the labor force could be called a demographic“heritage of the past”. It is the direct result of high fertility levels since the 1960s, a consequence of thelack of interest and a neglect of the demographic trends on the part of public authorities, the civilsociety, and international donors. Providing jobs to all new job seekers will be a daunting challenge.
Today, in all but three African countries, the age group 15-29 represents more than 40% of the adult
population (above age 15), a phenomenon known as the “youth bulge”. By 2030, 40 of the 53 countries
studied47 are likely to continue to have more than 40% of their adult population in the 15-29 age group,and by 2050, 27 countries (half of them) will still be in that position if fertility decline remains as slow as
it has been in the past. These young people will be more and more concentrated in urban areas andmega-cities (there might be 15 cities of more than 10 million in 2050, compared to only two in 2010).
This could pose a significant challenge and, unless addressed satisfactorily, might translate into majorsocial disruptions similar to those that have been observed recently in several Northern Africancountries during the “Arab Spring”.
The second challenge facing African countries is related to the creation of the conditions needed tobring a better future for the African young generations of tomorrow. Future development andprosperity require a rapid decline in the presently high dependency ratios, as has been the case in
today’s emerging countries. This can only be achieved through a steady decline of the proportion ofyouth aged less than 15 or 20 years. Such a decline will allow reallocating parts of the importantresources devoted to the health and education of large numbers of children below age 15, to thesecondary and tertiary education of young adults and to the creation of jobs. In fact, the corresponding
changes in the age structure fulfill one of the conditions needed to benefit from a demographic
dividend. Such a scenario implies, for the majority of African countries, a much more rapid fertility
decline than the one that has been observed so far. This fertility decline can only be achieved if
contraceptive coverage increases markedly from present low levels to rates of about 60% or more ofwomen in union by 2050.
47 There are 54 sovereign countries in Africa with South Sudan, which became independent in July 2011. South Sudan is notanalyzed in this chapter because of lack of reliable estimates.

50

To sum up, the dual challenge of most African countries will be to deal with the demographic situation
inherited from the past whilst preparing at the same time for a better future for the upcoming
generations. This can be managed through the design and implementation of sound population, health,education, and economic policies. However, these policies must be put in place as soon as possible forthese countries to be able to capture the benefits of a demographic dividend, trigger inclusive growth,
reduce poverty levels, and eventually achieve economic convergence.
The main reason for the rapid population growth of most African countries since the 1960s is that they
have experienced late and slower demographic transitions and fertility declines than other countries of
the world (Bongaarts & Casterline 2012; Guengant 2007: Guengant 2012; and Guengant & May 2011a).
The demographic transition is defined here as the shift from a “traditional” regime of high mortality andhigh fertility to a new “modern” regime of low mortality and low fertility.
This shift from a “traditional” to a new “modern” demographic” regime can be slow or more rapid, it canbe influenced by socioeconomic factors, and it can be accelerated (or not) by the design andimplementation of adequate population and health policies (or the lack thereof). Northern Africancountries have seen their fertility decline sooner, in the 1970s, i.e., a decade before the countries inSouthern Africa. But most other countries in Eastern, Middle (Central), and Western Africa experienced
the beginning of their fertility declines only in the 1990s or 2000s, and some of them have had so far no
fertility reduction whatsoever, or only incipient declines.
Conceptually, this chapter relies on a two-way relationship between socioeconomic conditions anddemographic outcomes. First, the chapter posits that socioeconomic advances help foster demographictransformations and that improvements in demographic indicators also help trigger socioeconomic
advances (Word Bank 2007). However, improvements in socioeconomic conditions per se will not bringdemographic changes nor will demographic transformations as such bring socioeconomic changes.
Demographic transition is one of the necessary conditions to foster socioeconomic development, but it
is not a sufficient one. Moreover, public authorities will need to intervene on mortality and particularly
on fertility for the demographic changes to be rapid enough, and public authorities will need to do so,
including through adequate population and health policies and programs. Secondly, the chapter assertsthat demography is not destiny, in other words that the demographic trends are not an independent
variable. On the contrary, policies do influence demographic outcomes and may do so even in a
relatively short term, as short as 5 to 10 years, because of the relatively rapid impact of such policies on
the annual number of births (May 2012; Guengant 2012).
The remainder of this chapter begins with an examination of the past and current demographic situationof the continent. Next, the chapter presents the UN population (2010) and urbanization (2011)
projections for Africa, and examines the results of their different assumptions in terms of social
development and dependency ratios. Section IV briefly presents a demographic Vision for 2050 and
Section V concludes with a set of necessary steps and recommendations that are needed to achieve thevision.

51

II.

Demographic Context48

The main demographic indicators of the 53 African countries studied are presented in Annex 2, namely
the total population in mid-2010, the most recent fertility levels, life expectancies at birth in 2005-2010,
the percentage of population residing in urban areas in 2010, and the number of urban agglomerations
with 750,000 inhabitants or more in 2010.

A. Mortality Levels and Trends since 1960
Life expectancy at birth, or the average number of years that a newborn would live under the

mortality conditions prevailing at a given time, has increased in most African countries since the1960s. But the progress has been slow, and thwarted in several countries by the deteriorationof health services, the impact of HIV/AIDS, and occasionally civil strife and social unrest.
In the early 1960s, mortality levels were high in most African countries, and therefore life expectancies
were low: below 50 years (and in many cases below 40 years), compared to life expectancies in theselected non-African countries, which were generally above 50 years. During this period, only sevencountries of the 53 African countries studied here had life expectancies above 50 years. They weremainly islands or Southern African countries, i.e., South Africa, Botswana, Sao Tome and Principe,
Zimbabwe, Cape Verde, Mauritius, and Seychelles, which had life expectancies above 60 years. Amongthe 12 selected non-African countries, only five countries had life expectancies between 40 and lessthan 50 years.
Between 1960-1965 and 2005-2010, increases in life expectancies have been important in most
Northern African and African island-countries, as well as in most other non-African countries. Life
expectancies at birth in 2005-2010 were estimated at above 70 years in eight countries, i.e., Egypt,
Morocco, Cape Verde, Mauritius, Algeria, Seychelles, Tunisia, and Libya. But for most of the remaining
45 African countries, from the 1990s onwards, life expectancies increases have been modest, or havestagnated, and in some cases they have even decreased. This has been the case in particular in the
countries most affected by the HIV/AIDS epidemic (especially in Southern and Eastern Africa), or incountries that experienced civil wars and social unrest.
In eight of the 12 selected non-African countries, 15-year old adults had In the early 1960s a probabilityof dying between 15 and 60 ranging from about 250 to 350 per 1,000, or one chance in four or three to
die before their 60th birthday. For the same period, most African adults aged 15 had a probability ofdying between 15 and 60 ranging from 350 to more than 500 per 1,000, or one chance in two or three to
die before their 60th birthday. Such high levels did not motivate adults to plan for their future. Inhalf of
the African countries in 2005-2010, the probability of dying between 15 and 60 was still estimated atmore than 350 per 1,000, and in some cases (in Southern and Eastern African countries, those most
severely affected by HIV/AIDS), at above 500 per thousand. Therefore, for the young adults in thesecountries, the chances of surviving up to their 60th birthday were still rather uncertain.

48

See also methodological notes in Annex 1.

52

B. Fertility Levels and Trends since 1960
As for mortality, fertility declines have been slow and uneven in most African countries, and are still far
from converging to the levels observed today in the emerging countries and in most other developing
countries. As new data on total fertility rates became available since the latest 2010 United Nations
projections, we have compared these estimates with the latest data published (without adjustments)(see Figure 4.1 and Annex 2).
Figure 4.1: Total fertility rates 2005-2010 estimated by the United Nations and most recent estimatesfrom 2009-2012 surveys results, by increasing order for each region
8,0

Total Fertility Rate

7,0

Excess of the 2005-10 UN estimates
Most recent estimates lower than 2005-10 UN estimates
Recent estimates higher than 2005-10 UN estimates
2005-10 UN estimates

6,0
5,0
4,0
3,0
2,0

0,0

Mauritius
Seychelles
Djibouti
Zimbabwe
Kenya
RwandaEritrea
Ethiopia
Madagascar
Comoros
Tanzania
MalawiMozambique
UgandaZambiaBurundiSomalia
Gabon
Cent.Af.Rep.
Sao T.& P.
Cameroon
Congo
Eq.Guinea
AngolaD.R.Congo
Chad
Tunisia
MoroccoAlgeria
Libya
Egypt
Sudan
South Africa
Botswana
LesothoNamibia
Swaziland
Cape Verde
Ghana
Sierra Leone
Mauritania
Togo
Benin
Cote d'Ivoire
SenegalGambiaGuineaG-Bissau
Nigeria
Liberia
Burkina
Mali
Niger

1,0

Eastern Africa

Middle Africa

Northern Southern
AfricaAfricaWestern Africa

Sources: United Nations 2011, and DHS and MICS 4 surveys results (final or preliminary results).

Using these most recent data, we have established a new typology of fertility transition in Africa49. Two
broad groups can be identified.
The first group comprises countries where total fertility rates (TFR) are now at less than four children
per woman. These can be considered as countries where the “fertility transition is completed or close
to completion”. A total of 13 countries are concerned, accounting for 22% of the total population of thecontinent.
The second group encompasses countries where total fertility rates are now between four and nearlyeight children per woman (case of Niger). These can be considered as countries where the “fertility
49 Previous typologies were based on 2009 data: see Guengant 2007 and 200953.

transition is still far from completion”. A total of 40 countries (in fact 41 considering Sudan and South
Sudan separately here) are concerned, accounting for 78% of the total population. Within this group,
one can identify three subgroups, as follows:“Transition in progress”: This encompasses 15 countries with a TFR between 4 and less than 5children per woman, accounting for 22% of the total population. These are generally coastal
countries, with high urbanization, and in some case a political commitment, albeit uneven andirregular, to lower fertility (Ghana, Kenya, and recently Ethiopia and Rwanda).
“Slow and irregular transition”: This category includes 16 countries with a TFR between 5 andless than 6 children per woman, accounting for 37% of the total population. Again, these aremainly coastal countries, with mixed urbanization rates, and an absence of, or at least a low,
political commitment to lower fertility. Half of these countries are considered “Fragile”.
“Very slow and/or incipient transition”: This group encompasses nine countries with TFRs above
6 children per woman, accounting for 19% of the total population. Most of these countries arelandlocked, with low levels of urbanization, and a lack of strong political commitment to lower
fertility. A majority of these countries are considered as “Fragile”.

Overall, 25 countries, accounting for nearly 60% of the population of the continent and 70% of the
population of sub-Saharan Africa belong to the “slow and irregular” or “very slow and/or incipient”
transition subgroups, and can be considered as being far from completing their fertility transition.
This pattern of persisting high levels of fertility in the majority of African countries differs markedly fromwhat has been observed in other developing countries since 1960. To illustrate this difference, we havecompared the evolution of total fertility rates of the 10 emerging countries that are part of the G20
Group (including South Africa), plus 9 African countries selected among the “completion or close tocompletion group”, and four other developing countries, i.e., Bangladesh, Pakistan, Philippines, andThailand (see Figure 4.5).
All the selected emerging and developing countries and the 10 African countries (including South Africa)of the “completion or close to completion” group had average number of children per women of about
6 to 7 children in the early 1960s, and around 1.5 and 3 children in 2005-2010 (see Figure 4.2). In 20052010, only Pakistan and the Philippines had higher total fertility rates, but still less than four children per
woman. In most cases, declines started or accelerated in the 1960s, like in South Korea, Mauritius,South Africa, Egypt, Tunisia, and Philippines. In other cases, they started later, i.e., in the 1980s, as in
Libya, Algeria, and Bangladesh. The decline has been very rapid in some countries, i.e., in Libya, Saudi
Arabia, Algeria, Mexico, China, and Thailand. In several cases, fertility declines were the result of a
population and health policy aimed at reducing family size. But in other cases, they were the result of
women wanting to control their fertility, which was associated or not with increases in standards ofliving. The diversity of these patterns and of the fertility levels in 2005-2010, illustrates that the fertility
declines and the demographic transition do not come automatically but, as said before, are usuallyassociated with and accompanied by profound socioeconomic changes.

54

Figure 4.2: Total fertility rates from 1960-65 to 2005-2010 for selected non-African countries andAfrican countries well advanced in their fertility transition
Argenti na
Brazi l8,0

Chi naIndi aIndones i a

7,0Mexi coSaudi Arabi a

Total Fertility Rate

6,0South Afri ca
South Korea
Turkey5,0Al geri a
Egypt

4,0

Li byaMoroccoTuni s i a

3,0Bots wana
Cape Verde2,0

Mauri ti us
Seychel l es
Bangl ades h1,01960- 1965- 1970- 1975- 1980- 1985- 1990- 1995- 2000- 2005- 20101965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Paki s tan
Phi l i ppi nes
Thai l andSources: Sources: United Nations 2011, and DHS and MICS 4 surveys results (final or preliminary results)

The 23 African countries of the “far from completion” fertility transition group had an average number ofchildren per woman of about 6 to 8 children in the early 1960s, and between 4 to 8 children in 20052010. Many of these countries experienced a fertility decline in the 1980s or even in the 1970s, i.e.,
Rwanda, Senegal, Côte d’Ivoire, Kenya, and Togo, but in recent years fertility stalls have been observed.
Several countries experienced incipient fertility declines or no decline at all: Niger, Chad, Mali, andBurundi. If recent trends were to continue, a majority of these countries would still have fertility levels
around or above 4 children per woman in 2045-2050.

C. Fertility DeterminantsFertility outcomes are shaped by two sets of determinants. The intermediate determinants of fertility
are essentially socio-economic in nature, and influence fertility indirectly. The proximate determinantsof fertility, which are mostly biological and behavioral, influence fertility directly.
In most sub-Saharan African countries, the intermediate determinants--levels of education, healthstatus, employment in the formal sector, income levels, urban residence--are still low. Policy
interventions in these fields generally bear fruit with a lag, and their impacts on fertility vary from one
country to the next depending on other variables, noticeably family norms, social networks, and culturalvalues. Therefore, the policy objectives such as raising the education levels of girls, especially secondary
education levels, reducing maternal and child mortality, increasing female labor participation in theformal sector, achieving a more inclusive economic growth must be considered as objectives inthemselves, and not as proxy policy interventions aimed at influencing rapidly fertility through theproximate determinants.

55

In African countries, as in other developing countries, fertility levels are generally lower among the mosteducated and urban women (see Bongaarts 2010). The wealthiest households also have generally lower
fertility levels than the poorest ones.
Total fertility rates have been calculated according to household wealth index quintiles from DHS datacollected in 40 African countries (between 2000 and 2012 for 35 countries, and in the mid- or late 1990s
for five other countries). Not surprisingly the “wealthiest” households (the 20% of households having
the highest wealth index) have fewer children than the “poorest” ones (the 20% of households having
the lowest wealth index). The “wealthiest” households have an unweighted average total fertility rateof 3.4 children per woman against 6.4 children for the “poorest” ones, i.e., 3 children less. However, thisdifference varies greatly from one country to another: from about 5 children in Angola, Zambia andLiberia, to less than one child in Egypt, Burundi, Central African Republic, and Chad—these are allcountries with national high fertility levels except Egypt. Total fertility rates of the wealthiest
households are low and range from 1.9 to less than 2.5 children per women in only 5 countries out of
the 40 countries considered here, i.e., Morocco, South Africa, Lesotho, Ghana, and Namibia. But in 10
other countries, total fertility rates of the wealthiest households are still between 4 and 6.4 children per
women, namely in Uganda, Nigeria, Democratic Republic of Congo, Benin, Guinea, Central African
Republic, Mali, Burundi, Chad, and Niger. By contrast, total fertility rates of the “poorest” households
are above 5 children per woman in most countries (37 out of 40 countries), and they vary from 6 tomore than 8 children per woman in 28 countries. Obviously, the family norms favouring large families(expressed by the ideal number of children in the DHS) are still dominant among the “poorest”
households. But these norms explain also the relatively high levels of fertility among the wealthiest
households in several countries.
A proxy of wealth is calculated in the Demographic and Health Surveys (DHS), through a wealth index,
which categorizes households into quintiles (from the lowest to the highest wealth index), which
permits examination of the potential benefits of wealth (and of more inclusive growth) on the healthand on the wellbeing of households.
Whereas in most countries women from the “wealthiest” households can afford good prenatal care andadequate delivery conditions, this is not the case for women from the “poorest” households. According
to the results from the same DHS surveys, in 35 countries out of 40 more than 80% of the women fromthe “wealthiest” households who had a birth in the three years preceding the survey benefited from theassistance of qualified personnel (doctor and/or health professional) during delivery. By contrast, in a
majority of the countries (24 out of 40) less than a third of the women from the “poorest” households
benefited from such assistance. Overall, this means that not only women from the “poorest”
households are more exposed to have a pregnancy at risk because of their high fertility, but for thisreason they also have a higher risk of maternal death and/or death of their child.
Let us turn now to the proximate determinants of fertility. These determinants include marriage(unions), postpartum infecundability (or insusceptibility), abortion (induced), contraception (modern

56

and traditional50), and sterility (May 2012: 233-234). Some of these determinants are more amenable topolicy interventions than others, especially when one seeks to obtain results in the short term.
It appears that high fertility levels observed today in most African countries are largely the result of
persistent low contraceptive prevalence rates. Conversely, the lower fertility levels observed in mostemerging, developing and some of the 13 African countries that have completed or are close tocomplete their fertility transition, result from a rapid increase of the use of contraceptive methods overthe past 40 or 50 years, particularly of efficient modern methods—a process that has been called thecontraceptive revolution.
Figure 4.3 illustrates the striking gap with respect to the increase in the use of modern contraception
since 1970 between emerging market countries, on the one hand, and most SSA countries, on the other.
Most countries considered here had modern contraceptive prevalence rates of 20% at most around1970. In the following 30 to 40 years, modern contraceptive rates have increased rapidly to reach atleast 50% and in several cases 60% or more in various North African and Asian countries. On thecontrary, contraceptive prevalence rates have not reached 20% in a majority of sub-Saharan Africancountries, although there are a few recent exceptions to this general pattern (e.g., Ethiopia and Rwanda,
and to some extent Madagascar). Obviously, the contraceptive revolution has not yet touched most SSA
countries.
Figure 4.3: Progress in the use of modern contraceptive methods in various emerging and sub-Saharancountries since 1970

Source: United Nations 2012b, “2012 Update for the MDG Database” Contraceptive Prevalence; see
http://www.un.org/esa/population/unpop.htm and United Nations Data base.
50 Modern contraceptive methods are hormonal (e.g., pill, implants, and injectable), chemical or mechanical (spermicides, IUDs,

and barrier methods such as condoms), or surgical (male and female sterilization).

57

Figure 4.451 presents the most recent Contraceptive Prevalence Rates (CPR) for 52 out of the 53 Africancountries studied here, for modern and traditional contraceptive methods (there are no data for the
Seychelles). The corresponding data are recent since they were collected between 2000 and 2012,
except for Libya. It should be noted that in some countries modern contraceptive coverage is just asmall fraction of traditional contraceptive use. This is the case in particular in Middle African countries.
Figure 4.4: Most recent contraceptive prevalence rates for African countries by type of method, region
and decreasing order of total prevalence80

Modern method

Traditional method

MAMA & breastfeeding

Contraceptive prevalence rate

70
60
50
40
30
20
10

Moza Eritream2
Sobmiqaue 200012
Djib o lia 20061
Bu uti 2
Co mruon di 2 00016
Ethio ro s 20 01
U p ia 2 0
Tangzaan da 200111
1nMadaZambiiaa 2010
gas ca 2007
K r 20M en ya 2 0 9
Rwaalnawi 2001009
Zimba da 20
Maurbwe 2011itius 2 1100
Ch ad 2E An g 2010
Cenqt..Guinoelaa 2001
D.RA.Cf.Rep. 2200 00
06
C on
Gabaomerogoon 20102n0
2
Sao T 012 2011
. P.2 12Co&
ngo 2009
01
Su dan 22LiMoroby a 190910
E cco 20 5
Alggeyrpt 200084
Tun isia 2006
ia 2
Leso t 0 12
Botsw h o 20 0
9a
So utNhamibniaa 200 7
2
SwazA frica 20007
iland 04
2
Guin e 010
aMaur Mali 22012
01
ita
Si erra Nigneiar 20090
Le 20
Libeorni e 201120
B a2
Se enin 20 07
G-Bnisegal 200112
sa1
T u 201
Burkoigo 20 100
Co te Gambniaa 2010
d'Ivoi 200 1
Nigerre 2 012
Cap eGhaniaa 22011
Verd e 00 8
2005

0

Eastern Africa

Middle Africa

Northern Southern
AfricaAfricaWestern Africa

Sources: United Nations 2012b, “Update for the MDG Database” Contraceptive prevalence, and DHS and MICS 4
surveys results (final or preliminary results).

Only 7 countries, accounting for 13% of the continent’s population, had a recent contraceptive rate
above 60%; they are located in Northern and Southern Africa or are island-countries, i.e., Morocco,
Egypt, Cape Verde, Algeria, Tunisia, Swaziland, Mauritius, and Seychelles. At the other end of thespectrum, 30 countries accounting for 62% of the total population of the continent have a contraceptive
rate below 30%, which is less than half the minimum prevalence rate required to achieve thecontraceptive revolution and the fertility transition. It is worth noting that all Western African countries
51 For some countries of Figure 4.4, contraceptive prevalence rates include the "LAM" (lactational amenorrhea method), which

is now often regarded as a modern method of contraception, as well as breastfeeding, which is generally considered a
traditional method. However, it should be noted that the effectiveness of LAM or "postpartum contraception" is based on
three conditions that must be met simultaneously: 1) the baby must be less than 6 months old, 2) the mother must be
amenorrheic (not having her periods back), and 3) breastfeeding should be practiced day and night, on demand. LAM is often
equated with breastfeeding, and the percentages of LAM users are generally low and unreliable. For comparison purposes,
therefore, the percentages of “users” of LAM or breastfeeding have been displayed separately from the percentages of “users”
of other methods. In addition, the most recent data given for Sudan, Tunisia, Guinea-Bissau, and Nigeria are for all methods.

58

but one (Cape Verde) have contraceptive rates below 30%. In sub-Saharan Africa, 78% of the population
lives in a country where less than 30% of the women in union use a contraceptive method.
Among the factors that have hindered the rapid expansion of contraceptive coverage in SSA, are the lackof information on, and the lack of access to, contraceptives. The reluctance to use modern
contraceptives is also rooted in traditional culture, attitudes, norms, and family structures, and this isalso a key obstacle that family planning programs will need to address in SSA.
In fact, in most SSA countries the total demand for family planning remains rather weak andparadoxically only a small portion of this demand is satisfied, reflected in the high levels of unmet
needs52 estimated on average at about 25 to 30% (Guengant & Rafalimanana 2005)53. Relatively recent
DHS results for 39 countries confirm this finding, yielding an unweighted average of 25% of unmet
need—a figure close to the average current use of any method, i.e., 29%. This yields a total demand of
54%, but with considerable variation between countries: from 23% (in Chad) to less than 60% in a
majority of countries (24 out of 39) and to 60 to 82% in 15 countries). However, according to the same
surveys, only half (49%) of these needs are satisfied if all methods used are considered, and only a third(37%) if one considers only the use of modern and efficient contraceptive methods. Nonetheless, theoverall demand for contraception is weak in many countries, which explains the low use ofcontraception particularly in Western, Middle, and Eastern Africa. Clearly a low demand for familyplanning translates into low use of contraceptive methods, as can be seen in Figure 4.5 (where there is astrong correlation between the total demand in family planning and the use of any contraceptive
method). Consequently, the magnitude of the unmet needs must be appreciated in relation to the total
demand. Interestingly, the relationship between the use any contraceptive method and unmet needs isan inverse U-shaped relationship, with a R2 of 0.43 (see Figure 4.6).

52 Unmet needs for family planning refer to the condition of wanting to avoid or postpone childbearing but not using any

method of contraception, and the total demand for family planning refers to the sum of married women using a method ofcontraception plus those in need but not using any method.
53 This is a demand-measure constructed from survey data, which attempts to estimate the percentage of women who want todelay their next pregnancy by two years but do not currently use a contraceptive method. However, the percentage of unmet
needs may increase as contraceptives become more readily available.

59Use of any contraceptive method %.

Figure 4.5: Relationship between the total demand in family planning and the use of any method ofcontraception for 39 African countries
80
70
60
50
40
30
20
10
0
20

30
40
50
60
70
Total demand for family planning (% of women in union)

80

Source: DHS surveys results.

Unmet need for family planning %.

Figure 4.6: Relationship between the use of any method of contraception and the unmet needs infamily planning for 39 African countries
40
35
30
25
20
15
10
5
0
0

10

20

30

40

50

60

70

80

Use of any contraceptive method (% of women in union)

Source: DHS surveys results

The leading group of contraceptive users is generally made of the more educated and urbanized womenas well as the women from the wealthiest households. The data by quintiles of wealth from the 39 DHS
surveys already mentioned, confirm this pattern but they deserve comment. First, the use of acontraceptive method is two times more frequent among women from the wealthiest households than60

among women from the poorest households, i.e., 41% against 20%, and the same is true for the use ofmodern method, i.e., 33% against 16%. However, the unmet needs among the women from thewealthiest households remain quite high: 21% on average and only half (49%) of these needs are
satisfied through the use of a modern contraceptive method. Not surprisingly, the situation is worst
among women from the poorest households who have a slightly higher percentage of unmet needs(28%), which are even more poorly satisfied, since only a quarter (26%) of these needs are satisfied
through the use of a modern contraceptive method. Finally, the total demand in family planning among
women from the wealthiest households appears moderately high at 62% (unweighted average) andhigher than among women from the poorest households, i.e., 48%, but again there are great variations
from one country to the next.
To sum up, the low levels of contraceptive use, the rather weak demand for family planning, and thehigh percentage of unmet needs at the national level, as well as the inequalities between women withrespect to these variables can be explained again by the pervasive family norms favouring large families(Romaniuk 2011: 21-22). Indeed, desired fertility in SSA (i.e., the ideal number of children) remains very
high even among young women and in many countries even among young women with secondary levelsof education. In addition, one should not dismiss the importance of marriage at young ages andsometimes child-marriage as another explanatory factor for the high fertility levels observed in SSA. To
a large extent, all this can be construed as a double denial of women’s rights: the denial of access tomethods and the denial of information on contraception, which translates into the lack of reproductive
choices.
This situation is largely the consequence of the lukewarm commitment or lack of engagement vis-à-vis
family planning on the part of governments and donors alike. So far only two governments in subSaharan Africa, i.e., Rwanda and Ethiopia, appear to have organized successful large-scale programs
and/or campaigns in favor of family planning like those organized in several Northern African and Asian
countries. Among eight countries surveyed in Western Africa, only half even had a government budgetline item for the procurement of contraceptives (USAID Deliver Project 2011).
Last but not least, persistent high fertility levels in most African countries cause numerous high-risk
pregnancies (at least one pregnancy out of two in most cases), which are associated with the four
“too’s”: pregnancies that too early, too often, too close, and too late. This translates into very highmaternal mortality ratios, high under-five mortality rates, and high proportions of stunted children
among the children who do survive. Moreover, the future of these children is compromised because
they are less resistant to diseases and have more difficulties to learn at school (World Bank 2010: 14).
These poor and undesirable outcomes affect more the poorest households and jeopardize the chancesof most countries to achieve more inclusive growth and fulfill their development objectives.

D. Urbanization and Mega-Cities
Between 1960 and 2010, the urban population of Africa increased by a factor of 8, increasing from 53 to
401 million. Despite this spectacular increase, the levels of urbanization in Africa remain low comparedto other regions of the world. In 2010, it was estimated that about 40% of Africans were residing in61

urban areas, but this percentage was only 23% in Eastern Africa, 41% in Middle Africa, 44% in Western
Africa. It was higher than average in Northern Africa (51%) and Southern Africa (59%).
Rapid urbanization in Africa has led to 50 cities with more than a million inhabitants in 2010. Two withan estimated population of more than 10 million inhabitants: Cairo (11 million) and Lagos (10.8 million).
In 2010, the United Nations identified 73 African cities with more than 750,000 inhabitants, whose
population was projected to surpass one million by 2025, the end-year of the UN projections for thesecities (United Nations 2012a). A third (17) of the 53 countries studied did not have a city with more than
750,000 inhabitants in 2010. Among the 36 other countries, 23 had one such city and 13 countries had
several (see Annex 2); Nigeria had 14, South Africa 7, Morocco 6 and the Democratic Republic of Congo
5. Nine other countries had two large cities: Kenya, Mozambique, Angola, Cameroon, Congo, Algeria,
Egypt, Côte d'Ivoire, and Ghana.
III.

Future Population Growth

Africa’s population reached the mark of one billion persons in 2009 and the entire continent is expected
to have a population ranging from 1.9 to 2.2 or 2.5 billion people by 2050, according to the 2010 United
Nations Word Population Prospects: Low, Medium, and High fertility variants, respectively (United
Nations 2011).

A. Factors of Future Population Growth
In the forthcoming decades, the region’s population (especially in Eastern, Middle, and Western Africa)
is likely to continue to experience rapid rates of population growth, for two major reasons.
First, mortality levels, which are still high, are expected to continue to decrease. Between 1980 andtoday, infant and child mortality levels have declined by roughly half in Africa, particularly in subSaharan Africa. This is due to decisive exogenous interventions such as vaccination campaigns, oralrehydration therapy programs, large-scale distribution of impregnated malaria bed-nets, the provisionof nutritional supplements, and comprehensive sanitation programs. However, despite recent progressin reducing under-five mortality levels, there is still much room for improvement. Moreover, progresson adult mortality has been less spectacular and many SSA countries must now confront the dual
pattern of communicable and non-communicable diseases (NCDs). Northern African countries must
face mostly the challenge of NCDs, which is also linked to the aging of their population.
In addition, some SSA countries have been badly impacted by the HIV/AIDS epidemic, especially
Southern Africa countries and their neighbors. Fortunately, the demographic impact of HIV/AIDS has
been less severe than anticipated initially, although the HIV/AIDS epidemic has slowed down the rate of
population growth in the most affected areas, i.e., Southern Africa, which have also experienced rapid
fertility declines. Nonetheless, up to 2010, there has been no population decline due to HIV/AIDS in the
countries severely affected by the epidemic (10% HIV prevalence or more), and the demographic impactof the epidemic has been negligible elsewhere (5% HIV prevalence and less). Actions to prevent the
spread of HIV/AIDS and programs geared at reducing adult mortality are expected to continue in theforeseeable future. These interventions should foster continued population growth in most countries.
62However, one should keep in mind that mortality rates could stop declining or even increase as
happened in certain countries in recent decades, because of major climatic catastrophes, widespreadfamines, or severe political disruption. Despite these risks, it is unlikely that this situation would
translate into population stagnation or decline, because with few exceptions, future demographic
growth is primarily driven by high fertility and young age structures.
Second, fertility levels are still high in most countries and are only declining gradually. As discussed
above, 40 countries out of 53, representing 78% of the total population have fertility rates ranging from4 to nearly 8 children per woman. Among the 13 remaining countries with less than four children per
woman, only three, i.e., Mauritius, Seychelles, and Tunisia, have reached replacement level fertility of
2.1 children per woman.
The future dynamic of the total population growth of each country will be essentially determined by
future levels of fertility. Fertility will decline more or less rapidly, depending on several factors. First,
initial levels of total fertility rates (TFRs) will determine future trends of population growth: the higher
the initial levels of fertility, the higher the potential population growth by year 2050. Second,
population growth in the forthcoming decades will depend also on the percentage of youth in the
population (since these young people are moving into the union-marrying and fertility age brackets) andon the pace of demographic growth in this age group (phenomenon known as the population
momentum, see below). Third, rates of increase of contraceptive prevalence rates (CPRs), especially formodern methods, will largely determine the future pace of decline of fertility. Fourth is thephenomenon of population momentum (also called demographic momentum), which is an additional
population growth factor usually resulting from a youthful age structure. The population momentum ispositive when the age structure is young and there are disproportionate numbers of people inchildbearing age groups because of past high fertility levels. This is the case in most sub-Saharan Africancountries where about two-thirds of the total population is less than 25 years old. The population
momentum is a powerful factor for future demographic growth. Even if a country with a young age
structure would immediately reach replacement level fertility (i.e., about 2.1 children per woman –depending on current mortality patterns), its population would continue to grow for about 70 years andwould still double in size (Word Bank estimates).
The very few African countries that have completed their demographic transition (Mauritius, Seychelles,
and Tunisia) are now confronted with the arrival into retirement ages of the large cohorts of the 1950s.
These countries, as well as other countries in Northern and Southern Africa will need in the near future
to strengthen social security systems, pension schemes, and safety net programs to cope with the rapid
increase of their population aged 65 years and more. Such actions and programs are needed because
their elderly support ratio (i.e., the number of working-age people aged 15-64 or 20-64, divided by the
number of persons 65+) will decrease in the coming decades. All African countries will experience rapid
increases of their populations aged 65+ years in the coming decades, because of the unrelenting
increase of their young population since the 1950s (Chesnais 1990). Therefore, all countries should
already start to design social policies that will be needed to address this phenomenon, another legacy ofthe past neglect of the population factor (May 2012).

63

Two other factors need to be mentioned here: the internal migration54 and urbanization patterns. The
urban population will continue to grow even faster than the total population because of the ongoingurbanization process. Future growth of the urban population will be driven by both natural increase andrural-urban migration. The cities of the continent have now reached such sizes and youthfulness that
their natural increases exceed rural urban migration, despite lower fertility levels in urban areas. But
rural-urban migration will continue and it will be higher if fertility and population growth remain high inrural areas. In short, future growth urban population is not independent from rural population growth.
Fertility levels will have a major impact on the dynamics of urban as well as rural populations. For
example, in Côte d’Ivoire, Ghana, and Nigeria, where about half the population is already urban,
urbanization will continue and urban populations will keep growing, even if fertility levels decline
rapidly. In these countries, rural populations can stabilize in a less distant future (about 20 years) if
fertility declines rapidly. In a few countries, however, urbanization rates are expected to level off.

B. Population and Urbanization Projections
This section presents for Africa the 2010 United Nations Population Division World Population
Prospects, which were released in May 2011 as well as the 2011 UN World Urbanization Prospects,
released in 2012.
As the United Nations stated, “future trends cannot be known with certainty”. That is the reason why
several projections variants are produced, including the constant-fertility variant, which indicates what
would happen if fertility was staying at its 2005-2010 levels. Contrary to what many users of theseprojections believe, the Medium variant is not the most probable scenario. The United Nations also
produces every two years a report “World Urbanization Prospects”, using the results of the preceding
year’s World Population Prospects (United Nations 2012a). The 2011 World Urbanization Prospects
provided estimates for urban areas and various cities of the world based on the Medium population
estimates of the 2010 World Population Prospects. The 2010 World Population Prospects and the 2011
World Urbanization Prospects are based on the most recent population data available for each country
in 2010 and 2011, respectively. The assumptions underlying the projections are presented in Annex 3.
1. Projected Total Population
Keeping these assumptions in mind, we can now examine the future total population of Africa in 2030
and 2050. First, between 2010 and 2030, the population of the continent will increase roughly from 1
billion in 2010 to 1.5 billion with the Low variant, or to 1.7 billion with the High variant (and up to 1.8
billion if we consider the Constant-fertility variant). Such an increase of at least half a billion people in
20 years represents a big challenge for many sectors, such as health, education, food security, andinfrastructure.
By 2050, the continent’s population will reach roughly 2 billion with the Low variant, 2.5 billion with theHigh variant, and up to 3 billion if we consider the Constant-fertility variant (see Table 4.1). Between
2010 and 2050, the share of Northern and Southern Africa in the total population will decrease
54It is expected that international migration will have a negligible impact on population growth and dynamics, except in small

island-settings where emigration plays a safety-valve function.

64markedly from 21% to 13% and from 6% to 3% respectively. By contrast, the total share of Eastern,
Middle, and Western Africa will increase from 74% to 84%.
Of course, future total population increases between 2010 and 2050 vary from one country to anotheras seen in Figure 4.7. With the Low variant, most countries of Eastern, Middle, Western Africa andSudan will experience an increase in their total population from 50% to 100%. But with the High variant,these countries will experience at least a doubling of their population (and even a tripling if we consider
the Constant-fertility variant). Only the Northern and Southern countries (with the exception of Sudan)
and the three island-countries (Cape Verde, Mauritius, and Seychelles), which are already well advancedin their fertility transition, will experience lower increases.
Table 4.1: Projected total population by 2050 of Africa and African regions according to the variants
adopted in the 2010 United Nations population projections

2010

Low
variant
2050

Mediumvariant
2050

High
Variant
2050

Constant
variant
2050

Total population (in thousands)
AfricaSub-Saharan Africa% sub-Saharan Africa
Eastern Africa
Middle Africa
Northern Africa
Southern Africa
Western Africa

1 020 650 1 929 690 2 189 117 2 466 930 2 993 939
811 721 1 650 342 1 867 560 2 099 714 2 594 286
79.5%
85.5%
85.3%
85.1%
86.7%
322 994685 549778 037877 023 1 073 293
126 689
245 146278 350
313 955441 545
208 929
279 348
321 557
367 216399 653
57 78056 68067 32779 08381 199304 257
662 967
743 846829 652998 250

Percentage in total population
AfricaSub-Saharan Africa
Eastern Africa
Middle Africa
Northern Africa
Southern Africa
Western Africa

100.0%
79.5%
31.6%
12.4%
20.5%
5.7%
29.8%

100.0%
85.5%
35.5%
12.7%
14.5%
2.9%
34.4%

Source: United Nations 201165

100.0%
85.3%
35.5%
12.7%
14.7%
3.1%
34.0%

100.0%
85.1%
35.6%
12.7%
14.9%
3.2%
33.6%

100.0%
86.7%
35.8%
14.7%
13.3%
2.7%
33.3%

Figure 4.7: Projected increase of total population between 2010 and 2050 (base 100 = 2010) of Africancountries according to fertility scenarios, by increasing order for each region
500

Low variant
High variant

Increase, base 100 = 2010

450

Medium variant
Constant scenario

400
350
300
250
200
150

50

Mauritius
Seychelles
Zimbabwe
Djibouti
BurundiEthiopia
Comoros
Kenya
MozambiqueEritrea
RwandaMadagascar
Somalia
Tanzania
ZambiaMalawi
UgandaGabon
Sao T.& P.
Cent.Af.Rep.
Cameroon
Congo
Eq.Guinea
D.R.Congo
Chad
AngolaTunisia
MoroccoAlgeria
Libya
Egypt
Sudan
South Africa
Botswana
LesothoSwaziland
Namibia
Cape Verde
Togo
Ghana
Mauritania
G-Bissau
Cote d'Ivoire
Sierra Leone
Nigeria
SenegalGambiaGuineaLiberia
Benin
Burkina
Mali
Niger

100

Eastern Africa

Middle Africa

Northern Southern
AfricaAfricaWestern Africa

Source: United Nations 2011

2. Projected Urban Population and Mega -Cities
The 2011 World Urbanization Prospects applied the projected percentages of urbanization only to theMedium variant projections, but in this chapter we have explored the combined impacts of increased
urbanization and fertility decreases on future urban growth, according to the High, Medium, and Low, as
well as the Constant-fertility variants. At the continental level, the urban population will increase from
400 million in 2010 to about 750 million in 2030 with the Low variant, or to nearly 800 million with theHigh variant, and above 800 million if we consider the Constant-fertility variant. These increases
correspond more or less to a doubling of the urban population in the next 20 years. This represents a
big challenge for governments and urban planners in terms of infrastructure, services, job creation,transportation, sanitation, and security.
By 2050, with nearly 60% of African people living in urban areas, the continent’s urban population willreach between 1.1 billion with the Low variant, and 1.4 billion with the High variant (and up to 1.7 billion
if we consider the Constant-fertility variant). This means that because the combined effects of increased
urbanization and still high fertility levels, the African urban population will more or less triple in the next
40 years (or even quadruple if fertility declines are slower than anticipated in the High variant). But
because of their initial lower levels of urbanization, the urban populations of Eastern, Middle, andWestern Africa will grow more rapidly and they will be multiplied by a factor of 4 to 5 by 2050 (and morein the High variant). The urban population of these three regions will represent 82% of the urban
population of the continent by 2050, compared to 65% in 2010.

66

Urban population increases between 2010 and 2050 will vary by country and sub-region (see Figure 4.8).
Most Eastern, Middle, Western African countries and Sudan will see their urban populations multiplied
by a factor of 3 to 7, depending on the fertility decline variant considered (and by a greater factor with
the Constant-fertility variant). The increases will be more important in most Eastern countries, because
they had the lowest urbanization rates in 2010. Conversely, increases will be more modest in Northernand Southern countries because they had generally higher urbanization rates in 2010. In thesecountries, urban populations will be multiplied roughly by a factor between 2 and 3 in the next 40 years.
Figure 4.8: Projected increase of urban population between 2010 and 2050 (base 100 = 2010) of
African countries according to fertility scenarios, by increasing order for each region
1 200

Low variant
High variant

1 100

Increase, base 100 = 2010

1 000

Medium variant
Constant scenario

900
800
700
600
500
400
300
200

Eastern Africa

Middle Africa

South Africa
Botswana
Swaziland
Namibia
LesothoTunisia
MoroccoAlgeria
Libya
Egypt
Sudan

Gabon
Sao T.& P.
Congo
CameroonCent.Af.Rep.
Eq.Guinea
AngolaD.R.Congo
Chad

Mauritius
Seychelles
Djibouti
Zimbabwe
Comoros
MozambiquSomalia
ZambiaKenya
Madagascar
Ethiopia
BurundiEritrea
RwandaTanzania
Malawi
Uganda0

Northern Southern
AfricaAfricaCape Verde
Ghana
Mauritania
G-Bissau
Togo
Cote d'Ivoire
GambiaSierra Leone
Nigeria
Liberia
SenegalBenin
GuineaMali
Burkina
Niger

100

Western Africa

Source: United Nations 2012

These rapid increases of urban populations will be associated with the advent of several cities of morethan 5 million people, as well as mega-cities of more than 10 million people. The 2011 World
Urbanization Prospects offer projections of the population of cities of more than 750,000 inhabitants in2010 up to 2025. In this chapter, we have tried to explore the possible future size of these cities up to
2050. The results are presented in Table 4.2.

67

Table 4.2: Estimated population of African cities with more than 5 million inhabitants in 2010, 2030,
and 2050
CountryCity% in urban
population
In
2010

2010

Population
Million in
2030

2050

Ratio
2050/
2010

Ethiopia
Kenya
Madagascar
Malawi
Somalia
Tanzania
UgandaZambiaAddis Ababa
Nairobi
Antananarivo
Lilongwe
Mogadishu
Dar es Salaam
KampalaLusaka

20.0%
34.0%
30.0%
33.0%
50.0%
30.0%
30.0%
35.0%

2.9
3.2
1.9
0.7
1.4
3.4
1.6
1.7

5.7
7.4
4.7
1.9
3.9
9.1
4.4
4.1

10.3
15.1
9.2
5.2
8.4
20.7
10.4
9.4

3.5
4.7
4.8
7.0
5.9
6.1
6.6
5.5

AngolaCameroun

LuandaYaoundéDouala
Kinshasa
Lubumbashi
Mbuji-Mayi

47.0%
25.0%
25.0%
36.0%
6.8%
6.6%

4.8
2.3
2.3
8.4
1.5
1.4

10.2
4.5
4.5
17.3
3.3
3.2

15.5
6.8
6.8
30.6
5.8
5.6

3.2
3.0
2.9
3.6
3.9
3.9

Cairo
Alexandria
Khartoum

31.0%
13.0%
41.0%

11.0
4.4
4.5

16.4
6.9
8.2

23.0
9.6
14.2

2.1
2.2
3.2

Johannesburg
Cape Town
Ekurhuleni

13.1%
12.0%
11.5%

3.8
3.5
3.3

5.0
4.6
4.4

5.7
5.2
5.0

1.5
1.5
1.5

50.0%
1.9
42.5%
4.2
21.0%
2.5
17.0%
1.9
52.0%
1.7
36.0%
1.9
50.0%
1.2
14.2%
10.8
4.3%
3.3
3.8%
2.9
3.0%
2.0
2.6%
1.8
2.1%
1.5
1.8%
1.3
60.0%
2.9
5 million3
10 million
2
Sources: United Nations 2012a and calculations of the authors

6.0
8.0
4.8
3.9
3.8
4.5
3.9
22.3
6.7
6.0
4.7
4.1
3.3
2.8
6.1
15
4

12.9
12.5
7.5
6.0
7.0
9.0
10.3
39.5
12.0
10.6
8.3
7.2
5.8
5.0
10.5
35
15

6.8
3.0
3.0
3.1
4.1
4.6
8.4
3.7
3.7
3.7
4.1
4.0
4.0
3.8
3.6

DR Congo

Egypt
Sudan
South Africa

Burkina
Cote d'Ivoire
Ghana

Ouagadougou
Abidjan
Accra
KumasiGuineaConakry
Mali
BamakoNiger
NiameyNigeria
Lagos
Kano
IbadanAbuja
Port Harcourt
KadunaBenin City
Senegal
Dakar
Number of cities with more than68

These results indicate that while Africa had only two mega-cities in 2010, i.e., Cairo (11 million) and
Lagos (10.8 million), the continent might have four mega-cities and 11 cities of 5-10 million inhabitantsby 2030, and 15 mega-cities and 20 cities with a population between 5 and 10 million people in 2050.
These 15 mega-cities would represent 20% of the African urban population and 11% of the total
population of the continent. This means that one urban African out of five would live in a mega-city (ofmore than 10 million people) in 2050, compared to 5% in 2010, and one African out of ten (11%) would
live in a mega-city in 2050, compared to 2% in 2010. In 2050, the four largest cities could be (in four
different regions): Lagos with nearly 40 million; Kinshasa, 31 million; Cairo, 23 million; and Dar es
Salaam, 21 million. In Southern Africa, the largest city could be Johannesburg with 6 million people.
It is difficult to envision the magnitude of the problems that will be associated with the rapid
urbanization of Africa and the emergence large cities and mega-cities. However, one should note thatthe difficulty of living in urban settings and large cities has long been compensated by the adoption ofurban practices and the vitality of social networks. But these are weakening and the social control that
regulated internal tensions has lost part of its strength. Having worked as a rather inclusive machine,
African cities are now more and more a place of exclusion, especially from the modern labor market(Dubresson & Raison, 2003: 121). This exclusion process fosters the growing criminalization of many
African urban economies.
3. Projected Population of Children and Youth
In 2010, there were 411 million children aged 0-14 years in Africa (155 million children aged 0-4 years
and 256 million children aged 5-14 years). By 2030, under the Low fertility variant there will be 486
million (170 million aged 0-4 years and 316 million aged 5-14 years), but 626 million (227 million aged 04 years and 399 million aged 5-14 years) under the High fertility variant. By 2050, under the Low fertility
variant there will be 520 million children aged 0-14 years (174 million aged 0-4 years and 346 million
aged 5-14 years), but 839 million (302 million aged 0-4 years, and 537 million aged 5-14 years) underHigh fertility variant, that is 329 million more (see Table 4.3).

69

Table 4.3: Projected population aged 0-14 years by 2050 of Africa and African regions according to thevariants adopted in the 2010 United Nations population projections

2010

Low
variant
2050

Mediumvariant
2050

High
variant
2050

Constant
variant
2050

Population aged 0-14 years (in thousands)
AfricaSub-Saharan Africa% Sub-Saharan Africa
Eastern Africa
Middle Africa
Northern Africa
Southern Africa
Western Africa

411 265345 29284,0%
139 885
56 76565 97417 858130 784

519 780
473 88091,2%
199 153
64 76445 9009 245
200 718670 595
603 48190,0%
254 570
84 56967 11414 527249 816

838 717747 10989,1%
316 117106 61191 60820 843303 538

1 238 240
1 122 545
90,7%
462 583
201 239
115 695
22 899435 824

2.65
2.62
2.64
2.59
2.81
2.98
2.57

3.35
3.60
3.76
2.96
1.96
1.55
3.95

4.32
4.58
4.81
3.87
2.86
2.43
4.91

5.41
5.67
5.97
4.87
3.91
3.48
5.97

7.98
8.53
8.74
9.20
4.93
3.83
8.57

100.0%
90.0%
38.0%
12.6%
10.0%
2.2%
37.3%

100.0%
89.1%
37.7%
12.7%
10.9%
2.5%
36.2%

100.0%
90.7%
37.4%
16.3%
9.3%
1.8%
35.2%

Increase 2010 - 2050
AfricaSub-Saharan Africa
Eastern Africa
Middle Africa
Northern Africa
Southern Africa
Western Africa

Percentage in total population aged 0-14 years
AfricaSub-Saharan Africa
Eastern Africa
Middle Africa
Northern Africa
Southern Africa
Western Africa

100.0%
84.0%
34.0%
13.8%
16.0%
4.3%
31.8%

100.0%
91.2%
38.3%
12.5%
8.8%
1.8%
38.6%

Source: United Nations 2011.

The Low fertility variant will lead to a “fiscal gain” resulting from a lower financing requirement for the
expenses for health and education, etc. in the next 40 years. This gain can be used to improve thequality of children’s health and education, as well as to invest more in young adult education, vocational
training, and job creation. Therefore, the adoption of policies and programs aimed at slowing down
future population growth constitutes a crucial strategic choice, both at national and regional levels,
which should not be overlooked by African leaders, as has been the case in the past.

70

At the country level, the size of this “fiscal gain” will depend on the future course of fertility in eachcountry. The urgency to adopt policies and programs aimed at slowing down future population also
varies from one country to another. Let us consider first the future numbers of children aged 0-4 years.
Between 2010 and 2050, under the high fertility variant, the number of children aged 0-4 years will
double (and even triple in some cases) in a third (18) of the countries and increase by 50% to 100% in
another third (17) of the countries, primarily in Eastern, Middle, and Western Africa (see Figure 4.9). By
contrast, under the Medium fertility variant, the number of children aged 0-4 years will decrease,stabilize (as happened in many emerging market countries) or increase by less than 50% in two-thirds(34) of the countries. However, the number will more than double in a third (19) of the countries,
mainly in countries with “slow and irregular or very slow and/or incipient” fertility transitions. Finally,
with the Low fertility variant, the number of children aged 0-4 years will decrease in most countries (47out of 53), or will stabilize or increase by less than 50%.
Figure 4.9: Projected increase of population aged 0-4 years between 2010 and 2050 (base 100 = 2010)of African countries according to fertility scenarios, by increasing order for each region
500

Low variant
High variant

Increase, base 100 = 2010

450

Medium variant
Constant scenario

400
350
300
250
200
150

50

Seychelles
MauritiusZimbabwe
Djibouti
BurundiEritrea
Comoros
Kenya
Ethiopia
RwandaMozambique
Madagascar
Somalia
Tanzania
ZambiaMalawi
UgandaGabon
Sao T.& P.
CameroonCent.Af.Rep.
Congo
Eq.Guinea
D.R.Congo
AngolaChad
MoroccoTunisia
Algeria
Libya
Egypt
Sudan
South Africa
Botswana
LesothoNamibia
Swaziland
Cape Verde
Ghana
Togo
Mauritania
G-Bissau
Cote d'Ivoire
Sierra Leone
SenegalNigeria
GambiaLiberia
GuineaBenin
Burkina
Mali
Niger

100

Eastern Africa

Middle Africa

Northern Southern
AfricaAfricaWestern Africa

Source: United Nations 2011.

Similar results are found with future numbers of children aged 5-14, but these results are somewhat
amplified. For example, under the High fertility variant, the number of children aged 5-14 will double or
triple in almost half (24) of the countries. Similarly, under the Medium fertility variant, the number ofchildren 5-14 will continue to increase by more than 50%, and it will more than double in more than ahalf (29) of the countries.
These results indicate clearly the urgency of launching programs and actions to slow down the growth ofthe population, especially in the countries with “slow and irregular” or “very slow and/or incipient”
71fertility transitions, which represent nearly 60% of the continent’s population and 70% of the populationof sub-Saharan Africa. This is all the more important since these countries are generally those that still
have very high maternal and child (under 5 years) mortality levels. Indeed, these countries areconfronted today with the need to improve the coverage of maternal and health care and, at the sametime, they have to expand their health and education services to respond to the needs of a continuously
growing number of children and pregnant woman, and maintain adequate infrastructure and equipment
as well as sufficiently trained personnel. Such programs and actions will have an impact in a relatively
short term provided they are adopted right away.
4. Projected Labor Force
The impact of programs and actions to slow down population growth on the labor force will not be as
rapid. In fact, the number of youth entering the labor force will continue to grow rapidly because mostfuture workers (aged 15-64 or 20-64, depending on the definition retained) are already born. The sameis even truer for the elderly people, since all the people who will be 65+ by 2050 are all already born. As
a result, the dependency ratio (number of dependents aged less than 15 or 20 years and 65+ divided by
the working age population aged 15-64 or 20-64) will decrease and be more favorable to economic
growth only if the relative importance of the youth in the total population declines rapidly (asenvisioned for instance in the Low fertility variant) (see below).
Today, in all but three African countries, the youth aged 15-29 represents a huge proportion, namely
more than 40% of the adult population (above age 15), a phenomenon known as the “youth bulge”. It
will take some time to reduce this proportion. By 2030, with the Low fertility variant only 15 countries(about a quarter) that are more advanced in their fertility transition will have a percentage below 40% of
15-29 years old. But by 2050, most countries (45 out of 53) can hope to get rid of their “youth bulge” ifthey follow the Low fertility variant. However, with the High fertility variant, half of the countries (26)will still have more than 40% of 15-29 year olds in their adult population.
As already mentioned, the dramatic increase in the number of youth and the corresponding jobs
required will be the biggest challenge most countries of the region will need to confront during the next
decades. Crude estimates of new arrivals on the African labor market can be derived from the numberof youth aged 15-24 years. They were estimated at 205 million in 2010. By 2030, they will reach 293
million under the Low fertility variant, and 311 million under the High fertility variant. The difference
between the two variants is minimal, but the increase in the next 20 years of about 100 million youth isimportant.
By 2050, the number of youth aged 15-24 years will reach 331 million under the Low fertility variant and452 million under the High fertility variant (see Table 4.4). In this case, the difference is important (120
million) and this is largely the result of higher numbers of births between 2025 and 2034, resulting fromthe higher fertility of the High variant compared with the Low variant. If we assume that most of theseyouth will enter the labor market during the 10 years, when they are 15-24 years old, and if we take aparticipation rate of 70%, this corresponds today to about 14 million jobs to be created every year forthe entire continent. With the same assumptions, the annual jobs needed by 2030 will be around 21 to
22 million for both the Low and High variants. However, by 2050 the annual jobs needed under the Low
72variant will be 23 million, a considerable figure, but which remains close to the 2030 figure (aconsequence of the stabilization of the number of births starting in the 2030s with the Low variant). By
contrast, under the High variant the number of jobs to be created annually will continue to increase andreach 32 million by 2050, more than double the number of jobs needed today. Clearly, an accelerated
fertility transition would translate into reduced pressure on the labor market in the future.
Table 4.4: Projected population aged 15-24 years by 2050 of Africa and African sub-regions according
to the 2010 United Nations population projections

2010

Low
variant
2050

Mediumvariant
2050

High
variant
2050

Constant
variant
2050

Population aged 15-24 years (in thousands)
AfricaSub-Saharan Africa% Sub-Saharan Africa
Eastern Africa
Middle Africa
Northern Africa
Southern Africa
Western Africa

205 063
163 80879,9%66 55425 56341 255
11 79559 895331 121296 70889,6%
122 960
44 14634 4137 806
121 795

391 063346 28688,5%
143 982
51 86344 777
10 491
139 950452 085396 77487,8%
165 373
59 74255 31113 252158 408

550 878488 43288,7%
202 808
83 60962 446
13 776188 239

1.00
1.00
1.00
1.00
1.00
1.00
1.00

1.61
1.81
1.85
1.73
0.83
0.66
2.03

1.91
2.11
2.16
2.03
1.09
0.89
2.34

2.20
2.42
2.48
2.34
1.34
1.12
2.64

2.69
2.98
3.05
3.27
1.51
1.17
3.14

100.0%
88.5%
36.8%
13.3%
11.5%
2.7%
35.8%

100.0%
87.8%
36.6%
13.2%
12.2%
2.9%
35.0%

100.0%
88.7%
36.8%
15.2%
11.3%
2.5%
34.2%

Increase 2010 - 2050
AfricaSub-Saharan Africa
Eastern Africa
Middle Africa
Northern Africa
Southern Africa
Western Africa

Percentage in total population aged 15-24 years
AfricaSub-Saharan Africa
Eastern Africa
Middle Africa
Northern Africa
Southern Africa
Western Africa

100.0%
79.9%
32.5%
12.5%
20.1%
5.8%
29.2%

100.0%
89.6%
37.1%
13.3%
10.4%
2.4%
36.8%

Source: United Nations 2011.

The biggest challenge in this respect will be in Eastern, Middle, and Western Africa where the number ofyouth aged 15-24 years will double in the next 40 years under the Medium variant (and will triple, if we
consider the Constant variant) with only a slightly less rapid increase under the Low variant and a slightly73more rapid increase with the High variant (a consequence of the fact that youth aged 15-24 years by
2050 will be those born between 2025 and 2034, thus during a period when the fertility transition will
still be far from completed in most countries). Conversely, in Northern and Southern Africa, where thefertility transition is already well advanced, the number of youth aged 15-24 years by 2050 will be moreor less the same as in 2010 and may even decrease under the Low variant. These trends are likely tohave consequences on international migration trends in both regions. In Northern Africa, traditionallyaffected by large outward movements, the pressure to leave the region may lessen. In Southern Africa
and in particular in South Africa, the stabilization of the number of people aged 15-24 may become an
incentive for further immigration from neighboring countries.
It should be noted that we defined in this chapter the working age population as the numbers of thosein age group 20 to 64, in order to take into account the need to provide for secondary education for the
majority of the youth up to their 20th anniversary.
In 2010, the working age population aged 20-64 was estimated at 466 million for the whole continent,
and at 353 million for Sub-Saharan Africa. By 2030, it will reach 774 million for the whole continent (a66% increase), and 616 million for Sub-Saharan Africa (a 74% increase). The figure is the same for all
fertility variants (since those aged 20-64 years in 2030 were 0-44 years old in 2010). By 2050, the 20-64
years old will reach 1.097 billion with the Low fertility assumption, and 1.249 billion with the High
fertility, that is 152 million more. In both cases, the increases between 2010 and 2050 are huge: 2.4
times and 2.7 times the 2010 number, respectively (see Table 4.5). These increases are higher for
Eastern, Middle, and Western African where the numbers of people aged 20-64 years will more of lesstriple between 2010 and 2050. In Northern and Southern Africa, increases will be much more modest,
70% and 30%, respectively, for the Medium variant.

74

Table 4.5: Projected population aged 20-64 years by 2050 of Africa and African regions according to
the 2010 United Nations population projections

2010

Low
variant
2050

Mediumvariant
2050

High
variant
2050

Constant
variant
2050

Population aged 20-64 years (in thousands)
AfricaSub-Saharan Africa% Sub-Saharan Africa
Eastern Africa
Middle Africa
Northern Africa
Southern Africa
Western Africa

465 511353 22775,9%137 558
52 419112 284
31 417
131 833

1 097 068 1 172 957 1 249 000 1 315 553
925 003985 284 1 045 699 1 108 301
84,3%
84,0%
83,7%
84,2%
381 917407 399432 930459 961
144 249
153 373
162 522180 903172 064
187 673203 301
207 252
37 17241 14345 12544 809361 664
383 369405 123422 628

Increase 2010 - 2050
AfricaSub-Saharan Africa
Eastern Africa
Middle Africa
Northern Africa
Southern Africa
Western Africa

1.00
1.00
1.00
1.00
1.00
1.00
1.00

2.36
2.62
2.78
2.75
1.53
1.18
2.74

2.52
2.79
2.96
2.93
1.67
1.31
2.91

2.68
2.96
3.15
3.10
1.81
1.44
3.07

2.83
3.14
3.34
3.45
1.85
1.43
3.21

100.0%
84.0%
34.7%
13.1%
16.0%
3.5%
32.7%

100.0%
83.7%
34.7%
13.0%
16.3%
3.6%
32.4%

100.0%
84.2%
35.0%
13.8%
15.8%
3.4%
32.1%

Percentage in total population aged 20-64 years
AfricaSub-Saharan Africa
Eastern Africa
Middle Africa
Northern Africa
Southern Africa
Western Africa

100.0%
75.9%
29.5%
11.3%
24.1%
6.7%
28.3%

100.0%
84.3%
34.8%
13.1%
15.7%
3.4%
33.0%

Source: United Nations 2011

These regional figures are the result of the evolution at the country level. Increases in the numbers ofyouth aged 15 to 24 years between 2010 and 2050, age of arrival on the labor market, can be seen in
Figure 4.10. Most countries of Northern and Southern Africa and the island-countries, which are moreadvanced in their fertility transition, will see the numbers of their 15-24 years old decrease with the Low
fertility variant, but remain more or less the same with the High fertility variant. In most othercountries, the numbers of 15-24 years old will increase by about 50% with the Low fertility variant, but
double (and even triple in the case of Burkina Faso, Mali, and Niger) with the High fertility variant.

75

Figure 4.10: Projected increase of population aged 15-24 years between 2010 and 2050 (base 100 =2010) of African countries according to fertility scenarios, by increasing order for each region
500

Low variant
High variant

Increase, base 100 = 2010

450

Medium variant
Constant scenario

400
350
300
250
200
150

50

Mauritius
Seychelles
Zimbabwe
Djibouti
BurundiEthiopia
Kenya
Eritrea
RwandaMozambiquComoros
Madagascar
Somalia
Tanzania
Malawi
ZambiaUgandaGabon
Sao T.& P.
Cent.Af.Rep.
Cameroon
Congo
Eq.Guinea
D.R.Congo
Chad
AngolaTunisia
Algeria
Morocco
Libya
Egypt
Sudan
South Africa
Botswana
LesothoSwaziland
Namibia
Cape Verde
Togo
Ghana
Mauritania
G-Bissau
Cote d'Ivoire
Sierra Leone
SenegalGambiaNigeria
GuineaLiberia
Benin
Burkina
Mali
Niger

100

Eastern Africa

Middle Africa

Northern Southern
AfricaAfricaWestern Africa

Source: United Nations 2011.

Increases in the size of the working age population aged 20-64 in each country can be seen in Figure
4.11. As already mentioned, many of the people who will be between 20 and 65 years by 2050 are
already born. Therefore, the paths of the fertility decline between 2010 and 2050 will affect only
marginally the size of the working age population in 2050. First, the labor force will remain more or lessthe same in four countries, i.e., Mauritius, Seychelles, Tunisia, and South Africa, whatever the fertility
variant being considered. In the other countries of Northern and Southern Africa, it will increase roughly
between 50 and 100%. However, in almost all the other Eastern, Middle, and Western Africancountries, the working age population will be multiplied by 2 or 3. It is clear that the challenges
associated with these figures will be significant.

76

Figure 4.11: Projected increase of population aged 20-64 years between 2010 and 2050 (base 100 =2010) of African countries according to fertility scenarios, by increasing order for each region
500

Increase, base 100 = 2010450

Low variant

Medium variant

High variant

Constant scenario

400
350
300
250
200
150

50

Mauritius
Seychelles
Djibouti
BurundiZimbabwe
Comoros
Kenya
Mozambiqu
Ethiopia
RwandaEritrea
Somalia
Madagascar
Tanzania
ZambiaMalawi
UgandaGabon
Sao T.& P.
Cent.Af.Rep.
Cameroon
Congo
Eq.Guinea
Chad
D.R.Congo
AngolaTunisia
MoroccoAlgeria
Libya
Egypt
Sudan
South Africa
Botswana
LesothoNamibia
Swaziland
Cape Verde
Ghana
Togo
Mauritania
G-Bissau
Sierra Leone
Cote d'Ivoire
Nigeria
GuineaLiberia
SenegalGambiaBenin
Burkina
Mali
Niger

100

Eastern Africa

Middle Africa

Northern Southern
AfricaAfricaWestern Africa

Source: United Nations 2011.

5. Projected 65+ Population and Dependency Ratios
At the same time, almost all African countries will experience dramatic increases of their elderly
populations. In 2010, the number of persons aged 65 years and more was estimated at 36 million. By
2030, this number will double and reach 70 million, and quadruple by 2050, reaching 144 million. These
numbers are the same for all fertility assumptions because all the 65+ years old in 2050 were alreadyborn in 2010 (see Table 4.6). But their share in the total population will vary according to the fertility
variant. By 2050, the 65+ years old will represent 7.5% of the continent population with the Low fertility
variant, but 5.8% with the High fertility variant, compared with 3.5% in 2010. However, the higher
percentage, i.e., 7.5% in 2050, remains half of the equivalent percentage in Europe in 2010 (16.2%) andin all developed countries (15.9%). Therefore, Africa will definitely remain the youngest continent of theworld in 2050. However, Northern Africa will have in 2050 a percentage of 65+ years old close to
today’s developed countries’ percentages, from 12% with the High variant to 16% with the Low variant,followed by Southern Africa, i.e., from 8% with the High variant and 11% with the Low variant. But by
2050, Eastern, Middle, and Western Africa despite the rapid increases of their elderly, will still have very
low percentages of 65+ years old in their population, ranging from 4% to 6%. At that time, developed
countries will have between 23% and 29 % of 65+ years old in their population, and this will also be thecase for the countries of Eastern Asia.
Table 4.6: Projected population aged 65 years and more by 2050 of Africa and African regions
according to the 2010 United Nations population projections
77

2010

AfricaSub-Saharan Africa% Sub-Saharan Africa
Eastern Africa
Middle Africa
Northern Africa
Southern Africa
Western Africa

Allvariants
2050

2010

All
variants
2050

Population aged 65
years + (in millions)

Increase 2010 - 2050

35,8
25,8
72,1%
9,9
3,6
10,0
2,6
9,6

1.00
1.00
1.00
1.00
1.00
1.00
1.00

143,8
99,4
69,1%
41,3
13,9
44,3
6,5
37,7

4.01
3.84
4.16
3.79
4.43
2.47
3.91

All
variants
2010
2050
Percentage in total
population aged 65
years+
100,0%
100,0%
72,1%
69,1%
27,7%
28,8%
10,2%
9,6%
27,9%
30,9%
7,3%
4,5%
26,9%
26,2%

Source: United Nations 2011.

All African countries will be affected by the rapid increase of their population aged 65+, as it can be seenin Figure 4.12. Between 2010 and 2050, the lowest increases (between 50% and 250%) will be observedin 4 of the 5 Southern African countries. This is primarily the consequence of the deaths due to
HIV/AIDS in these countries, which are the most affected by the epidemic. In all other countries, thepopulation aged 65+ will be multiplied by a factor between 3 and 5. This phenomenon will call for
specific socioeconomic policies.

78Figure 4.12: Projected increase of population aged 65 years and over between 2010 and 2050 (base100 = 2010) of African countries according to fertility scenarios, by increasing order for each region
600
550

All variants

Increase, base 100 = 2010

500
450
400
350
300
250
200
150

50

Zimbabwe
ZambiaSeychelles
Mozambiqu
Mauritius
Malawi
UgandaEthiopia
Tanzania
Somalia
Djibouti
BurundiComoros
RwandaMadagascar
Kenya
EritreaCent.Af.Rep.
Cameroon
Chad
Congo
Gabon
D.R.Congo
Sao T.& P.
Eq.Guinea
AngolaTunisia
Morocco
Egypt
Sudan
Algeria
Libya
LesothoSwazilandSouth Africa
Botswana
Namibia
G-Bissau
Cape Verde
Cote d'Ivoire
Nigeria
Guinea
Togo
Ghana
Benin
Liberia
Sierra Leone
Mali
Senegal
Niger
Mauritania
BurkinaGambia100

Eastern Africa

Middle Africa

Northern Southern
AfricaAfricaWestern Africa

Source: United Nations 2011.

The combined effect of the population dynamics just described will cause: a) varying proportions ofyouth in the total population depending on the fertility variant considered; b) important increases of the
proportion of those aged 15-64 years or 20-64 years, i.e., the working age population; and c) modest
increases in the proportion of the 65+ years old, despite the huge increase of their numbers. As a result,the dependency ratio (number of dependents aged less than 20 years and 65+, divided by the working
age population aged 20-64 years) will decrease more or less, depending primarily on the rapidity of thefertility decline.
In 2010, the dependency ratio for Africa was 119 dependents for 100 working age persons aged 20-64,
and it was 129 dependents for Sub-Saharan Africa, the highest in the world (see Table 4.7). These ratios
were more or less double those of Eastern Asia (56), Europe (60), and Northern America (66), and muchhigher than the ratio in Latin America (78). By 2030, the African ratio will decline slightly to 91 with the
Low fertility variant, but only marginally to 112 with the High fertility variant. By 2050, it will reach 76
with the Low fertility variant, and 97 with the High fertility variant. These levels remain well above the2010 ratio in Eastern Asia and the developed countries. However, by 2050, because of the projectedageing of their population, the ratio of Eastern Asia will increase reaching between 76 and 87, and thoseof the developed countries will range from 86 to 98 (United Nations 2011). South Asia (including India,
Bangladesh, Pakistan, Indonesia, Vietnam, etc.), which is already well advanced in its fertility transition(see Figure 4.2), may become the region with the lowest dependency ratios in the world in 2050 (i.e.,

79between 55 with the Low fertility variant and 75 with the High fertility variant). Therefore, the countriesof South Asia might be in a more favorable situation than Africa with respect to their dependency ratios.
Table 4.7: Projected dependency ratios in percent (numbers of 0-19 years old and 65 years andmore/20-64 years old) by 2050 of Africa and African sub-regions according to the 2010 United Nations
population projections

2010

2050

Low
variant
2050

Mediumvariant
2050

High
variant
2050

Constant
variant
2010

87
89
91
81
71
64
94

97
100
103
93
81
75
105

128
133
133
144
93
81
136

Dependency ratio (>20 and 65+/20-64 years)
AfricaSub-Saharan Africa
Eastern Africa
Middle Africa
Northern Africa
Southern Africa
Western Africa

119
129
135
142
86
84
131

76
78
79
70
62
52
83

Source: United Nations 2011.

By region, in 2010 Eastern, Middle, and Western Africa had very high dependency ratios, above 130
dependents per 100 people of the working age population aged 20-64 years. By 2050, the dependency
ratios will be at best around 80 under the Low variant, and around 100 under the High variant, that isabout double the present dependency ratios observed in Eastern Asia (56). By 2050 and considering
only the dependency ratio, these three regions will obviously still be far from a favorable demographic
age structure allowing them to capture the demographic dividend. At the national level, the dependency
ratios will decrease more or less rapidly depending on the initial levels of fertility and the importance ofthe fertility decreases projected (see Figure 4.13).

80Figure 4.13: Number of dependents aged 0-19 years and 65+ years, for 100 persons aged 20-64 years
for African countries by increasing order of 2010 value for each region in 2050
Ratio 2050 <20,65+/20-64, if ratio with constant scenario higher than in 2010
Ratio 2010 <20,65+/20-64
Ratio 2050 <20,65+/20-64 High variant
Ratio 2050 <20,65+/20-64 Medium variant
Ratio 2050 <20,65+/20-64 Low variant

200

Dependants for 100 persons
aged 20-24

175
150

125
100

50

Mauritius
Seychelles
Djibouti
BurundiEritrea
Comoros
RwandaKenya
Zimbabwe
Ethiopia
Madagascar
Somalia
Mozambique
Tanzania
Malawi
ZambiaUgandaGabon
Eq.Guinea
Congo
CameroonCent.Af.Rep.
SaoT.&P.
Chad
AngolaD.R.Congo
Tunisia
Algeria
Libya
Morocco
Egypt
Sudan
South Africa
Botswana
Namibia
LesothoSwaziland
Cape Verde
Ghana
Mauritania
Togo
Sierra Leone
G-Bissau
Cote d'Ivoire
Nigeria
Liberia
GuineaGambiaSenegalBenin
Burkina
Mali
Niger

75

Eastern Africa

Middle Africa

Northern Southern
AfricaAfricaWestern Africa

Source: United Nations 2011.

With the Low fertility variant, only 14 countries out of 53 will have dependency ratios in 2050 comprised
between 52 and 59, comparable to the present dependency ratios of Eastern Asia, and half (28) of thecountries of the continent will have dependency ratios in 2050 between 60 and 78. However, with theHigh fertility variant, the dependency ratio will be much higher: 9 countries will have dependency ratios
between 70 and less than 80 and a third (19) of the countries will continue to have dependency ratios
above 100, which means that they will still be is an unfavorable situation to save, invest, and create jobs.
This underlines again the urgency for governments and policymakers to seriously take into account the
population dimension into their development planning, and for the countries still far from completing
their fertility transition, to accelerate their fertility decline.

IV.

Demographic Vision for 2050

Fulfilling a vision of prosperity and inclusive growth for African by 2050 is intrinsically linked to theattainment of a modern demographic regime. The demographic picture that underlies the Vision for
Africa for 2050 is that all African countries would have a “modern” demographic regime of low mortality
and low fertility, like most emerging market economies today (Guengant 2009). A modern demographic
regime corresponds to fertility levels between two or three children per woman and contraceptive
prevalence rates (CPRs) between 50% and 65% (against 10% to 30% in about two countries out of three
today).This would enable them to be in a position to capture a demographic dividend, realize inclusive
growth, reduce poverty levels, and achieve economic convergence.

81

The goal of reaching a modern demographic regime by 2050 implies a convergence of the high levels ofmortality and fertility observed today in most African countries, to those observed presently in theemerging countries but also in most other developing countries. For mortality, this assumes the pursuitof the mortality decline, not only of infant and child (under-five) mortality but also of adult mortality(especially through sustained efforts to reduce the impact of HIV/AIDS and major progress in the
reduction of cardio-vascular mortality). For fertility, this implies reaching fertility levels between two or
three children per woman.
Reaching these levels will imply that most African countries continue their efforts to reduce mortality
levels, whilst at the same time implementing public policies to initiate, accelerate, and complete theirfertility decline, depending on the specific situation of each country. This will be a daunting challenge
and will require an extraordinary effort; it would imply that population growth in African countries
follow the low variant.
Indeed, even if the countries were to follow the 2010 United Nations Medium fertility variant decline
path, fertility levels in 2045-2050 would remain above 3 children per woman in 15 countries (out of 53),
but in only seven countries if they were to follow the Low fertility variant, and, by contrast, in 30
countries if they were to follow the High fertility variant.
The demographic transition is usually accompanied by other major changes, namely the epidemiologicaltransition, i.e., a shift in health patterns from communicable to non-communicable diseases (May 2012:20-25). In addition, populations going through their demographic and epidemiological transitions do
experience other broad-based socioeconomic changes. Generally, their economy shifts gradually fromagricultural to industrial production, and eventually to a services-based economy. They also experience
important migratory movements from rural to urban areas, which lead the majority of people to live inurban settings. International migratory movements do often occur as well, and the remittances sent byemigrants may have an important economic impact.

V.

Agenda for Realizing the Vision

In this context and based on the analysis of past and present demographic trends and future population
trends and characteristics as it can be envisioned using the 2010 and 2011 United Nations World
Population and Urbanization Prospects, the measures necessary to realize the demographic vision for
Africa in 2050 can be summarized, as follows:

For all countries, there is a need to foster the decline of infant and child mortality rates andincrease survival prospects for adults to entice people to prepare for their future, with an overall
increase of life expectancies at all ages.



For the countries still far from achieving their fertility transition, there is a need to trigger a much
more rapid decline in fertility levels (total fertility rates) along with a much more rapid increasein the contraceptive prevalence rates (CPRs) (namely, realizing the contraceptive revolution).
The ultimate goal will be to reach by 2050 total fertility rates of around 3 children per woman(or less) in all African countries.
82

For all countries, there is a need to attain or maintain favorable dependency ratios as the resultof the demographic transition, in particular for the youth below age 20, as compared to theworking age population (age group 20 to 64). For those few countries that have completed orare close to completing their fertility transition, it is important that fertility remain aroundreplacement levels, to avoid increases in the dependency ratio resulting from the expected
increases in numbers of people aged 65 years and over.

In order to accelerate the mortality and fertility transition and to achieve this 2050 demographic
vision, sound policies and programs will be necessary. In this respect, the role of policies andleadership commitment is crucial (May 2005, 2012). In particular, two major policy shifts thatshould translate into vigorous, broad-based, and far-reaching interventions, are urgently
needed:oFirst, there is a need for a much stronger commitment and engagement on populationand family planning issues on the part of public authorities, civil society organizations,and international donors alike55. This stronger commitment must be based on therecognition not only of the benefits of family planning for improving maternal andhealth, but also for reasons of better economic and social planning. This commitment
must be based also on the unambiguous recognition of everyone’s rights of access tosexual and reproductive health services. For most countries, this implies more
important and especially more regular funding flows for population and family planning
programs over the next decades. For the 40 countries which are today still far fromcompleting their fertility transition, and in particular in the 25 countries with “slow andirregular transition" or “very slow and/or incipient transition”, this requires to setting
programmatic objectives for family planning programs, in the form of rapid increases ofcontraceptive prevalence rates (CPRs). Such increases should be of at least 1.5
percentage points per year, as it has been observed in today’s emerging market
countries (see Figure 4.4). This will enable SSA countries to realize contraceptive
revolution, since they must eventually reach CPRs of at least 60% in 2050 to reach“modern” and lower levels of fertility.

oSecond, there is a need for a much stronger drive toward the empowerment of women.
This implies that a number of countries do enact legislative changes such as inter alia
rising the legal age at marriage, adopting inheritance laws and/or practices that do notdisadvantage women, adopting new Family Codes to guarantee equal rights and duties
for males and females, and removing the husband’s and/or parents’ consent to allow
women and young girls to have easy access to family planning services. This will requirealso the promotion of reproductive rights, while at the same time making sure thatwomen and couples can exert their reproductive choices freely and without coercion.
Furthermore, social, cultural and even religious norms will also have to evolve for a
rapid fertility decline to happen.

55 After almost 20 years of neglect of family planning internationally, a first step in the right direction was the July 2012 London

Conference on Family Planning convened by the Department for International Development (DFID) and the Bill & Melinda Gates
Foundation.

83

Broad-based and far-reaching interventions are urgently needed to accelerate the demographictransition, which will be initiated by rapid declines in fertility that in turn will bring about more favorable
dependency ratios. The improvement of the dependency ratios will help strengthen human capital (i.e.,
education and health), provided sound policies and investments are put into place at the same time (seeBeaujeu et al. 2011). This is one of the absolutely necessary conditions, along with adequate
macroeconomic policies that are needed to fulfill a vision of prosperity and inclusive growth for Africa by
2050.

84

CHAPTER 5: POVERTY AND INEQUALITYI.

Introduction

There is broad consensus that the key determinants of sustained growth are effective political andeconomic institutions, an outward orientation, macroeconomic stability and human capital
accumulation. However, what is also being increasingly recognized is that income equality is also,
independently, an important pre-requisite for sustained growth . While some inequality may be a resultof market economy in terms of incentives for investment and growth, too much inequality can be
destructive to growth.
Asian experience indicates that even in countries like China and India where absolute poverty has been
reduced on a sizeable scale, income inequality has increased and access to basic services remains spotty.
This is leading to deep rethinking in these countries’ planning agencies on how to ensure more inclusive
growth. Research on growth without equity indicates that growth strategies are less likely to be
successful without a commitment to equality of opportunity, including giving citizens a fair chance toparticipate in the growth process and to share the benefits of growth . Inequalities lead to (i) adampening of the poverty reduction impact of growth; (ii) lowering the growth rate itself; (iii) a“hollowing out” of the middle class; (iv) a degrading of the capacity of a country’s institutions, thereby
nurturing corruption and rent seeking; (v) increased crime and violence; and (vi) undermining of social
stability. Even “converging” African countries can have their growth efforts halted and even reversed if
policymakers ignore inclusive policies and actions.
Inequality also reduces the length of “growth spells.” Even the weakest of African economies can
succeed in initiating growth spurts at high levels for a few years. What is rare is the ability to sustain
growth over a long period. Most growth spells in developed countries and emerging Asia last at least ten
years or more, whereas only about two-thirds of African spells do . This chapter summarizes the statusof African countries’ experience in alleviating poverty, reducing inequalities, and increasing access toopportunities. As the chapter concludes, while progress has been achieved in selected aspects ofinequality in some countries during the past decade (2000-2010), a large portion of Africa continues tolive in poverty and has experienced high levels of inequality of income and opportunities during much of
the last two decades.
Following a brief discussion of poverty and inequality in Africa (sections II and III), this chapter focuseson the trends in inequality. This discussion (Section IV) is divided into four dimensions of inequality—
those related to income, access to education, access to health, and access to water and sanitation
services. Section V addresses the range of future outcomes related to poverty and inequality. The
chapter concludes with an Action agenda.

II.

Evolution of poverty in Africa

While Africa’s economic growth during the last decade was more robust than during the 1990s, eventaking into account the negative impact of the global financial and economic crisis on the economies,
the number of poor (defined here as those with income less than $1.25/day) increased from about 205
85

million in 1981 to 386 million in 2008, an increase of about 180 million. This is in contrast to East Asiaand the Pacific and South Asia regions where there was an appreciable decline in the incidence ofpoverty over the same period (Figure 5.1). Of the total number of poor in Africa in 2008, roughly 220
million (57 percent of the total poor) lived in five countries (Democratic Republic of Congo, Ethiopia,
Madagascar, Nigeria and Tanzania). It is highly likely that most African countries will not meet theirpoverty reduction Millennium Development Goal by 2015.
Figure 5.1: Poverty Headcount (at $1.25 per day)90
80

% of population

70
East Asia & Pacific(developing only)

60
50

Latin America &Caribbean(developing only)40

Sub-Saharan Africa(developing only)

30
20South Asia

10

2008

2005

2002

1999

1996

1993

1990

1987

1984

1981

0

Source: World Development Indicators

While data are not available for most African countries, it is possible to obtain a rural-urban break down
for the larger countries for the 2000s. This is shown in Figure 5.2. As can be noted, in all cases, rural
poverty exceeds urban poverty incidence, indicating that poverty in these African countries is primarily arural phenomenon.

III.

Inequality of outcomes and opportunities

A review of inequality needs to distinguish between inequality of outcomes and inequality ofopportunities. Citizens use the resources at their disposal to maximize their well-being subject toconstraints on their options. In assessing inequality, income and expenditure are commonly used toproxy the outcome of the process. However, focusing on just income or expenditure can beconstraining. Over time, non-income dimensions like education and health have emerged in providing a
multi-dimensional and inter-generational perspective on poverty and inequality56. Inequality ofopportunity is the portion of inequality of outcome that can be attributed to differences in “individual
circumstances”57, related to race, region of birth, parental income, mother’s education, etc. While some56 Juzhong Zhuang and Ravi Kanbur (2012): Confronting Rising Inequality in Asia, Theme chapter of Asian Development Bank’s

Asian Development Outlook 2012.
57 J. Roemer (1998): Equality of Opportunity. Cambridge, Massachusetts, Harvard University Press.

86income inequality may be inevitable and a part of the growth process, inequities of opportunities violatea sense of fairness and equity particularly when the individuals affected can do little about them.
Figure 5.2: Rural-Urban Poverty, 2000s
80
70
60
50
40
30
20
10
0
Egypt

Ethiopia

Nigeria

Urban

D.R.C.

Rural

Source: World Development Indicators

IV.

Recent trends of income inequality in Africa58

Of the 22 African economies with available data in 2000s, 16 had a Gini coefficient greater than 40,
which is generally regarded as a threshold for “high inequality”59. The highest inequality was for South
Africa with a Gini of 63.2, followed by Swaziland, Rwanda and Nigeria. At the other end of the spectrum,
the country with the lowest inequality was Ethiopia with a Gini coefficient of slightly under 30, followedby Egypt and Mali (Figure 5.3).
Comparing Gini coefficients in Africa with those of developing countries in Asia, Africa’s coefficients areon average higher than those in developing Asia: Africa’s range of Gini coefficients of 29-63 is not astight as developing Asia’s 28-51. In fact, Africa’s inequality is second only to that of Latin America, andthe latter’s inequality has been on a declining trend during the past decade.
With regard to changes in the Gini coefficient during 2000s, 14 out of the 22 African countries(accounting for almost half of Africa’s population in 2010) experienced increases in the Gini coefficient.
By contrast in Asia, 11 of 25 countries with comparable data experienced increases in inequality.
As an aggregate measure, the Gini coefficient may hide detailed patterns of differences across levels of
expenditures. Table 1 provides the quintile ratios—the ratio of the per capita expenditure of the top 20
percent to that of the bottom 20 percent.

58 Inequality can be estimated for per capita income or per capita expenditure. The former measure is generally higher than the

per capita expenditure measure. For most African countries, as for most developing Asian countries, estimates are based on
expenditure data, unlike those for Latin American and OECD countries which are based on income data. It is therefore moreaccurate to compare Africa’s inequality measures to those of developing Asia.
59 For convenience, the Gini coefficient is used here as a percentage rather than as a number between zero and 1.

87

During 2000s, out of 45 African countries for which data were available 15 countries had the top 20
percent of households earning more than ten times that of the bottom 20 percent. The mean quintile
ratio for the 45 African countries was 10.6. This compares to a figure of 7.1 for the 32 Asian countries forwhich data were available over the same period.
Significantly, South Africa exhibits one of the highest inequalities in Africa on both the Gini measure aswell as quintile comparison, its ratio on the latter count being above 20. When the ratio of the top
versus the bottom decile is taken, the inequality is even more stark: the top 10 percent in South Africa
earn about 44 times as much as the bottom 10 percent, only marginally better than Brazil.
Figure 5.3: Gini Coefficients for Selected African Countries, 2010
Ethiopia
Egypt
Mali
Sudan
Tanzania
Liberia
SenegalMauritania
MoroccoCote d'Ivoire
Ghana
Madagascar
Congo
Mozambique
D.R.C.
Kenya
Nigeria
RwandaSwazilandSouth Africa
20

25

30

35

40

45

50

55

60

65

70

Gini coefficient

Source: World Development Indicators

In terms of trends in income inequality over time, the Gini coefficient for Africa as a whole increased(worsened) from 45 in 1990 to 46 in 2010. This level of inequality is well above the average for Asia’s
developing economies. During the 2000s, inequality grew markedly in Kenya, Nigeria, South Africa andTanzania (Gini coefficients increased by at least 8 percent). It declined for Egypt, Cote d’Ivoire, Mali and
Senegal.

A. Access to education
Education is a critically important element in non-income inequality. It is a self-perpetuating type of
inequality, with poor education generally leading to lower income, and lower income in turn leading topoor education of children.

88Africa has made significant strides in improving average achievements in education. It is a selfperpetuating type of inequality, with poor education generally leading to lower income, and lower
income in turn leading to poor education of children.
Table 5.1: Comparison of Incomes of Top and Bottom Quintiles, 2000s
Top 20% / Bottom 20%

Countries

Above 20

Angola, Comoros, Namibia, S. Africa

10 to 20

Cape Verde, Central African Republic, Republic ofCongo, Gambia, Kenya, Lesotho, Nigeria, Rwanda,
Seychelles, Swaziland, Zambia

5 to 10

Benin, Burkina Faso, Cameroon, Chad, DRC, Coted'Ivoire, Djibouti, Gabon, Ghana, Guinea, GuineaBissau, Liberia, Madagascar, Malawi, Mali, Mauritania,
Morocco, Mozambique, Niger, Sao Tome, Sierra Leone,
Sudan, Tanzania, Togo, Tunisia, Uganda
Below 5Burundi, Egypt, Ethiopia
Source: World Development Indicators

Africa has made significant strides in improving average achievements in education. Over 30 Africancountries are on track to achieve universal primary education by 201560. Table 5.2 provides data for ten
African countries with the lowest primary completion rates in 1991.
Table 5.2: Primary Completion Rates for Selected African Countries (Percent of relevant age group)
Total
Male
Female
1991
2010
1991
2010
1991
2010
Benin
22
63
30
74
14
53
Burkina Faso
20
45
25
48
15
42
Chad
18
33
29
41
7
24
Eritrea
18
40
21
43
15
36
Ethiopia
23
72
28
75
18
69
Guinea
17
64
24
75
9
53
Guinea-Bissau
5
68
7
75
3
60
Mali
9
55
12
61
7
50
Mozambique
26
61
32
66
21
55
Niger
17
46
21
52
13
40
Average for above
17
55
23
Source: Adapted from World Development Indicators

61

12

48

By 2010, all these countries showed significant improvement, on average moving from 17 percent to 55
percent. This improvement has been even more dramatic for girls, with a four-fold increase in the
primary completion rates during the last two decades. Female students in Guinea-Bissau and Mali inparticular made dramatic gains.
60 Africa Progress Panel (2010): Africa Progress Report 201089

With more than half of the way through Africa’s Second Decade of Education (2006-2015), many
countries have increased budgetary resources allocated to education, including significant increases in
Ethiopia, Kenya, Mozambique, and Senegal61.
However, enormous challenges remain. Some 50 million African children—especially girls—from poor
backgrounds and rural areas still do not have access to primary education. In many cases, the issue is
not one of lack of public expenditures allocated to education. With the exception of Central African
Republic, Chad, Guinea and Liberia, most African countries allocated between 3-8 percent of GDP to
education in 2010 with Burundi and Lesotho setting aside 9 percent and 13 percent respectively. There
are other factors such as school fees and other costs that continue to discourage school attendance.
Enrolment inducing practices such as the provision of meals and sanitary pads at school are still notwidespread enough. These circumstances may suggest that conditional cash transfer schemes like Bolsa
Familia of Brazil and Opportunidades of Mexico may be warranted in some African countries. However,studies of South Africa’s Child Support Grant (CSG), under which the state awards unconditional meanstested cash tranfers to caregivers of poor children, indicate that it is preferable to address the structuralproblems of the supply side of education and health rather than to consider imposing conditionalities
that could further exclude poor children and their caregivers from these cash transfers62.
Deep-rooted inequalities are a barrier to universal primary education. Disparities linked to wealth,gender and location (especially rural versus urban) are holding back progress in many African countries.
While the gender gaps are narrowing somewhat, they remain large in the continent. In many Africancountries, there are still fewer than nine girls in school for every ten boys. While enrolment rates arerising, millions of African primary school children drop out before completing a full primary cycle. Some28 million pupils in Sub-Saharan Africa drop out each year.
In 2010, inequality in the ratio of out-of school children by gender was very wide in Africa. For example,
the number of out-of school girls was more than three times as high for boys in Angola and Egypt, andabout twice as high in Central African Republic and Mozambique (Figure 5.4).

61 UNESCO (2010): Education for All Global Monitoring Report, Reaching the Marginalized
62 See for example Frances Lund, Michael Noble, Helen Barnes and Gemma Wright (2002): Is there a Rationale for Conditional

Cash Transfers for Children in South Africa? Working Paper Number 53.

90

Figure 5.4: Ratio of Female/Male Primary School-age out of School Children
Egypt

12.3

Angola

3.1

CAR

2.1

Mozambique2

Morocco

1.3

Mali

1.3

Ethiopia

1.3South Africa

0.9

Tanzania

0.8

Senegal0.8

Zambia0.7

Source: Adapted from World Development Indicators

Access to education gets increasingly more difficult as children get older. Secondary and tertiary intake
rates in Africa remain as low as 32 percent and 5 percent respectively. Moreover there are serious issuesof quality of education in almost all African countries, and teacher absenteeism in, for example, Uganda
is around 35 percent. Africa scores poorly on global standardized tests, which are extremely low even in
South Africa. These are issues that would need to be addressed if African labor is to face international
competition.

B. Access to health
Like education, health is also an example of self-perpetuating inequality. Poor health affects the abilityof the poor to increase their incomes. Even when children from poor families survive preventablediseases such as dysentery, malaria and respiratory infections, as adults they are likely to give birth toanother generation of low-birth weight babies, reinforcing the vicious cycle of low human development.
Africa has generally made good progress on life expectancy, with average life expectancy increasing by
five years from 52 years in 1990 to 57 years in 2010 (Table 5.3). North African countries and Mauritius
demonstrate not only relatively high levels—about 72 years—but also improvement since 1990.
On the other hand, there are significant differences among countries, with a person from Sierra Leone
dying 28 years before his Tunisian counterpart. There are, moreover, eight countries (Cameroon, Central
African Republic, Chad, Kenya, Lesotho, South Africa, Swaziland and Zimbabwe) which saw declines intheir life expectancy over the past two decades. The drop was particularly steep for Lesotho, South
Africa, Swaziland and Zimbabwe, in each of which the decline was around ten years. This large declinereflects the devastating impact of HIV/AIDS on these economies, although there are recent signs that life
expectancy in these countries is starting to stabilize and increase.
Inter-country inequalities are also evident in infant mortality rates, with three countries (Libya,
Mauritius and Tunisia) indicating low levels of around 13 per thousand live births, compared to very highlevels for Angola, Central African Republic, Chad, Democratic Republic of Congo, Mali, and Sierra Leone(Table 5.3).

91

Table 5.3: Life Expectancy and Infant Mortality Rates
Life Expectancy at BirthInfant Mortality Rate(years)(per 1,000 live births)
1990
2010
1990
2010
Algeria
67
73
55
31
Angola41
51
144
98
Botswana
64
53
46
36
Burkina Faso
48
55
103
93
Cameroon
53
51
85
84
Central African Rep. 49
48
110
106
Chad
51
49
113
99
Congo, Dem. Rep.
47
48
117
112
Cote d'Ivoire
53
55
105
86
Egypt
62
73
68
18
Ethiopia
47
59
111
68
Gambia
53
58
78
57
Ghana
57
64
77
50
Kenya
59
56
64
55
Lesotho
59
47
72
65
Libya
68
75
33
13
Mali
44
51
131
99
Mauritania
56
58
80
75
Mauritius
69
73
21
13
Morocco
64
72
67
30
Mozambique
43
50
146
92
Nigeria
46
51
126
88
Rwanda33
55
99
59
Senegal
53
59
70
50
Sierra Leone
39
47
162
114
Somalia
45
51
108
108
South Africa
62
52
47
41
Sudan
53
61
78
66
Swaziland
59
48
70
55
Tanzania
51
57
95
60
Togo
53
57
87
66
Tunisia
70
75
39
14
Uganda47
54
106
63
Zambia47
48
109
69
Zimbabwe
61
50
52
51
Average
52
57
92
65
Source: World Development Indicators

There are major inequities in access to health by income. One can compare the infant mortality rate
among the poorest quintile of the population with that of the richest quintile. In countries like Egypt and92

Cote d’Ivoire, the chance of a poor infant dying is more than twice that of an infant born to a rich family(Figure 5.5).
Figure 5.5: Infant Mortality Gaps by Income, 2000s
Egypt
Cote d'Ivoire
RwandaCameroon
D.R.C.
Nigeria
Sierra Leone
Madagascar
Mali
Ethiopia
Kenya
Ghana
Tunisia
SwazilandZambia0

0.5

1 Times

1.5

2

2.5

Source: World Development Indicators

C. Access to water and sanitation
Overall the news for Africa (and the rest of the world) on access to improved source of drinking water ispositive, with Africa’s proportion of population with better access increasing from 61 percent in 1990 to
66 percent in 2010 (from 55 percent to 61 percent for Sub-Saharan Africa and from 89 percent to 92
percent for North Africa). Progress has been particularly impressive for six countries (Burkina Faso,
Ghana, Liberia, Mali, Namibia and Uganda) with their proportion of 2010 population that gained accessto improved water source since 1995 being above 40 Percent.
There are, however, several African countries, notably the Democratic Republic of Congo, Ethiopia, andMadagascar, where about 55 percent of the countries’ population still lacks access to safe drinking
water (Figure 5.6).
With regard to access to improved sanitation facilities, much of Africa is off-track in meeting the MDG
sanitation target by 2015. In 2010, no less than 60 percent of Africa’s population (70 percent in SubSaharan Africa and 10 percent in North Africa) was without access to improved sanitation facilities. This
compares to the world figure of 37 percent. Access varies considerably by income and location (ruralurban). Countries such as Niger, Tanzania, Sierra Leone, Chad and Ghana are particularly low in coverageof sanitation facilities (Figure 5.7).

93Figure 5.6: Access to Safe Drinking Water
Somalia
Ethiopia
Namibia
D.R.C.
Madagascar
Mozambique
Niger
Mauritania
Chad
AngolaTanzania
Sierra Leone
Sudan
Nigeria
Kenya
ZambiaTogo
MaliGuinea Bissau
RwandaC.A.R.
Swaziland
Congo
UgandaSenegalBurundiLiberia
GuineaBenin
Cameroon
LesothoBurkina Faso
Zimbabwe
Cote d'Ivoire
Malawi
MoroccoAlgeria
Ghana
Gabon
Djibouti
GambiaTunisia
S. Africa
Comoros
Botwana
Mauritius
Egypt
10

20

30

40

50
60
% of population

Source: World Development Indicators

94

70

80

90

100

Figure 5.7: Access to Improved Sanitation
Niger
Tanzania
Togo
Sierra Leone
Chad
Benin
Ghana
Madagascar
Burkina Faso
Mozambique
Liberia
GuineaCongo
Guinea Bissau
Ethiopia
Mali
Somalia
D.R.C.
Cote d'Ivoire
Sudan
Sao Tome
Lesotho
Mauritania
Nigeria
Namibia
Kenya
Gabon
C.A.R.
UgandaComoros
Zimbabwe
BurundiZambiaCameroon
Djibouti
MalawiSenegalRwandaSwaziland
AngolaCape Verde
Botswana
GambiaMoroccoS. Africa
Tunisia
Mauritius
Egypt
Algeria
Libya
0

10

20

30

40

50
% of population

Source: World Development Indicators

95

60

70

80

90

100

V.

Prospects for 2050

Sustained high growth as envisioned in the convergence scenario for 2050 would make a significant
impact on poverty and on the share of Africa’s population moving into the middle class.

A. Poverty in the future
Figure 5.8 shows the poverty rate and the number of Africans in poverty under the three scenarios
presented in this report through 2050. In the Convergence Scenario, Africa’s poverty rate declines
below 5%, and even more strikingly, the poverty rate for fragile countries declines below 10%. In theBusiness as Usual Scenario, the poverty rates decline in a linear fashion, with African poverty around
17% in 2050. In the Downside Scenario, the poverty rate declines very little, dropping about 5
percentage points to around 32%.
Looking at the absolute amount of people in poverty in Africa presents a slightly different picture. Dueto population growth, only the Convergence Scenario reduces the number of people in poverty in Africa,
with a total in 2050 of about 50 million. In the Business as Usual Scenario, the number of people inpoverty actually increases to 378 million in 2050. In the Downside Scenario, the number of Africans inpoverty nearly doubles, increasing to 690 million. With the coming population explosion, reductions inpoverty rates will need to be accelerated in order to reduce the number of Africans living in poverty.

B. Buildup of the middle class
Figure 5.9 shows Africa’s middle class through 2050. These figures again highlight the benefits of
convergence for Africa’s future. In the Convergence Scenario, about 65% of Africa’s population is in the
middle class. The Business as Usual Scenario and Downside Scenario produce middle classes that areabout 30% and 20% of the population, respectively. The Convergence Scenario therefore produces a
middle class that is twice the size of that produced by the Business as Usual Scenario, and three times
the size of that produced by the Downside Scenario.
In the Convergence Scenario, the total number of people in the middle class exceeds 1.4 billion in 2050,
up from 125 million in 2012. The Business as Usual Scenario and Downside Scenario only produce
middle classes of about 600 million and 400 million, respectively. The Convergence Scenario therefore
represents a huge opportunity for Africa, not just in terms of raising incomes, but also by making Africa asignificant region of middle class consumers on the global stage.

96

Figure 5.8: Poverty through 2050 (below $1.25 PPP per day)Poverty rate

Millions of people in poverty

Convergence Scenario

Convergence Scenario
700
600

40%

Millions in poverty

Poverty rate (%)

50%

30%
20%
10%

500
400
300
200
100

0%

0
2010

2030

2050

2010

Business as Usual Scenario
700
600

40%

Millions in poverty

Poverty rate (%)

2050

Business as Usual Scenario

50%

30%
20%
10%

500
400
300
200
100

0%

0
2010

2030

2050

2010

Downside Scenario

2030

2050

Downside Scenario

50%

700
600

40%

Millions in poverty

Poverty rate (%)

2030

30%
20%
10%

500
400
300
200
100

0%

0
2010

2030

2050

2010

97

2030

2050

Population (%) in middle class

Middle class (millions)

Convergence Scenario

Convergence Scenario

90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

1,400

Middle class (millions)

Population (%) in middle class

Figure 5.9: Middle class through 2050

1,000
800
600
400
200
0

2010

2030

2050

2010

Business as Usual Scenario
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

2050

1,400
1,200
1,000
800
600
400
200
0
2010

2030

2050

2010

Downside Scenario

2030

2050

Downside Scenario

90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

1,400

Middle class (millions)

Population (%) in middle class2030

Business as Usual Scenario

Middle class (millions)

Population (%) in middle class

1,200

1,200
1,000
800
600
400
200
0

2010

2030

2050

2010

98

2030

2050

VI.

Action Agenda

In short, the recent impressive economic growth in Africa has not been accompanied by a reduction inpoverty or of income inequalities. The actual number of poor in the continent has increased and twothirds of the countries during 2000s had a Gini coefficient above 40, the threshold for high inequality.
Not only has inequality been high, it has increased over time, with two-thirds of the 22 countries forwhich data are available experiencing increased inequality. Similar results are obtained when acombination of quintiles is undertaken.
Africa has been more successful in improving average achievements in education (especially of girls),
access to health services and access to improved source of drinking water. But even in these areas there
is some way to go. Some 50 million African children—especially girls—from poor backgrounds and rural
areas still do not have access to primary education. And access to education becomes more difficult as
children get older, with secondary and tertiary intake rates falling dramatically. In health, inter-country
inequalities are large both in life expectancy and infant mortality rates. On access to improved source ofdrinking water, there are countries such as the Democratic Republic of Congo, Ethiopia and Madagascar
where more than 55 percent of the countries’ population is still without access to safe drinking water.
Finally, with regard to access to improved sanitation facilities, much of Africa is off-track in meeting the
MDG sanitation target by 2015.
Reducing inequalities in Africa would entail leveling the playing field through more equitable and broadbased basic education (early childhood development and girls education in particular) which was a
distinguishing feature of Korean education. Brazil proactively used education to help level the playing
field. Other options are increasing income earning opportunities; increasing access to basic healthservices and to water and sanitation facilities; and strengthening institutions that promote transparency
and fairness.
Africa will need to grow at least at around 5 percent a year to keep the number of poor constant.
Growth during the past decade has been higher than during the 1980s and 1990s, and yet the number ofpoor has increased. Part of the explanation may be that many of the most rapidly growing countries areresource-rich countries, and this growth has not translated into widespread improvements in living
standards. At least part of the solution would be to reduce constraints on small businesses to facilitate
productivity growth and employment. Access to finance, especially for small and medium enterprises is
an important determinant of sustained growth.
Access to power supply emerges as a very serious constraint to business as seen by those affected.
Africa has a great deal of potential for energy and huge natural gas reserves. The challenge would be toestablish an energy platform for small businesses, and avoid the risk of going for growth that isconcentrated in nodes of highly capital-intensive growth, leaving little for the rest. Issues related to thebusiness environment are discussed elsewhere in this report.
An important aspect of inclusion is gender poverty. A useful indicator, developed by UNDP, to measure
it is the gender inequality index, which is a composite measure reflecting inequality in achievements
between women and men in three dimensions: reproductive health; empowerment; and the labor99market. The index varies between zero (when women and men fare equally) and 1 (where one genderfares as poorly as possible in all measured dimensions). Table 5.4 provides the data for selected Africancountries. Apart from Algeria, Mauritius and Tunisia, most other African countries score poorly
compared to countries in other regions.
Inclusive growth is more than just an outcome; it is also a process. The ability of citizens to express andexercise their views is as important part of inclusive growth, as is the participation of citizens indecisions that influence their well-being. Active involvement of beneficiaries in anti-poverty programs
may lower the informational costs associated with these interventions and offer the potential for thedesign and implementation of interventions that are in line with the preferences of the population they
are designed to assist. This is confirmed by examination of several public works interventions
undertaken in the Western Cape province of South Africa63.
Table 5.4: Gender inequality in Africa, 2011
Rank
Value
Tunisia
Mauritius
AlgeriaSouth Africa
Botswana
MoroccoSenegalUgandaZimbabwe
Tanzania
Malawi
Ghana
Mozambique
Kenya
Cameroon
Cote d'Ivoire
D.R.C.

45
63
71
94
102
104
114
116
118
119
120
122
125
130
134
136
142

0.293
0.353
0.412
0.490
0.507
0.510
0.566
0.577
0.583
0.590
0.594
0.598
0.602
0.627
0.639
0.655
0.710

Source: UNDP: Human Development Report 2011

Absence of the poor in decisions about their well-being can distort priorities. While in many Africancountries governments devote about one-third of their budgets to education and health, they spend
little of it on the poor. For example, even though clean water is critical to health outcomes, in Morocco
only 11 percent of the poorest quintile of the population has access to safe water, while everybody inthe richest fifth does.
However, more public spending alone is not enough. Between 1980s and 1990s, total public spending
on education in Ethiopia and Malawi increased by $8 per child of primary school age. In Ethiopia primary
63 John Hoddinnot, Michele Adato, Tim Besley, and Lawrence Haddad (2001): Participation and Poverty Reduction: Issues,

Theory, and New Evidence from South Africa

100school completion stagnated, going from 22 percent in 1990 to only 24 percent in 1999, while in Malawi
it rose from 30 percent to 50 percent.
When communities are not involved in establishing, supporting and overseeing a school, it is invariably
seen as something alien. A study of schooling in rural Nigeria found that villagers often stopped
expecting anything from government schools, taking the responsibility themselves64. One of the mostpowerful means of increasing the voice of poor citizens in policymaking is better information, which canserve as a stimulant for public action and as a catalyst for change. It is well known that when thegovernment of Uganda learned that only 13 percent of recurrent spending for primary education was
arriving in primary schools, it launched a monthly newspaper campaign on the transfer of funds. That
campaign galvanized the population, inducing the government to increase the share going to primaryschools (now over 80 percent) and compelling school principals to post the entire budget on the schoolroom door. Similarly an in-depth study of the Iringa district in Tanzania, a poor rural area, showed thatpatients by-passed low quality facilities in favor of those offering higher quality consultations andprescriptions staffed by more knowledgeable physicians and better stocked with basic supplies65.
To increase the quality of education, reforms should concentrate on increasing the voice andparticipation of beneficiaries, but not neglect the importance of central government oversight. In
practical terms, there should be more community management of schools and demand-side subsidies tothe poor, but with continuing stress on nationally determined curricula and certification.
Decentralizing delivery responsibilities for public services is prominent on the reform agenda of many
countries, including Nigeria and South Africa66. A key objective, usually linked to political motivation fordecentralization, is to strengthen citizen voice by bringing services and elected politicians closer to thebeneficiaries.
In short, there are ways to use beneficiary power to improve outcomes. One is to involve citizens
directly in the assessment and operation of schools. Another is to use demand-side subsidies to increase
access for poor people. A third is to make provider resources depend on client choice—to have money
follow students. None is a panacea by itself, but each can be a part of a strategy for school
improvement.
With this overall picture of disparities in Africa, the key message for African policymakers is to confront
inequality through efficient interventions that equalize access to basic services such as education, healthwater and sanitation, and to reduce inequality in three areas: (i) investing to reduce inequality in humancapital; (ii) undertaking interventions that equalize opportunities spatially (e.g. rural-urban); and (iii)
better targeting of subsidies.

64 A.G. Daramola and others (1998): Hard Lessons: Primary Schools, Community and Social Capital in Nigeria, World Bank.
65 Kenneth Leonard, Gilbert Mliga and Damen Haile Mariam (2002): Bypassing Health Centers in Tanzania. Journal of African

Economies.
66 World Bank (2004): World Development Report.

101

CHAPTER 6: URBANIZATION
I.

Introduction

Over the next 40 years, Africa will have the fastest growing cities in the world. Figures 6.1 and 6.2 show
the dramatic growth projected for 2010-2025. About 800 million Africans will either migrate to, or beborn in, urban areas in the next four decades. By 2050 Africa’s cities and towns will house nearly 1.5
billion people, 60% of the region’s projected population (UN, State of the African Cities, 2010) (SeeFigure 6.3). African cities are already the fastest growing in the world, and by 2050, the continent could
be home to up to 15 mega-cities of more than 10 million inhabitants. Even highly urbanized Egypt will
see its urban population double by 2050.
This urban population will be relatively young. With projected population growth rates in excess of 2%,
the median age will continue to drop from the current 19.7 years (ibid). The number of youth will
increase from 205 million today to anywhere from 330 to 450 million, the majority of whom will live inurban areas. These demographic shifts can lead to higher productivity and per capita incomes or tounmanageable social tensions, violence, and conflict. The “Arab Spring” demonstrates how youth
disillusionment can rapidly gain momentum, particularly in urban areas where access to services andopportunities has lagged.
Figure 6.1: Urban Growth Rate in Africa

Source: Riccardo Pravettoni, UNEP/GRID-Arendal

102

Figure 6.2: Growth of African Cities

Source: The Economist

Figure 6.3: Percentage of Urban Population of Africa 2011 and 2050

Source: UN: World Population Prospects DEMOBASE extract. 2012

These urbanization dynamics will create growing demand for urban land and services. Declining fertility
rates in urban areas will be offset by declining household sizes and mortality rates, as well as rising
economic activity, per capita incomes and education levels. Africa’s demographic dividend will be
reaped or lost in its cities.
103Section II describes the massive urban transition that lies ahead for Africa. It also points to the potentialof urban centers, appropriately managed, to contribute significantly to productivity increases, growth
and achievement of Vision 2050. Section III lays out the challenges of urban policy that African
economies must overcome to realize this potential. Section IV outlines the vision for African cities in
2050 and for their management. The chapter concludes with an Action agenda for realizing the vision.

II.

Urban Transition

Importantly, around 70% of Africa’s urban growth will take place in secondary cities. While large
infrastructure investments and often-idiosyncratic institutional arrangements will continue to berequired in the largest metropolises, the needs of secondary cities will also have to be systematicallyaddressed. These rapidly growing secondary cities will be home to more than half a billion new residents
who will be seeking services, opportunities and shelter in market towns that typically have very little
existing infrastructure but are not bound by scarcity of land.
How African leaders manage this massive urban transition will determine the extent to which countries
in the region become effective partners (and competitors) in the global economy. These seismic
demographic shifts will generate growing pressure for urban land, services and economic opportunities.
Africa’s cities will be the loci of much job creation. The size of urban markets, rising income of urban
residents, and concentration of economic activity could make cities dynamic centers for higher
productivity jobs—offering the prospects of a better life to more than one billion people. If policymakers respond appropriately, these shifts offer a pathway to sustained and inclusive growth. If people
are illiterate and unskilled, cities dysfunctional, and economies trapped in extractive activities and crony
capitalism, urban areas will be poor and violent—offering only the desperation of hopelessness toresidents holding only the prospect of growing inequality and instability. Well-managed urban areas will
be a critical prerequisite to a future of dignity and equitable opportunity.
The ability of urban areas to become “the engines of economic growth” directly determines the rate andsustainability of national economic performance, and hence the development outcomes and politicalstability of the country. In rapidly urbanizing countries virtually all GDP growth is concentrated in thecities even as the rural share of GDP growth steadily declines. Those countries that are addressing theurbanization challenge effectively are achieving near double-digit growth rates (China, Ethiopia, Ghana,
Uganda), those that are not continue to reap uneven economic performance and instability.
Globally, urbanization has proved an unstoppable process. International trends show that urbanization
generates significant opportunities for growth, poverty reduction and environmental sustainability. Thisis because urban centers:a) Make a disproportionate contribution to productivity growth and job creation. They have thepotential to function as sources of economic dynamism by virtue of the spatial concentration of
productive activity, entrepreneurs, workers and consumers. Dense constellations of firms andworkers bring markets and suppliers in close proximity to facilitate the sharing of infrastructure,services and information, the matching of the distinctive requirements of firms for different
types of premises, and innovation in products and processes;
104b) Provide economies of scale for the financing and development of major facilities, particularly
through leveraging local and national tax bases for public infrastructure investment (such as for
integrated public transport systems or ports);c) Are dynamic sites of social, political and cultural interaction and fusion. With rising personal
mobility, they are places where people from many different languages, traditions and belief
systems come together. Long recognised as the centres of creativity and innovation, cities arealso the most likely places for political unrest to emerge; andd) Are vital in efforts to curb the use of non-renewable resources, to reduce pollution and otherforms of environmental degradation and to promote climate mitigation and adaptation. Higher
density, more compact cities with mixed land uses can reduce the amount of energy needed fortransportation and community services.
However, urban growth can also be associated with growing levels of inequality, and environmental
damage. These trends are pronounced in many African cities, where inequality is conspicuous, levels ofsocial exclusion are high, and the environmental sustainability of urban settlements is low.
Public policy will play a major role in determining how African countries capture the benefits of theurban transition, while mitigating its risks. But policy will have little influence on the underlying urban
transition itself. Africa’s urban moment is now - even as its cities swell with the population influx, they
are not yet choked or overwhelmed by it. Most countries have the physical space, the physical networks
and the embryonic institutions to meet the challenge - but only if they start acting now.
Core factors that will determine the extent to which the cities fulfill their prospective role as drivers of
economic growth include: the level, quality and competitiveness of their services; the efficiency andsustainability with which these services are delivered; the predictability of their governance andaccountability functions; the reliability of their regulatory implementation and business environment;
the effectiveness of the operation of their land, housing and transport markets; their ability tostrategically plan and implement initiatives that address environmental challenges; and enhanced
livability derived from high-standard infrastructure linkages to attractive hinterlands. These are theattributes necessary to make African cities globally competitive, attracting international investment,
opening up local capital markets and local investment, encouraging businesses to locate there, andfostering dynamic new business initiatives and a thriving start-up/innovation culture as well as anurturing environment for micro and small enterprise development.
Urban growth will require the transformation of millions of hectares of land for businesses, housing,public spaces and circulation (see Annex 4). Physical expansion will require increased capacities of theassociated water and sewerage systems, sanitation and solid waste management, roads and drainage,
parks and recreation, electricity supply, and urban transport—all of which are to be provided on a
massive scale by cities which, for the most part, have failed to meet much less pressing service demands
to date. Recent studies have shown that despite the economic gains made by Africa over the past
decade, and to a much greater extent than in Asia, there has been a significant increase in urban slums
and a worsening of urban poverty levels. Innovation will be key to providing services in these conditions.

105

This massive change in land use is a huge institutional and financial challenge. But this transformation
also offers an enormous opportunity for the region. Just as China’s urbanization has lifted half a billion
people out of poverty, assembling, servicing and mobilizing investment on millions of hectares of new
urban land could create enormous numbers of jobs, assets and opportunities for inclusive growth acrossthe whole region. Exploiting this opportunity will require a radical reconception by governments of theirrole and functions in a broadly based and accelerating urban development process. Embracing theinevitability of massive demand for serviced urban land and acting in a timely fashion to meet thatdemand represent a fundamental prerequisite to ensuring that the region’s urban growth is productive,
environmentally sustainable, and equitable.

III.

Urban Policy Challenges

To realize their potential as effective engines of growth, African cities must meet six challenges that arecommon throughout the region.
1. The development of political and institutional platforms that enable cities to effectively support
equitable growth. City-level authorities require sufficient actual authority, resources andaccountability over core urban management functions in order to guide and coordinate urban
development in responding to the demands of urban growth. Actual authority requires:a) The assignment of adequate authority over key urban development functions,particularly those of spatial planning and control, land and housing development, basic
infrastructure services (such as water, solid waste, sanitation and energy) and public
transportation services.
b) Clear accountability of staff to city level leadership, particularly in the case of senioradministrators and technical specialists, including authority to hire, fire and compensate
staff appropriately, and protection from the all-to-frequent rotation of officials between
local authorities.
c) A transparent and predictable fiscal and financial framework for urban infrastructure
investment and management, including the provision of adequate local revenue sources
with sufficient discretion over rate-setting, and a predictable and fair basis for thetransfer of national revenues to local governments.
Basic policy frameworks exist in most African countries, but implementation is uneven.
Entrenched interests impede functional, personnel and fiscal decentralization in many countries,
skewing resource allocation in favor of central agencies that are not directly accountable tocitizens. Excessive regulatory control of devolved powers, such as interference in tariff-setting,or highly unpredictable resource transfers prevent effective medium term planning and delivery.
Even in countries that are increasing capital resource transfers to cities, central agencies
earmark highly projectized investments that do not always address local priorities, are usually“one off’ and not linked to more comprehensive integrated planning requirements, and do not
involve adequate local consultation resulting in little local ownership of the assets.
2. Effective partnerships between locally elected officials and their constituencies. A significant
number of African countries now have cities/local governments run by officials who have been106

selected through some form of a popular election process. This establishes the framework forsystems of transparency, accountability and inclusion in the management of the cities, including
consultation in the formulation of development plans and the annual capital budget, public
scrutiny in the management of public funds and the assignment of contracts, and public
oversight in the operation and management of public assets. However, continued regulatory
over-reach by central government and dependence on unpredictable central transfers prevents
local officials and citizens from establishing performance-based delivery contracts andaccountability mechanisms that address citizens’ real needs and priorities.
3. Adequate technical skills and organizational capacity to effectively and efficiently manage
complex urban systems. Most African cities are operating with very low bases of technical andmanagement capacity across all the essential competency areas. Firstly, staffing complements
are often unaffordably large but still lack the suitable skill profiles necessary to undertake theirfunctions effectively. Continued control over senior and specialist positions by central agencies
exacerbates these capacity shortfalls, as ill-timed rotations and inappropriate deployments
weaken the capacity of city leadership to hold officials to account – and to establish effective
capacity to provide and operate services. Qualified staff are reluctant to move to fast-growing
secondary cities and towns and this is exacerbated by poorly developed (or no) schemes ofservice for local governments. The result is a self-fulfilling prophecy, where the view that cities
are too weak to be entrusted with the responsibilities denies them the one fundamental
ingredient essential to building their capacity - “learning by doing”. Secondly, the tools for
effective planning and management are undeveloped and the regulatory authority for enforcing
the application of these tools is often subject to centralized authorization (or even direct
management). Hence, key elements in the development of well-functioning cities, such as (i)market regulation (land use, setting and collection of fees, directing the location of
infrastructure investments to influence/manage housing development, coordinating public
transport) and (ii) forward planning (funds are severely limited and/or unpredictable, limiting
the value of producing realistic plans that enjoy effective consultation with communities) thathas the requisite tools for implementation and enforcement, are generally not functionallyeffective (if they are available at all).
4. Getting the basics right to support growth. A fourth set of common challenges constrains theability of cities to fulfill their economic potential. Many cities in Africa are already demonstrating
their robustness in taking advantage of the benefits of agglomeration, serving as the locus forjob creation, the emergence of dynamic micro and small business activities and innovation
focused on local market opportunities, and providing the context in which virtually all the GDP
growth is taking place across the continent. In Tunisia for example, 9 out of 10 industrial
establishments are located within one hour of a large city. However, much of the accelerating
economic activity in the cities is taking place because of the “natural” abilities of dense
agglomerations to act as incubators despite the costs inherent in their inefficient functioning.
Faster growth requires key reforms in:107a) Service delivery, where levels of access and deficiencies in the quality and reliability(24/7) of the services represent significant additional costs to economic activities anddiscourage potential investors. The lack of technical and management expertise in theservice delivery agencies, the limitations on their ability to ring fence their finances, thelack of proper regulation and tariff setting, the absence of incentive and accountability
systems to foster sound performance, are factors commonly found across urban service
delivery entities in most African cities;b) Undeveloped land and housing markets that confine economic growth to the informal
sector, and weaken the ability of cities to finance land and infrastructure developmentfrom rising urban land values. Weak property rights systems, in particular, typicallyconstrain the efficient functioning of urban land and housing markets. The constraints
arise from uncertain ownership rights, poor title recording systems and complex legal
processes to assert property rights for purposes of investment and development. In
Egypt for example, up to 90% of property transactions are unregistered, and 71
registration procedures are required for a transaction. One of the consequences of thepoor functioning of the land, housing and housing finance markets is the rapid growth ofunserviced squatter settlements (disproportionately large in Africa as compared toother rapidly urbanizing regions);c) Costly spatial planning, where the absence of effective planning tools, and land use
management and building regulatory regimes, as well as the inability to plan realisticallyin the absence of predictable capital development funding, result in: (i) uncontrolled
settlement straining already low-capacity service delivery agencies; and (ii) the
expansion of the cities along the same settlement patterns as introduced under colonial
regimes - - viz very low densities that add substantially to the costs of infrastructure andtransportation, and undercut the potential agglomeration benefits of urbanization. In
Morocco for example, new cities (“Villes nouvelles”) are being constructed miles awayfrom economic centers.
5. A fifth set of common challenges revolves around managing cities for the impacts of climatechange. Outside of the metropolises, most African cities are relatively new with modest sized
populations, so future settlement patterns, which will house the majority of the urban settlers
will be new, allowing for provisions to be made for the cities to contribute to global initiatives toreduce carbon emissions, and for them to take measures to cope with the impacts of climatechange. But the economic dependence of a significant number of landlocked countries on arelatively limited number of coastal cities raises the stakes on the capacity of African ports toaddress the prospects of sea level rise. Similarly, many of the major economic centers in theinteriors are located in areas highly vulnerable to flooding and/or highly dependent on stressedwater resources. These vulnerabilities are accentuated in part because central agencies have yet
to take the lead in developing policies, strategies and funding to deal with climate change that
include enabling arrangements empowering cities to define and pursue their critical role intackling the climate change agenda. Moreover, the specific actions and related instruments
necessary to deal with climate change impacts - - more efficient, denser and well planned spatial108

development patterns, more efficient and integrated public transport and traffic management
systems, and bulk infrastructure and drainage networks as well as land use and building
standards designed to cope with shifts in weather patterns - - are lacking.
6. A final set of challenges will increasingly focus on the roles of major metropolitan areas, regional
clustering of cities with complementary economic functions, and regional links to key coastal
port cities. Some countries are making substantial progress both within their own boundaries
and across national borders, e.g. the Gauteng triple metropolis is increasingly well integrated
and is directly connected to Maputo, and Cairo is well connected to coastal cities to the northand east. However, similar corridors/clusters in the rest of the continent are largely at thediscussion stage.

IV.

Vision for 2050

The above challenges notwithstanding, Africa is in the early stages of urbanization and an ambitious
vision for 2050 is plausible and is outlined below. In 2050, 1.5 billion Africans would live in well-managed
urban centers with adequate access to basic services, land and shelter. These cities would play a criticalrole in the continent’s social and economic wellbeing, with vibrant urban economies providing a growing
source of employment, driving economic growth and playing a leading role in the continents politicaland cultural life. Ongoing investment in and maintenance of urban infrastructure services will befinanced from this growth, particularly through expanding and efficient land markets, providing aneffective platform for African enterprises to compete globally.
By 2050, Africa’s urban centers, ranging from regional metropolises to primary economic centers,
secondary commercial centers and tertiary market towns, would:
1. Serve as effective platforms for driving economic growth and job development. Prospective local
and global investors would be able to take for granted infrastructure network standards andhealth and education systems that are world class. The supporting service and market-oriented
environments would effectively incubate small and medium size businesses. The service
efficiency and proximity attributes of cities and towns would be fully exploited, encouraging
technology, service and product innovation. Expanded economic activity would have generated
robust fiscal bases promoting the participation of the capital markets in the funding of the cities.
Economies of scale promoting regional integration would be realized in the development ofurban clusters – mega-cities linked by mega-corridors (for example Mombasa-Nairobi-Kampala
in East Africa and Lagos-Accra-Dakar in Western Africa) and efficient coastal cities that form themarket entry points for the rest of the continent (for example the Johannesburg/Maputo
corridor).
2. Operate within sound national institutional and regulatory frameworks enabling cities tofunction as systems in which public sector regulation and public sector goods investment are
private sector friendly, thus promoting the emergence of a flourishing private sector, includingin the land and housing markets and in urban transportation services.

109

3. Operate within sound political and fiscal enabling frameworks, based on firmly groundedlegislation and regulation, clearly identified functional assignments for service delivery, andreliable fiscal systems ensuring adequate, predictable resource flows to meet functional
responsibilities within effective upward and downward oversight structures.
4. Operate with well-functioning social contracts, whereby budgeting, investment decisions, andoperational performance follow transparent and accountable procedures, routinely meetsatisfactory audit standards, and deliver services to standards that address citizen expectations.
5. Generate steadily improving standards of living. Efficient spatial planning would enable cities tocapture economies of scale (reversing the colonial inheritance of diseconomies of scale in cityform). Routine and effective collaboration with central agencies would maximize the scale
benefits and related efficiency gains in both the systemic management of the urban economy,
and in the integrated planning and operation of service delivery. Strategic collaboration with thecenter would provide the “critical mass” necessary for those major investments required toestablish essential city infrastructure platforms. Partnership arrangements with the private
sector would be undertaken as a matter of course by the cities when service delivery efficiency
gains can be made. More efficient connectivity of the cities to their unique African hinterlands
would enhance quality of life opportunities and strengthen rural economic opportunities.
6. Significantly reduce urban poverty by increasing access to infrastructure, health and education
services through the sustained, accelerated delivery of infrastructure works in slum/squattersettlements, complemented by “portable” tools (conditional cash transfers/vouchers) being
made available to qualified households.
7. Address climate change imperatives through sound national policies that institutionally andfiscally equip cities to: develop and implement programs for mitigating generation ofgreenhouse gases through efficiency gains in transportation systems, management of solid
waste, and well-planned settlement patterns and land use systems; promote adoption of ecofriendly technologies and practices including energy-efficient site planning and building systems;
and introduce programs for adapting to the impacts of climate change.

V.

Action Agenda

To realize the 2050 vision stated above, African governments must radically transform their approaches
to African cities. Instead of focusing almost exclusively on sporadic, externally-financed support fordiscrete infrastructure investments, a broader approach is required that develops the systems necessary
to underpin sustainable investments in urban infrastructure and services. This does not relegate theneed for infrastructure investments to a lower priority, but rather suggests that an iterative strategy be
developed in which countries establish systems that enable the effective management of urban growth– or City Enabling Systems (CESs) - that:

Clearly define the assignment of functional responsibilities to urban governments
Establishes the legal and regulatory frameworks for the functional and fiscal operations of urban
local governments.
Determine predictable sources of local revenues, including a transparent architecture forcentral-local fiscal transfers.
110




Introduce guidelines and practices that support good governance and strengthen accountability,andSupport the development of enhanced institutional capacity and performance of urban local
government.

Broadly, African countries fall into three categories in respect of developing CESs:

countries that are seriously and thoroughly attempting to create effective enabling
environments for cities (e.g. South Africa, Ethiopia, Ghana, Uganda, Tanzania, Morocco, Tunisia);
countries that are trying, with still limited success, to create effective city enabling environments(e.g. Egypt, Zambia, Senegal, Mali, Mauritania, Benin, Swaziland); andcountries that have no serious initiatives to introduce CESs.

Clearly, the development of CESs must go hand in hand with the implementation of massive investments
in urban infrastructure and services. A symbiotic relationship between the development of CESs andthese investments is required, not only to ensure that current investment in infrastructure results insustainable service delivery, but also to progressively increase the resources necessary to finance future
investment.
Linking current investment financing to increased local capacity will require a focus on the strengthening
the performance of city governments. National governments can utilize their inter-governmental fiscal
transfer system to encourage and reward city governments in this regard. Fiscal transfers can reward
progress being made by each respective city in implementing their responsibilities, as determined byindependently conducted performance assessments. The rate at which the resource allocations would
be scaled up would be directly linked to the demonstrated capacity of the city to effectively undertakethe investments. Enhanced performance by the cities would, in turn, influence the extent to whichsustainable domestic municipal finance markets would evolve, and against which funding for city
development would be expanded.
A three-step approach:
To meet the 2050 vision, a wide array of initiatives will eventually be required, but for the next decade
the most critical focus of governments’ urban policies and strategies must be on establishing effective
and well-functioning CESs, including a much more systematic approach to analyzing and subsequently
addressing CES constraints.
The first step would be for countries to take a much more systematic approach to analyzing theircurrent policy and regulatory frameworks within which urban local governments function. A clear
analysis of gaps and weaknesses in CESs will allow tailored support to be provided relative to the needsof each country. The three key areas for CES assessment are:a) Strategic Enabling Environment. For cities to manage and drive economic growth they must
operate in a clear and predictable enabling policy and legislative environment. Cities should
be supported to prepare realistic population growth projections over the medium term.
111

These should correspond to core infrastructure investment and land acquisition plans,
including forward looking adjustments of urban boundaries and medium-term capital
investment plans that will support productive urbanization . Analysis of the strategic
environment for urban management requires a review of:i.
Enabling legislation: Delivery responsibilities and revenue assignments must be bothclear and balanced allowing local governments and investors to proceed withconfidence. Most countries in the region do not currently meet this requirement,with legal frameworks little changed from colonial times. These “Local Government
Acts” commonly distinguish between urban and rural/traditional local authorities(as in Zimbabwe, Swaziland, Ghana, Sudan, etc.), give cities little relevant authority
in urban management, and retain strong powers for central governments. Weaknational Ministries of Local Government are ineffective in supporting larger cities. In
a number of countries, decentralization initiatives have muddied the local
government legislative environment; in Zambia, for instance, almost 20 years ofpolitical wrangling over decentralization policy has blocked effective local
government reforms and performance. In Ghana, local government reforms have
yet to be meaningfully implemented. Many countries, particularly in North Africa(Tunisia, Egypt), are reviewing governance arrangements and reconsidering the roleand functions of local governments. This presents an important opportunity,
although the specific type of enabling legislation will vary depending on eachcountry’s specific circumstances . The “gold standard” for enabling legislation in theregion is South Africa’s 1994 constitution that clearly sets out the structure andresponsibilities of local governments, supported by very specific legislation
delineating municipal finance regulations, PPP practices, and other key areas .
Ethiopia’s federal nature required that regional states enact urban local authority
legislation, with the Ministry for Urban Development as an effective central support
organization.
ii.
Urban Policy and City Strategies: Many countries in the region have titular “urban
strategies” but most of these rest quietly on bookshelves. Effective national urban
strategies will concisely focus on removing impediments to growth, rather thancommanding specific outcomes. South Africa’s excellent national spatial
development strategy, for instance, can be summarized as a) assuring all citizens
have access to adequate basic services and b) investing heavily in areas—almost
entirely urban—where growth potential is greatest. The chapter on the urban sector
in Ethiopia’s current 5 year “Growth and Transformation Plan” focused on removing
impediments to growth. Of course, useful national urban strategies can only be
executed through realistic city level strategies. Johannesburg’s “iGoli 2002” and“iGoli 2010” set the regional standard for near-term transformation and medium
term growth strategies; the 19 largest cities in Ethiopia are already implementing
this two-step approach as are a number of other cities in the region. But many cities
are still mired in the neo-colonial “master plan” cul-de-sac, vainly attempting toforce growth into static zoning plans thereby braking the initiative of citizens,112

denying opportunities to the working poor, and compiling expensive infrastructure
backlogs as informal settlements continue to grow.
iii.
Fiscal and financial frameworks: Transparent, reliable fiscal and financial systems
are critical for good urban governance and sustainable service provision. Political
will is required to install and maintain effective systems, and experience shows that
Ministries of Finance are the crucial levers in achieving sound intergovernmental
frameworks that promote growth while limiting contingent liabilities. Analysis of thefinancial environment for urban management requires a review of the adequacy
and flexibility of local assigned revenue instruments, the arrangements for the
sharing of national revenues to finance urban development and management, andthe rules and procedures for city governments to access domestic capital markets.
In Egypt for example, own source revenues account for only 6% of total city
revenues and 90% of this is spent on staff salaries.
b) Accountability, Transparency and Performance. For cities to effectively drive growth, local
officials must be empowered and encouraged to effectively respond to local needs andpriorities. With very few exceptions, elected city officials throughout the region are notprimarily accountable to their constituents. Dominant political parties “deploy” local
government candidates with little or no regard for management capacity, and central
ministries responsible for local government frequently interfere with local officials. The
effectiveness of local governments in meeting citizen’s priorities can only be judged when
objective evidence is available. Cities in Namibia, South Africa, Swaziland and Ethiopia
commission and publicize annual reports and are independently audited, but this practice is
not common in the rest of the region. Ethiopia has very successfully instituted independent
annual performance assessments for its 19 largest cities and is now planning to extend its
performance-based grant system to 25 additional cities. South Africa’s National Treasury
and Fiscal and Finance Commission both regularly assess local government performance.
But these good practices are not common in the rest of the region.
c) City/Local Government Capacity. City/local government management requires a multidisciplinary skill set quite distinct from generic public administration, but few countries in
the region have addressed this core requirement. Zambia’s Local Government Training
Institute has been functioning at a basic level since the mid-90s, and South Africa has adisparate array of local government training programs provided through both private andpublic entities. Ethiopia’s Civil Service College (ECSC) has, since 2006, offered an Urban
Management Masters Degree based on the highly regarded IHS degree program and morethan 2000 graduates have thoroughly overhauled city management across the country.
Donor driven training programs come and go irregularly in many other countries. To achieve
the Africa Urban 2050 vision, the region needs a steady supply of effective urban managers,
and the most cost-effective delivery method is to follow the ECSC model of adapting
suitable existing curricula. In addition, national local government associations should be
revitalized following the example of the South African Cities Network (SACN), and local
government career paths should be strengthened and brought into consonance with skilledlabor market conditions.
113

Thorough assessment of the key elements of national CESs across the region should not be an expensiveor time-consuming exercise. Based on the CES assessment, each country can define the reform andcapacity building work program required to support productive urbanization. Experience in the region
shows that key reforms can be designed and adapted to local realities in a short period of time. With the
Ministry of Finance in the lead, Zambia completely revamped the design of its intergovernmental fiscalarchitecture in less than a year. Ethiopia installed its performance based grant system in about 18
months. The key to successful reforms is, as always, effective champions within key agencies. In theabsence of these champions, there is no track record of effective urban reforms in the region.
The second key step is for cities to project the urban growth they must accommodate to 2050, translatethese projections into requirements for expanding the supply of serviced land, and begin theincremental processes of planning, assembling and servicing that land. CES reform and capacity building
are necessary but in no way sufficient. Very few countries in the region have track records in systematicurban land assembly and delivery despite the fact that developable land is readily available around mostof the region’s cities. With a few notable exceptions, urban investments in the region over the last 40
years have been disjointed, projectized and wholly inadequate to meet the demands of increasingly
rapid urbanization. In much of the region traditional (central) authorities are reluctant to cede control of
portions of their domains for urban expansion. In other countries public land management agencies are
similarly reluctant. Systematic programs to acquire and service land for urban expansion must be
tailored to the realities of each country, and internal strictures that make financing land acquisition
nearly impossible must be reexamined.
Countries that are serious about achieving a productive and sustainable 2050 urban vision—as
evidenced by clear progress in implementing CES reforms and effective capacity building--should be
supported in developing and implementing medium term urban land expansion programs. The region’s
cities must focus on keeping ahead of demand instead of ignoring growth. Adequate supply of serviced,
affordable urban land will be the key to productive private investment by both firms and households
especially in secondary cities and towns. Again, defining urban land expansion requirements is amanageable exercise. South Africa’s Reconstruction and Development Program (RDP) was initiallydefined based on work undertaken over about 18 months. Existing methodology provides an excellent
entry vehicle for preparing systematic urban land expansion needs assessments throughout the region.
The third key step to achieving the 2050 urban vision for Africa is to address financing issues. Acquiringand servicing land will be possible only if cities have access to adequate finance. This involves
implementation of coherent, predictable intergovernmental fiscal and financial systems consisting of
three elements that work together in a unified approach:i.

Local Own-Revenue Bases: Own-revenue assignments should be matched to delivery
assignments. As African cities grow in both population and economic importance,
parliamentarians and national officials must transition to supportive—rather than command—roles, allowing cities sufficient autonomy to charge and collect rates, tariffs and fees adequate
to sustain services and infrastructure required for growth. Africa’s rising middle class must play a
key role in financing the infrastructure required to support urban growth. Central government
114

ii.

iii.

interference in setting local government tariffs is common in the region. City governments inEthiopia, South Africa, Namibia and Swaziland are empowered to raise own-revenues largely
consonant with delivery responsibilities, and are increasingly able to use these local sources offinance to invest in infrastructure to support growth – which in turn provides them with further
revenues. In most other countries, authorized own revenue bases are inadequate to meet
service delivery assignments. In most instances property taxes/rates are a critically important
own-revenue source, with strong potential to finance infrastructure investment. In North Africa,
prior to the Arab Spring, urban land values doubled every three years. Assistance may also be
required in updating registries and valuations.
Intergovernmental Fiscal Arrangements: Ministries of Finance must be assisted to make choices
on intergovernmental transfer systems including sources and formula. Both South Africa andEthiopia share portions of general revenues. Other countries may wish to identify specificsources, such as revenues from extraction of primary resources that are national public goods orshares of nationally collected taxes. Allocation formulae should be transparent as should
conditions for disbursement of funds. The provision of funding should reward good performanceby local governments. Accumulated arrearages and debts should be cleared allowing cities tobegin with a clean slate. South Africa’s intergovernmental fiscal framework features aconstitutionally mandated division of revenues and very predictable intergovernmental grants
operating through a medium term budget. Ethiopia’s federal system also features revenue
sharing to the regional states, and the federal government has overlaid a transparent,
performance-based grant that promotes good urban governance with co-financing from theregions. Many other countries in the region—including Zambia, Zimbabwe, Kenya, and Ghana-have historical experience with relatively well-functioning intergovernmental fiscal systems thathave not been maintained for a variety of reasons. And many countries have ad hocintergovernmental systems or, as in several of the West African countries, deconcentrated
systems that enforce local government dependence on the center.
Domestic Municipal Finance Markets: To achieve the 2050 vision of African cities driving growth,
creating jobs and effectively enabling private investment, responsive domestic sources offinance for investment by creditworthy city governments must be available widely across theregion. Ministries of Finance must play crucial roles in fostering sound markets that do not
impose contingent liabilities on the central fiscus. Obviously, development of sustainablemunicipal finance throughout the region will take time, and must in any event be based on theemergence of creditworthy, capable cities/borrowers. Until recently, very few domestic financial
markets in the region have had the resources and capacity to provide municipal finance and, inany event, creditworthy municipal borrowers are in very short supply. As external/sovereign
investment accelerates into the region, this picture is rapidly changing. Banks and pension funds
will require support to understand how municipal financial markets work. Cities will require
support to become creditworthy, both as an indicator of overall good governance and as aprerequisite to sustainable local borrowing without recourse to sovereign guarantees. In
Morocco, cities have buoyant revenues and recurring budget surpluses, indicating a lack of
capacity to invest.

115

Mobilization of domestic municipal finance markets can be approached in a variety of ways.
Medium term plans should be developed to support key domestic financiers in learning andadopting good municipal lending practices. As creditworthy cities begin to emerge
lending/bonds in manageable amounts should be facilitated between cities and lender, without
sovereign guarantees. In countries with relatively sound financial sectors and significant
resource inflows a combination of lending regulatory reform and capacity building with lenders
may be adequate. Municipal finance intermediaries are common in West Africa and may, withadequate reforms, provide a basis for sustainable lending. Specialized municipal lenders may
also be feasible. INCA for example, played a key role in priming the municipal finance market inSouth Africa. Partners should adopt a programmatic approach, fostering domestic market
development instead of crowding out through direct lending to cities.
Getting to the 2050 vision for African cities will require at least ten-year commitments fromgovernments, cities and partners. To be successful, these commitments must encompass the three key
areas of work discussed above: reforming enabling environments, getting ahead of demand for land andservices, and fostering sound fiscal and financial frameworks to finance large scale programs of urban
infrastructure investment.

116

CHAPTER 7: NATURAL RESOURCES
I.

Introduction

For many African countries the natural resource sectors (oil, gas and mining – the extractive industries)
are important parts of the economy. If harnessed right, these natural resources can constitute a huge
opportunity for development. By exploiting its natural resource base, in essence converting its
underground minerals and agricultural potential into human and physical capital to create inclusive
growth, Africa could by 2050 become factory and granary to the world, just as Britain and the US were
the factories and the US and Argentina the granaries in the second half of the 19th Century, followed by
China and Australia in the 20th Century.
This is a vision of economic convergence for Africa’s resource-rich economies, where these countries“catch up” with other high and middle income countries to narrow the gap in per capita income anddevelopment outcomes. Over the next 40 years the African continent could build on its natural resource
and agricultural production base to become an important supplier of intermediate and finished goods
and agricultural products, relying on a diversified private sector and a high degree of economic andgeographic integration. Africa’s factories and agribusiness processing centers, linked by world classregional infrastructure (rail, road, electricity and information and communication technology (ICT)) to its
raw material production centers and farms, could transform these inputs into intermediate and finishedproducts, from where they would be exported to clients on the continent and across the world. By 2050
Africa could also possess a significant service sector, particularly in natural resource extraction-related
activities such as mining finance, technical design, and environmental and social analysis. The continent
could be home to major multinational corporations operating in the extractive industries across theglobe.
The key challenge faced by Africa’s resource-rich countries consists of transforming the resources in the
ground into assets that lead to strong sustainable growth, economic diversification, reduction of
inequality and poverty, and equity between generations. This chapter reviews the natural resource
sector and outlines the key policy actions that Africa’s governments will need to put in place to achieve
the vision of convergence.
Africa and extractive industries remain inextricably linked. In many African countries, the natural
resources sector constitutes a significant proportion of the formal economy. Africa is also an important
player on the world stage for many mineral resources. In part this is because of its historical legacy as
the continent where many of today’s extraction techniques were first developed (copper and cobalt inZambia, gold, platinum and diamonds in South Africa, bauxite in Guinea, liquefied natural gas in Algeria,
phosphates etc.) and the African continent still boasts very rich deposits of ores that are much higher
grade than elsewhere on the planet (bauxite in Guinea, copper in the Democratic Republic of Congo,
gold in Ghana, iron ore in Liberia and Guinea, phosphates in Morocco, etc.).
Extractive industries have shaped the economies of many post-colonial African countries: Nigeria’s oil
and gas industry has defined the country’s past four decades of economic development and has left
significant governance and social development problems in its wake. The Democratic Republic of117

Congo’s copper, cobalt, diamonds and coltran67 have fueled armed conflict and political instability in theeast of the country and elsewhere. Guinea’s fabulous bauxite reserves enabled it to survive epic
macroeconomic mismanagement since independence in 1956.68
On the other hand, Botswana’s extraordinary success in moving from a very poor colony to a wellperforming middle income country in less than half a century has largely been ascribed to the
responsible management of its diamond resources (See Box 2 further below ). South Africa has a strong,
dynamic world class private sector and modern infrastructure largely built upon and financed bydevelopments in the mining industry for over a century, even as some of its traditional resources reachexhaustion. Mozambique’s exploitation of its gas and coal reserves has fueled inclusive growth which
has largely erased the scars of its post-independence upheavals. More recently, responsible
management of gold and gemstone production in Tanzania and gold and oil and gas in Ghana hascreated economic growth which is transforming these countries’ economies and creating strong private
sectors. For good or for ill, the extractive industries make a very significant impact on the economies ofAfrica’s resource rich countries. The challenge for Africa’s policy makers is to apply the rightcombination of policies to ensure that this impact is positive, and will lead to the kind of inclusive
growth necessary for economic convergence.
This chapter starts with a discussion of Africa’s natural resource endowment and the opportunities andchallenges it presents. Section II discusses the track record of African economies in the extraction,transformation and processing. It also outlines the conditions for downstream processing to proceed.
Section III briefly presents the vision for Africa’s extractive industries in 2050. The chapter concludes
with recommendations for policy measures for the continent’s resource-rich countries to converge withother emerging market economies. The recommendations cover both, measures related to natural
resource rents and their management, and broader economic management to enable inclusive
development and private sector-led diversification of the economies.

II.

Historical Context

Yet Africa’s reputation as an exceptionally well-endowed region can be overstated. While it’s true thatmining and oil and gas have been important sectors in the continent’s economic development for over a
century, today, with a few exceptions, Africa’s mineral resource endowments in terms of proved
reserves turn out to be rather modest at a global level (see Table 7.1 and Annex 5), ranging from 1% ofworld total reserves for iron ore to 26% for bauxite, the raw material for aluminum. Africa’s production,
too, of most key bulk minerals such as oil and gas, coal and iron ore mirror its global reserve position as
fairly modest and does not stand out as exceptional. But there are some exceptions to this: Africa is stillby far the most important reserve base and producer of gemstones, titanium and bauxite.
67 Coltran is an ore combining columbite and tantalite, from which the elements niobium and tantalum are extracted. Tantalum

is used to manufacture capacitors, used in electronic products such as integrated circuit chips, and is therefore present inminute quantities in almost all electronic devices. Coltan mining has been cited as helping to finance armed conflict in the
Eastern Congo and is termed a conflict mineral.
68 The author of this chapter remembers visiting Guinea’s tropical capital Conakry in the mid-1980’s, and seeing row upon row
of snow plows sent by the Soviet Union in exchange for Guinean bauxite under the barter trade agreement between the twocountries.

118

Table 7.1: Reserves and Production of Key Natural Resources
Reserves end 2011
Unit

Oil
Gas
Coal
Iron Ore
Bauxite (Alu)
Titanium
Ore
CopperOre
Gold

Production 2011

Reserves/Production
(yrs)
World
Africa
59
42
64
72

World
234300208400Africa
17600
14500

%
8%
7%

World
3995.63276.2Africa
417.4
202.7

%
10%
6%

(3)

860938170000
29000
692

32895
2500
7600
140

4%
1%
26%
20%

5933
2800
220
6.7

219.9
70
20
2.02

4%
3%
9%
30%

145
61
132
103

150
36
380
69

M Tonnes Cu

(2)

690

50

7%

16.1

1.25

8%

552

40

Thou. TonnesAu$ billion value

(2)

51

9

18%

2.7

0.32

12%

159

28

M Tonnes

(1)

Bn
Cubic
MetresM Tonnes(1)

M Tonnes(2)

M Tonnes(2)

M Tonnes TiO2

(1)

(2)

No data available
80
50
62%
No data available
Gemstones
Source: (1) BP Statistical Review, June 2012; (2) USGS Mineral Commodity Studies 2012, own estimates; (3) USGS Mineral
Commodity Studies 2012, Titanium mineral concentrates (ilmenite and rutile)

That today Africa possesses only modest shares of global proved reserves may be an indication of lower
investment in mining exploration that has taken place in recent years on the African continent.
Investments in exploration, the key step before reserves can be certified, are probably lower in Africancountries than elsewhere, because of the greater risk for mining companies on the continent and themore arduous investment environment that Africa represents for them. In addition, technologicaladvances and higher commodity prices have made extraction of lower grade ores located in other partsof the world economically viable, so they are now included in global reserve figures where in previous
decades they were not. This lowers Africa’s share of the total. However, Africa’s resources are for themost part of higher grades than in other parts of the world. If commodity prices decline, Africa’s
resources would be among the last to be shelved and its share of the total reserve base would increase.

A. Natural resource endowments: Opportunities and Challenges
It is part of the conventional wisdom that natural resources have been a curse for Africa. But the effectsof mineral resource endowments on the economy and social structures are complex and by no means aforegone conclusion.
It has often been stated that Africa’s mineral wealth has not contributed as much as it should have tothe development of the African continent itself. It seems that in many cases Africans have stood by asforeign firms extracted their resources, paying taxes and royalties to national governments that either
have not had the capacity or have lacked the governance mechanisms to ensure their use for broadbased growth. In the worst cases, resource rents have led to Dutch disease and loss of competitiveness,or to widespread corruption, hollowing out local traditions and institutions and creating a culture of rent
seeking and extraction, sometimes to armed conflict and war.
While it is true that looking to the past, some of those countries with very strong endowments seem tohave had greater difficulty setting in place the strong institutions needed to create the basis for inclusive
growth, in actual fact there does not seem to be any clear-cut statistical correlation between resource
endowments (measured as the share of resource rents in GDP) and growth over a long period (Figure1197.1 below). Moreover, recent economic research suggests there is little causal link between oil wealthand conflict either, based on cross-country analysis and correcting for other explanatory variables.69
While this research is narrower than the subject of this chapter both in terms of the commodity
reviewed (oil) and the specific outcome (conflict, as opposed to other negative impacts), the rigor of theanalysis underpins the broader conclusions of this chapter.
Figure 7.1

Average GDP growth 1980-2011 (%)

Africa: Correlation between GDP Growth andShare of Resource Rents in the Economy
20
15
10
5
0
0

2

-5

4

6

8

10

12

14

16

Average resource rents 1980-2009
Source: World Bank and Centennial Group data

Mining and oil and gas make little direct contribution to the local economy. Extractive industries arehighly capital-intensive, and neither create many jobs nor contribute significantly to development ofskills and human capital. This is as true in Africa as it is in other parts of the world. Mining and oil and gas
operations have few forward or backward linkages to the rest of the economy, and have often been
managed as virtual enclaves without much impact on the economies of host countries other thanpayment of taxes and royalties. They do however have a very significant impact on the physicalenvironment because of the operations involved in extracting the ore and disposing of tailings (mining
waste). Mining and oil and gas can also have very significant impacts on local communities. While insome cases these impacts can be beneficial, for the most part they have tended to be deleterious,
particularly during the construction phase when imported labor can introduce prostitution, sexuallytransmitted diseases such as HIV/AIDS, and petty crime. During the production phase tensions can arise
between local communities and the central government and production companies (e.g. in the Niger
and Escravos Deltas in Nigeria), when local communities deem the sharing of the proceeds of resource
extraction as unfair.
As the body of experience with extractive industries deepens, we are beginning to see greater positive
interaction between extractive industries and the rest of the economy, particularly in countries where

69 “Oil and Conflict: What does the Cross-Country Analysis Really Show”, Anca M. Cotet and Kevin K. Tsui, American Economic

Journal: Macroeconomics 2013, 5(1) 49-80.

120resources have been developed more recently (oil and gas in Ghana, ilmenite in Madagascar, coal in
Mozambique). In part this is because of clearer requirements imposed on investors by host countries,
who now require firms to integrate their operations better with the local economy; in part because of agreater appreciation by mining and oil and gas companies themselves of the long term costs to theirshareholders from negative environmental and social impacts.
Specific macro-economic challenges. Resource-rich countries do not face a set of macro-economic
challenges that other developing countries don’t. In the context of the process of transforming thenatural resources into inclusive growth, resource-rich countries need to avoid the typical boom and bustcycles associated with resource earnings (Figure 7.2), as well as the distortions caused by spending inexcess of the economy’s absorption capacity and the attendant increases in inflation and realappreciation of the currency, a phenomenon frequently linked to resource booms.70 As importantly,
policies need to be designed with a view to minimize the adverse effects of an eventual permanent
decline in resource earnings as the resources become exhausted. These effects could be severe.
Figure 7.2
180160

Boom and Bust
Commodity Prices, 1985-2012(2005=100)

250

200

140
120

150

100
80

100

60
40

50

Crude petroleum (2005=100)

Non-fuel commodities (2005=100)

200

20
0

0

1985M01 1988M01 1991M01 1994M01 1997M01 2000M01 2003M01 2006M01 2009M01 2012M01

Non-fuel Commodities (left axis)

Crude Petroleum (right axis)

Source: IMF and Centennial-Group estimates

Many resource-rich African countries have experienced boom and bust cycles owing to the volatility inresource earnings and a pro-cyclical fiscal policy: considerable (frequently inefficient) spending increases
associated with positive earnings shocks, and abrupt reversals following adverse earnings shocks.
Expenditures are adjusted to fluctuations in resource earnings; resource-rich countries overspend whentimes are good, i.e., when resource prices and associated revenues are high, and then cut back spending
70 These distortions include overheating of the economy and the real appreciation of the currency, which through relative pricechanges leads to declining tradable sectors, a phenomenon known as “Dutch Disease. It can also lead to the breakdown ingovernance, increased corruption and the tendency of wasteful public spending (“white elephants”).

121when resource prices and revenues decline. This has been evidenced in the commodity price cycle that
followed the global financial crisis.
Such a pro-cyclical fiscal policy involves a complex and costly expenditure-decision process withpotential negative effects on the quality and efficiency of public spending. Furthermore, it leads tomacroeconomic volatility, which affects the private sector’s consumption and investment planning anddecisions, and thus hampers growth potential.
In Africa, limited public oversight and parliamentary checks and balances exacerbate the problem. In
good times fiscal resources are directed to “White Elephant” investments of marginal development
value or to finance recurrent expenditure such as civil servant salaries. An excessively large andrelatively well-paid public sector attracts the best talent, impoverishing other sectors, and drives up thecost of non-tradables within the economy. “Dutch disease” results from the appreciating exchange-rate
which renders tradable sectors less competitive. In bad times, budgets are cut indiscriminately acrossthe board, undermining the sustainability of investments in the social sectors and infrastructure. Schools
are hit with unpaid salaries and lack of textbooks and infrastructure maintenance goes by the board.

B. Extracting and Transforming Africa’s Resources
Extracting resources more equitably. Natural Resources create resource rents when they are produced.
These resource rents are shared between the investor in the mine or oil field development and the hostcountry. On balance, African countries do not receive as large a share of the resource rents as otherregions of the world.
In economic terms, production of natural resources generates a “resource rent”, defined as a surplus ofvalue of the resource in the ground when valued at the market price, over the cost of its discovery andextraction. Resource rents increase when commodity prices increase, and the richer the ore body thegreater its value in the ground, i.e. the higher the resource rent as well. Taxing natural resource
production at rates above the country’s income tax rates is justified by the sovereign ownership of theunderground resource and the rent that this resource generates.
These resource rents justify resource-specific taxes over and above income and value-added and sales
taxes, to ensure equitable sharing between the investor company and the sovereign owner of theresource. Governments argue – with some justification – that a significant portion of this resource rent
should accrue to the host country, hence the need for a specific resource tax over and above economywide tax rates (income and value-added or sales taxes). The key challenge for all resource-endowed
countries is how to set up a fiscal framework to tax resource rents at levels that maximize fiscal flows to
the country but do not dissuade investor companies from exploring and producing the resource. The
problem is compounded because commodity prices vary in unpredictable ways and with them, the valueof the resource rent itself, and this can introduce wild swings in tax revenue and company profit.
For the purposes of this chapter we have categorized African countries as Resource Dominant, i.e. thosefor which resource rents represent 10% or more of GDP in 2009; Resource Available, with resource rents
between 2% and 10% of GDP; and Resource Poor, with resource rents less than 2% (Table 7.2 and Annex1226). Naturally, this classification of countries will change as new reserves of minerals and oil and gas are
discovered in coming years.
Table 7.2: Resource rents (% of GDP)
Resource Dominant
2009

Resource Available
2009

Av. 20002009

Av. 20002009

Congo, Rep.

53.7

63.3

Mali

9.8

5.0

Equatorial Guinea

46.2

69.4

South Africa

7.5

5.1

Libya

46.1

53.4

Cameroon

6.6

8.9

Gabon

41.1

46.6

Ghana

6.6

2.6

Angola38.4

56.0

Cote d'Ivoire

5.8

5.1

Mauritania

37.7

23.6

Tunisia

5.5

5.4

Chad

33.6

30.6

Zimbabwe

4.7

4.6

Algeria

25.1

33.5

Mozambique

4.7

4.3

Nigeria

24.5

35.2

Tanzania

4.3

2.0

Zambia17.6

10.5

Burkina Faso

3.5

0.6

Sudan/South Sudan

16.2

17.1

Botswana

3.0

3.2

Congo, Dem. Rep.

14.9

10.2

Morocco2.2

1.5

Guinea

14.8

9.4

Togo

2.0

1.2

Egypt, Arab Rep.

10.5

15.0

2009

Av. 20002009

Resource Poor
Av. 20002009

2009
Liberia

1.4

0.3

Swaziland

0.0

0.0

Senegal

1.3

0.4

Benin

0.0

0.0

Burundi1.1

0.5

Cape Verde

0.0

0.0

Namibia

0.9

0.9

Comoros

0.0

0.0

Sierra Leone

0.8

0.4

Gambia, The

0.0

0.0

Niger

0.8

0.4

Guinea-Bissau

0.0

0.0

Ethiopia

0.2

0.1

Lesotho0.0

0.0

Eritrea

0.0

0.0

Malawi

0.0

0.0

Kenya

0.0

0.0

0.0

0.0

Madagascar

0.0

0.0

Mauritius
Sao Tome andPrincipe

0.0

0.0

Central African Republic

0.0

0.0

Seychelles

0.0

0.0

Rwanda0.0

0.0

Somalia

0.0

0.0

UgandaSource: World Bank Estimates

0.0

0.0

Djibouti

0.0

0.0

It should be noted that this definition of Resource Dominant, Resource Available and Resource Poor isbased not on the absolute value of the resource rent but on its impact on the economy as a whole. This123

means that economies with fairly significant mining sectors such as Namibia (diamonds, uranium) or
Madagascar (ilmenite) figure as Resource Poor either because a fairly diversified economy reduces theimpact of the mining sector (Namibia) or because of the very low resource rent of the mined commodity(the market price of ilmenite is only marginally above its cost of extraction) and therefore the rent
represents only a marginal part of Madagascar’s GDP. It may also demonstrate that a country is only
obtaining a marginal share of the resource rent due to overly generous tax terms.
Resource Extraction Cycle. Extraction of oil, gas and minerals follows a fairly well defined cycle for all
countries, and in each country is governed by a legal and contractual framework that depends on the
country’s specific oil and gas, mineral and investment legal codes. The degree to which a mining or oil
and gas extraction operation is governed by law or by contract varies from country to country.
The extraction cycle commences with exploration, for which an exploration permit has generally to beobtained by the investor. Once economically viable oil, gas or mineral resources have been discovered,
the investor generally has then to obtain a production contract, before developing the resource andinvesting in production facilities. During the life of the oil or gas field or the mine, production
parameters (such as minimum investment amounts) and tax and royalty payments are defined by thisproduction contract, which generally also defines social and environmental responsibilities and end-oflife remediation steps that will need to be taken. In some cases these parameters are contained in thelegal framework instead. As a general rule, processing oil, gas or minerals into usable intermediate orend products (petroleum products, metals etc.) may or may not be carried out in the country of
production. In any case, if it is, the legal framework and tax regime are for the most part those of otherindustrial sectors.
Table 7.3: The Resource Extraction Cycle
Legal Framework
Oil and Gas
Exploration



Exploration permits
auctioned off undera competitive
process

Production

Production sharing
contract

ProcessingResource Taxation

Minerals

Oil and Gas

Minerals

Exploration
permits granted ona first-come firstserved process

Exploration bonus
paid for right toexplore

Concession
contractRoyalty
Oil production tax
Equity stake forgovernmentRefining and processing are taxed at normal
income tax rates. Petroleum products havespecific excise taxes in addition to any economywide value-added or sales tax

Refining and processing are generally
undertaken as part of the legal framework
covering industry

Source: Centennial Group124

No bonus paid (butminimum investmentcommitment)Royalty
Mineral production
tax(Often a tax holiday is
granted for the initial
years)



Attribution of exploration and production permits. Oil and gas exploration permits are generally
auctioned off in “blocks” (a block is a defined acreage for exploration), and potential investors’ bids
include an initial cash payment (“signature bonus”) to the government, as well as investment or
exploration commitments. The government selects the highest bidder defined as a combination of thesignature bonus and investment commitment. Mining exploration permits, on the other hand, aretraditionally granted on a “first-come-first-served” basis and seldom include cash payments. This reflects
the generally lower resource rent of the mineral compared to oil and gas and the lower degree ofcompetition for mining exploration acreage.
At the production stage, oil production permits are generally “production sharing agreements” that
include a significant equity share for the government in the investment itself71. The government is thus
both sovereign regulator and shareholder. Once the oil field is under production the government
receives, because of its equity in the field, either a cash payment equal to the value of its oil (on top ofroyalties and taxes due to it as sovereign), or it takes physical delivery of a percentage of total oil
production which it will often then market directly or refine through its national petroleum company.
Many mining production contracts on the other hand have been straightforward concession agreements
which define royalties and taxes as well as the investor’s obligations but do not include an equity shareof the investment for the government. There are however important exceptions to this rule andincreasingly, as commodity prices have risen in the past decade, governments have sought to take a
stake in the equity of the mining operation as well.
Africa’s record with resource extraction contracts. On balance, African countries obtain a worse deal
than other countries with resource rent sharing. Although it is difficult to obtain hard data concerning
the resource rent-sharing terms of natural resource production contracts in Africa (see section II-A),
abundant anecdotal evidence suggests that African countries obtain on average a lower share ofresource rents than countries in other regions of the world.
In part the lower share of resource rents that African countries obtain represents the higher risk andcost of investing in the African continent. Governments in Africa have the reputation of being lesspredictable; the risk of expropriation is higher, at least based on historical records; there is a greater riskof armed conflict; and Africa’s infrastructure endowment is lower. All of these factors represent risks (orin the case of infrastructure, costs) that investors will need to offset through a higher return on theirinvestment, and therefore a larger share of the resource rent. Risk and return are strongly correlatedand African countries must grant investors more of the resource rent, because of the perception that
Africa is a risky place to do business.
But higher risks and increased infrastructure costs are not the only reasons for the less favorable
contractual terms African countries obtain for their resources. A lower share of the resource rent also
results from the weaker negotiating stance that African governments generally have in theirnegotiations with private investors compared to other parts of the world. African governments often
71

The government’s equity share is often “carried”, i.e. financed by the private investor and reimbursed out of future cash
flow.

125

have lower capacity and less extensive information, and especially do not make enough use of external
expert advice to assist them in their negotiations.
Corruption lowers government take. Corruption, too, will result in a worse deal for the country and alower share of the resource rent for the government. Side payments to officials and persons of influence
do not come out of investors’ profits (i.e. the private sector’s share of the resource rent) but out of thegovernment’s share, and so these payments reduce the governments’ formal take of the resource rent.
While African countries are probably no more corrupt than those in other parts of the world, there arefewer external checks in Africa in the form of the transparency that civil society oversight would bring,and therefore corruption may have more of an impact on resource sharing in this region of the world
than elsewhere.
In recent decades African countries have started to base their mining codes and oil and gas legislation,
including their fiscal frameworks, on standardized best practice following policy advice provided notably
by the World Bank. This initiative has been praised by industry because it provides them with a morerational framework for comparison between countries, and reduces the dimensions in negotiations
between the two parties. It should also have significant advantages for civil society because it has thepotential of providing them too with a standardized comparison. But despite being based on a common
framework the precise fiscal terms are almost never known beyond the relevant ministries (mines orenergy, and in some cases the ministry of finance). Confidentiality is often explained on the grounds thatthese sectors are “strategic”. Whatever the merits of this argument, the resulting lack of transparency
prevents public scrutiny, favors side payments and corruption, and leads to poor development
outcomes.

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Box 1: Mining Ownership in Zimbabwe and South Africa
The mining sectors in Zimbabwe and South Africa have been important drivers of economic activity for these countries forover a century, producing gold, platinum, diamonds and other minerals. In both countries mines were developed – at least
initially – by foreign investors, creating well-known companies such as Anglo-American, Goldfields, de Beers and others.
Following majority rule in both of these countries, there was significant unhappiness about the lack of equity in the sharingof the resource rent. In both cases there has been a concern to transfer ownership of the sector to formerly disadvantaged
nationals.
South Africa attempted to change the ownership structure of its mining industry in 2004. The Mineral and Petroleum
Resources Development Act sought, among other things, to expand opportunities for historically disadvantaged South
Africans (“HDSAs”) to enter the mineral industry and obtain benefits from the exploitation of mineral resources; and topromote employment, social and economic welfare as well as ecologically sustainable development. Companies wererequired to lodge a social and labor plan on how they intended to expand opportunities for historically disadvantaged
persons. The MPRD Act (incorporating the Mining Charter) also required a mining company to have ownership by HDSAs at alevel of 15% by April 30, 2009 and 26% by April 30, 2014, transferred at fair market value. A review of this legislation
undertaken by the government in 2010 concluded that so far it has not been fully successful in transferring significant assets
to new investors (9% had been transferred by 2009), and opened questions about whether the priorities should focus on
improved fiscal terms for the government rather than transfer of capital ownership to political elites. However, the 2014
target has been maintained and guidance has been provided about other aspects of the charter (e.g. dividend payments, job
creation and training). The government retains wide-ranging discretionary powers in the sector.
In 2010 Zimbabwe passed an “indigenization” law under which foreign companies must transfer a controlling stake (51%) to
indigenous nationals over a five year period. An "indigenous Zimbabwean" is defined as "any person who before the 18 April
1980" - the official founding date of Zimbabwe - "was disadvantaged by unfair discrimination on the grounds of his or her
race". This ruling has created opportunities for politically well-connected individuals to benefit from the rent transfer (theUK press has referred to this as “Racketeering by Regulation”) and has had a chilling effect on investment in the
Zimbabwean mining sector. It will not, however, increase the share of rent that goes to government to pay for investments
in human and physical capital.
In terms of investment outcomes in the mining sector following the introduction of the new legislation, South Africa has
fared considerably better than Zimbabwe. South African mines continue to attract capital, both domestic and foreign.
Whether this is a reflection on the more modest targets imposed in the law, or a greater sense of legal due process open toinvestors in South Africa, is not clear.

C. Transforming and processing Africa’s resources – who gets the benefits?
Spin-offs from processing raw materials locally. Africa’s resources are mostly exported for processing
elsewhere. To a large extent Africa exports its raw materials for processing and inclusion into finishedproducts in other parts of the globe. For example, although Africa possesses 26% of world bauxite
reserves and produces 9% of world bauxite, in 2011 it only produced 4% of primary aluminum.72 There
are, however, important exceptions to this rule, notably for precious metals and copper/cobalt wherehigh transport costs and the high value of the finished metal make it more economic to process them
locally.

72 Sources: Reserves and production of bauxite: USGS; primary aluminum production: International Aluminum Institute(http://www.world-aluminium.org/statistics/primary-aluminium-production/#data)

127

Mining and oil and gas production are capital-intensive activities which do not create much direct
employment. The lack of local processing therefore potentially foregoes opportunities for job creation,
development of skills and human capacity, and linkages to the rest of the economy. For decades thecontinent’s leaders have lamented the fact that Africa’s raw materials are exported elsewhere forprocessing, and have tried to encourage or coerce investors into integrating their activities downstream
by investing in processing capacity in the region. But from an economic point of view this may have beena misguided priority.
Oil, gas and mineral processing are not very profitable businesses. Transformation processes such as oil
refining, gas treatment and mineral processing can at best hope to cover their long run marginal costs
over long periods, with significant over-shooting and under-shooting around this trend line. On average
they do not generate significant profits or value-added and their contribution to GDP is small. For aprocessing plant to be able to buck the overall trend of low profitability and generate a profit over long
period, it will need to have a geographic advantage of some sort.
For example, in the case of oil refining the geographic advantage is being located close to a major spot
petroleum product market such as Rotterdam in Europe (at the mouth of the Rhine and barge transport
into Germany); Singapore in Asia; and the US Gulf Coast in the United States. These localities set
international prices for traded petroleum products. Locating refineries close to these key market hubs
minimizes overall transport costs, because the cost of transporting crude oil to feed a refinery close to amarket hub is significantly lower than the cost of transporting refined products from a distant refinery to
the market hub.73 Most African refineries therefore lose money in economic terms and need to be
subsidized to remain in service (either directly from the treasury, or through administered prices for
locally refined petroleum products which keep them above the cost of imports). This explains why only
1% of world refinery throughput takes place on the African continent, even though Africa represents
3.9% of world petroleum product consumption and produces 10.4% of the world’s oil (see also Annex
7).74
In the case of aluminum smelting, the geographic advantage is due not so much to proximity to major
market hubs as access to cheap energy, because of the extremely high energy cost of transformingalumina (an intermediate product between bauxite ore and metal aluminum) into aluminum. The only
way an aluminum smelter can generate a positive margin over a long period is to be able to buy
electrical energy at a price far below its average world cost, generally because the smelter has access to
extremely cheap hydroelectricity (e.g. smelters in Ghana, Cameroon, Canada) or has a contract to buy
energy at a very low marginal cost (Mozal smelter in Mozambique, which has a contract with South
Africa’s ESKOM at fractions of a US cent per kWh). If a smelter does not have access to such cheap
electricity it cannot hope even to break even. Iron ore is to some extent in a similar situation.

73 Petroleum products are transported in smaller, more technically sophisticated vessels than crude oil, which costs more per

ton-mile.
74 Source: BP Statistical Review, 2012 (June 2012). 3.6% of world refinery capacity is located in Africa but has a very low
utilization rate due to its poor profitability.

128

There are exceptions to this rule, notably precious metals such as gold, silver and the platinum groupmetals, and copper. In Africa, ores of these metals are generally processed at or close to the mine. The
high monetary value of the metal and onerous transport costs justify refining into metal at the point of
extraction because it is much cheaper to transport small volumes of high value metal than the ore. But
even so, their processing does not create much employment nor do they have significant linkages to therest of the economy.
Record on downstream processing Africa’s industries. With a few notable exceptions such as diamondprocessing in Botswana (see box 2 below), the record of downstream processing in Africa, when it has
occurred, has not been good. As indicated above, most African processing plants already have a major
handicap compared to optimal plants located elsewhere which benefit from a specific geographic
advantage. In addition, unit investment costs have almost always been much higher than those in otherparts of the world, in part because of the poor infrastructure endowment which increases construction
costs, in part because of poor procurement practices. For example, a Memorandum of Understanding
Box 2: Botswana – Diamond Sorting Initiative
The discovery of the Orapa diamond pipeline in 1967 by De Beers introduced diamond mining to Botswana which has
transformed the country from one of the poorest economies in the world to one of the fastest growing middle income
countries in the world. Diamond production was undertaken through the Debswana joint venture, a 50/50 partnership
between the Government of Botswana and De Beers.
In May 2006, the government and De Beers established DTC Botswana, as subsidiary of Debswana, to sort and value
Debswana’s production and to make aggregated diamond mixes available for sale in Botswana for local manufacturing. A
building was constructed with a total capacity to process 45 million carats and to accommodate up to 600 employees. It
incorporates state of the art sorting equipment.
Today, DTC Botswana is the largest and most sophisticated rough diamond sorting and valuing operation in the world. DTC
Botswana sells and markets rough diamonds to 21 cutting and polishing companies licensed by the Government of
Botswana to carry out cutting and polishing activities locally. DTC Botswana aims to facilitate, drive and support the creationof a sustainable and profitable downstream diamond industry in Botswana that will deliver additional value for Botswana’s
diamonds. With further development of the Botswana downstream diamond industry, there is likely to be continued job
creation in the coming years. The downstream activities add value to the local diamond industry through cutting & polishingof diamonds and ultimately manufacturing of jewelry.
The establishment of DTC Botswana also acts as a potential catalyst for the development of new business clusters such as
banking; security; information technology; and tourism; and for other international businesses to invest in Botswana.
Source: The Centennial Groupsigned in mid-2012 between the government of Nigeria and a private US-Nigerian joint venture for theconstruction of refining capacity of 180.000 bbls/day (9 million tons/year) sets the investment at $4.5
billion75, three times the estimated world average for the investment cost for a moderately complex
refinery of a similar capacity.76 Nigeria is an expensive place to do business and Nigerian refineries willfind it difficult to compete with those in Rotterdam and other market hubs.

75

Source: Bloomberg, July 2, 2012
Source: Petroleum Refining: Volume 5, Refinery operation and management, Chapter 4 page 149. (Published by Institut
Français du Pétrole. Author: Jean-Pierre Favennec)
76129Moreover, where processing plants have been set up in Africa, not only have their geographic
disadvantages made them largely uneconomic, they have not been good at developing world class skills
either because of poor profitability and often poor management, although they may represent an
important source of local employment. For example, before its privatization in 2002 the Zambian stateowned enterprise ZCCM, which smelted copper ore into copper and cobalt metals, was the mostimportant source of employment in the Zambian Copper Belt, employing thousands of workers, but its
operating techniques were decades old because of the lack of investment in its plants, and the skills it
imparted were not very useful outside its own operations. The Nigerian state-owned petroleum
company NNPC has had great difficulty in keeping its oil refineries operating due to low profitability andpoor maintenance, and has not been able to provide significant skills to the workers in the Nigerianrefining industry.
Conditions for downstream processing to succeed. That downstream processing has led todisappointing outcomes in the past does not mean that it should be foregone in all cases going forward.
There are some important success stories for downstream processing in countries like Botswana, South
Africa and Morocco, and there is still a case to be made for it if the conditions are right. To work andmake a positive contribution to the economy, downstream processing must respect three criteria:

A significant geographic advantage other than reserves of the natural resource itself.



Investment and ownership by the private sector, to ensure effective management.



Downstream processing activities must be carried out in a competitive environment andoperating or price subsidies must be eschewed.

Under these conditions, downstream processing makes economic sense and should be pursued.

III.

A vision for Africa’s extractive industries in 2050

In 2050 Africa could be the factory and granary to the world, just as Britain and the US were thefactories and the US and Argentina the granaries in the second half of the 19th Century, succeeded in the20th Century by China and Australia.
This vision will need Africa’s workers, who are young and energetic, to become highly skilled,
productive, and cost-effective. If it is realized, this vision would confer on African countries highly
diversified economies where the extractive industries are only a small part of total output but produce
the inputs for its highly competitive manufacturing and service industries.
In this vision Africa will have avoided its resource curse and turned it into a blessing.
Resource-rich African countries can converge if they use their resources now to build a diverse economy
alongside their extractive industries. If they do this, natural resource rents will over time present a muchsmaller share of GDP, in part because of the inevitable decline of extractive industries on the continent
between now and 2050 but mostly because of growth in other sectors of the economy.
Policy-makers of resource-rich African countries need to take action on the four measures outlined inBox 6 now or they are likely to miss an important opportunity for economic convergence. Africa’s
130resource importance is declining compared to other parts of the world and the fiscal revenue available
to African countries from the extractive industries could well decline over the next forty years.
We will examine how each of these measures need to be implemented below.

IV.

Policy measures to achieve convergence for Africa’s resource-rich countries

All African countries with natural resource exports will need to implement the following measures to get
onto the convergence path. Two relate specifically to natural resources, the other two relate to broader
economic policy.
Actions relating to the natural resource sector:African countries need to obtain a greater share of resource rents. Better informed negotiations
with mining and oil and gas companies, and greater transparency and public accountability to
reduce opportunities for corruption
African policy-makers must manage their resource rents effectively, through rigorous
macroeconomic management based on fiscal rules to offset boom and bust cycles and make thenecessary intergenerational tradeoffs. This is likely to include the creation of stabilization andwealth funds

Actions relating to broader economic management:

Fiscal revenues must be invested to create inclusive development, notably in public
infrastructure and human capital
African policy-makers need to foster a diversified private sector alongside its extractive
industries to provide the basis for strong, inclusive growth. This will need, in particular, greater
integration of Africa’s economies.

A. Natural resource-related policy measures:
To obtain a greater share of resource rents policy makers must:

Ensure greater transparency in their extractive industries by providing public disclosure of the
fiscal and other terms of resource extraction contracts.77
Call on world class expertise when negotiating new contracts by obtaining expert services.
Financial assistance can be obtained through the facilities managed by the African Development
Bank and the World Bank.

Greater transparency would lead to more equitable sharing of resource rents. The first step towardobtaining a fairer sharing of the resource rent would naturally be to have greater transparency acrossthe region about what precisely the ratio of rent sharing is, i.e. what tax and royalty rates, and otherparafiscal levies, private investors have to pay. However, the terms of contracts governing the extraction

77 Such transparency, involving disclosure of actual fiscal terms, goes beyond EITI which publishes financial flows paid by theprivate investor to the government, and as such does not provide an estimate of the resource rent sharing.

131

of natural resources in Africa are difficult to obtain, even for government officials from the country who
are not in the relevant sector ministry.
Nationalization is not a solution. In past decades some countries (not only those in Africa), frustrated by
the unfair sharing of resource rents and the “raw deal” they believed they were obtaining for theirnatural resources, resorted to nationalization (replacing private investors by state-owned companies) orindigenization (transferring a portion of ownership of existing assets to nationals) to increase thenational share of the resource rent. But these strategies have not been viable options for Africa any
more than they have in other parts of the world: where oil, gas and mineral extraction is undertaken bya state-owned enterprise the outcome frequently combines both inefficiency and corruption. By almost
any measure most natural resource-based state owned companies, such as Sonatrach in Algeria (oil andgas) and Gécamines in Democratic Republic of Congo have significantly underperformed compared totheir private peers. Transferring a portion of the capital to nationals creates very significant
opportunities for rent seeking and corruption and does not address the central issue of inequitable
sharing of the resource rent between the investor and the government.
To get a better deal for their countries, African governments will need to take into account the fact they
are operating in a competitive environment, and private investors have the choice to go elsewhere.
Three sets of actions are needed: those to reduce investors’ costs and perceptions of political risk; thoseto enhance governments’ negotiating capacity; and those to eliminate corruption. By reducing theirhandicaps, most notably the perception of the risk of investing in the continent, and by having
negotiators who are world class, honest, and very well informed, the terms of the deal will becomemuch better balanced. And greater transparency is the best way to reduce or eliminate corruption.
Given the widespread lack of transparency in the extractive industries, several global initiatives havebeen launched to improve outcomes for resource-rich countries (see Box 3).

132

Box3: Extractive Industries Transparency Initiative (EITI)The Extractive Industries Transparency Initiative (EITI), themost important global initiative on natural resource
governance, was created in September 2002 at the World
Summit on Sustainable Development in Johannesburg. It isfinanced by a number of OECD countries with a Secretariat
based in Oslo, Norway. It aims to improve transparency of
payments by oil, gas and mining companies to governments
or government agencies such as state owned enterprises,
as well as transparency of the use of revenues by hostcountry governments. EITI has been implemented in 37
resource rich countries, of which 18 are fully compliant
with EITI principles, and 19 candidate countries. One
country has been suspended.
EITI has issued a set of reporting guidelines, a Statement of
Principles, and six Criteria which represent the global
minimum standard for EITI implementation. In May 2005
an International Advisory Group (IAG) was establishedunder the Chairmanship of Peter Eigen (who foundedTransparency International, a global NGO which fights
corruption)*, to assess the progress made by the EITI.
African countries are important players in EITI, representing
over half of all the countries involved in the initiative.
Currently, ten of the EITI-compliant countries (out of 18)
are from the African continent and 11 of the candidate
countries (out of 19). The one suspended country –Madagascar – is from Africa as well (Table 2). EITI has had asignificant and positive impact on transparency in financial
flows in the oil, gas and mining sectors of its member
countries, reducing opportunities for corruption andimproving outcomes.
* Peter Eigen is currently spearheading a joint initiative between the Hamburg-based Humboldt-Viadrina School of Governance andthe Vale Columbia Center on Sustainable International Investment to provide developing country governments with assistance innegotiating investment-related contracts, notably in the extractive industries.

Initiative Criteria
1. Regular publication of all oil, gas and mining payments by companies to governments; all revenues received
by governments from companies; data made available to a wide audience in a publicly accessible manner.
2. Payments and revenues are the subject of a credible, independent audit, applying international auditing
standards.
3. Payments and revenues are reconciled by a credible, independent administrator.
4. This approach is extended to all companies including state-owned enterprises.
5. Civil society is actively engaged as a participant in the design, monitoring and evaluation of this process andcontributes towards public debate.
6. A public, financially sustainable work plan for all the above is developed by the host government, including
measurable targets, a timetable for implementation, and an assessment of potential capacity constraints.
Source: EITI, abridged by author133

Box 3 - continued: Other Global Transparency Initiatives
The Kimberley Process Certification Scheme (Kimberley Process or KP) is an international governmental
certification initiative set up by governments, industry and civil society to prevent the trade in diamonds
that fund conflict. Launched in January 2003, the scheme requires governments to certify that shipmentsof rough diamonds are conflict-free.
The KP requires participating governments to certify the origin of rough diamonds, and put in place
effective controls to prevent conflict stones from entering the supply chain. Participant countries must
enact domestic legislation to implement the scheme, and can only trade rough diamonds with othermembers. Currently, 75 governments participate in the Kimberley Process. Its technical provisions are
implemented by governments, but its tripartite structure means that non-governmental organizations andthe diamond industry hold official status as observers and take part, along with member states, in all
working groups and decision making processes.
The initiative has obtained some successes since its introduction, e.g. its tripartite approach to solving
international problems, and helping some of the countries that were worst-hit by diamond-fuelled wars toincrease their official diamond revenues. However, it has been hobbled by the failure of member
governments to deal effectively with problem cases such as Zimbabwe, Côte d’Ivoire and Venezuela.
Despite the existence of the Kimberley Process, diamonds are still fuelling conflict. Although the scheme
makes it more difficult for diamonds from rebel-held areas to reach international markets, there are still
significant weaknesses in the scheme that undermine its effectiveness and allow the trade in conflictdiamonds to continue.
Natural Resource Charter is a global initiative designed to help governments and civil society effectively
harness the opportunities created by natural resources. The Natural Resource Charter provides twelve
Precepts to inform and improve natural resource management. It was drafted by an independent group of
experts in economically sustainable resource extraction and has no political sponsorship. The TechnicalAdvisory Group is chaired by Michael Spence (Nobel Laureate in Economics) and comprises 30 experts.1
The Charter is governed by an Oversight Board chaired by Ernesto Zedillo, former President of Mexico. It is
a common framework for addressing the challenges of natural resource management.
Publish What You Pay (PWYP) is a global network of civil society organizations which undertakes publiccampaigns and policy advocacy to encourage disclosure of information about extractive industry revenues
and contracts. The network is diverse, with over 650 member organizations across the world including
human rights, development, environmental and faith-based organizations. In about 30 countries, network
members have joined forces to create civil society coalitions for collective action to enhance transparencyof natural resource revenues.
In addition to these global initiatives, several global advocacy NGOs focus on the issue of revenue
transparency and corruption, either as part of a broader mandate (Oxfam) or as their key objective(Revenue Watch and Global Witness).
The degree of success of these various initiatives is mixed. There is a consensus that EITI has had a verysignificant impact both on transparency of funds flows and on norms of behavior, particularly in the oil andgas sector. On the other hand, the Kimberley Process has been a mitigated success at best. Overall
however, these initiatives have together raised global awareness of the issues surrounding corruption andlack of transparency in resource-rich countries, including in particular within the civil societies of Africancountries, and are having a beneficial impact on the way these industries are managed.

134

To manage their resource rents effectively policy makers must:

Apply revenue management rules (Non-Resource Primary Fiscal Balance Target or Structural
Primary Fiscal Target) to remove cyclicality of resource and non-resource revenues.
Implement the monetary policy recommendation outlined earlier in this chapter.
Consider the creation of stabilization and wealth funds, managed independently and domiciledin an external bank of international standing.

Resource-rich countries need to implement policies that deal with volatility and intergenerational tradeoffs. Potentially important tools in the management of fiscal flows are stabilization/liquidity funds,
designed to help avoid boom and bust cycles, as well as wealth funds to help manage the economic
distortions associated with resource booms and address intergenerational issues. The following sections
elaborate on fiscal rules for the management of resource flows, and on the use of resource funds.
Fiscal rules to promote macroeconomic stability. To
delink public spending from the dynamics of resource
earnings for macroeconomic stability purposes, policy
makers can adopt fiscal rules that define a sustainablepublic spending pattern that is protected from thevolatility of resource earnings. Such rules would smoothpublic spending over time by allowing for larger (smaller)
government deficits when resource earnings are lower(higher) than their long-term potential level.78 Moreover,they apply automatically, avoiding the need for thecomplex and costly decisions referred to above.

Fiscal Rules for Macroeconomic Stability
Approach 1: Adopt a Non-Resource PrimaryFiscal Balance Target (NRPB) to delink fiscal
policy from the volatility of resource earnings
due to swings in external commodity prices
Approach 2: Adopt a Structural Primary Fiscal
Target to remove cyclicality of resource andnon-resource revenues

This section focuses on two alternative rules or approaches. They establish short- to medium-term fiscal
targets that take into account fiscal sustainability in the longer-term. They consist of the adoption of (1)a non-resource primary fiscal balance target or (2) a structural primary fiscal target.79 Both approaches
involve the establishment of a stabilization/liquidity fund, which accumulates revenues in good times
that can be used to cover public spending in bad times, relative to long-term potential resource
revenues. By smoothing public spending over the cycle, they are helping achieve effectively a morestable macroeconomic environment. Moreover, either approach will help improve the spending quality
and efficiency of both the public and private sectors because it allows for better expenditure planning.
The non-resource primary balance (NRPB) is the overall primary balance excluding all tax and royalty
collection from natural resource activities. Thus, using the NRPB as a target helps delink fiscal policy
from the volatility of resource earnings. It measures the impact of government operations on domestic
demand, given that resource earnings are originated externally. The structural primary balance (SPB) is
78 These rules call for a well-defined formula and expert judgment to estimate long-term potential resource earnings and thebenchmark/reference price of the natural resource. As the resource horizons and price developments are uncertain, thispotential needs to be updated with some frequency.
79 Targeting the non-resource or structural primary fiscal balance is more appropriate than targeting the corresponding overallbalances because it allows the formulation and assessment of fiscal policy independent of changes in interest payments.

135the overall primary balance excluding the cyclical component of resource and non-resource revenue.
The implementation of this approach requires an independent institutional framework to ensure
credibility of the estimates of the cyclical component. Moreover, estimating this component of revenue(and the associated output gap) may be quite a complex task, a key reason for its limited worldwide use.
Stabilization/liquidity fund to address volatility in
Resource Funds
resource earnings. The size of a stabilization/liquidity
fund is to be determined mainly by the expected volatility
Stabilization Fund offsets commodity pricein earnings (due to variations in the resource price),swings to smooth fiscal resource availability
especially the extent of the swings, with just a minimum
and government spending over theor no accumulation of funds over the commodity pricecommodity cycle
cycle. Such a fund requires adequate transparency and
Wealth Fund invests financial assets frompublic oversight to prevent corruption andresource extraction for use by futuremismanagement. The fund also needs to be supported bygenerations
the capacity to develop medium-term forecasts ofresource revenues. These funds are in essence selfinsurance, and may be expensive when weighted against a country’s pressing development needs,
including a considerable gap in infrastructure and social outcomes (see Annex 6). Countries may instead
opt for market-based instruments to deal with earnings volatility (e.g., futures contracts) or for aminimum liquidity buffer based on, for example, value-at-risk models. But these approaches are,however, technically complex, costly, difficult to explain to stakeholders, and politically risky. Therefore,
it would seem advisable that resource-rich African countries adopt a stabilization/liquidity fund now
that international prices are still relatively high by historical standards. Some countries have alreadygone this route (Box 5).
Box 5: African Countries with Stabilization or Wealth Funds1
This box briefly describes the wealth funds and stabilization funds established by a number of African resource-rich countries.


Botswana adopted in 1994 a Sustainable Budget Index Principle that ensures that resource revenue is invested or
saved. Since then, a large stock of savings has been accumulated in its Pula Fund, which is managed by the Bank of
Botswana. The fund also acts as stabilization mechanism when resources fall sharply (as occurred in 2009).

Nigeria has adopted a budgetary rule whereby oil revenue is linked to a historical average of oil prices (adjusted inbudget negotiations). Excess oil revenue is deposited in the Excess Crude Account. (ECA). Resources from this accountcan be drawn when revenues are short of the target. This took place in 2009, when oil prices dropped sharply, but it
also happened in 2010 and 2011, despite the strong oil price recovery and contrary to ECA’s stabilization function. In
2011, Parliament established a Sovereign Wealth Fund (SWF), with three components: a stabilization fund, a fund tofinance domestic priority investments, and a fund for longer-term purposes. The SWF became operational in 2012.



Ghana has recently put in place a legal framework governing oil revenue; oil revenue is calculated on the basis of afive year moving average. 70 percent of such revenue will be allocated to the budget and the rest split between astabilization fund and a heritage fund.



Other resource-rich countries (e.g., Angola, Chad, Guinea, Equatorial Guinea) have accumulated significant assets
offshore, without formally establishing a stabilization or wealth fund.

1This box draws heavily form IMF, Sub-Saharan Africa, Regional Economic Outlook, April 2012136

Wealth fund for inter-generational equity. Efficient use of resource rents also has an important time
dimension. Resource-rich countries need to make the trade-off between extracting the resource now
and leaving it in the ground for future generations. Moreover, for a variety of reasons (including
uncertain future price developments) they may consider advisable to extract now, setting aside some ofthe proceeds for future use, in the form of financial assets. The exhaustible nature of natural resources
calls for inter-temporal decisions about how much resource earnings to consume and invest, and how
much to save.80 This decision may involve a difficult socio-political process. While saving a portion of theresource earnings makes sense, a balance has to be found between the welfare of future generations
and the immediate need to reduce poverty and invest in physical and human capital, which are criticalfor building an inclusive society and may well have a high social rate of return. This is especially so for
African countries where such expenditure is crucially needed. Similarly, spending those resources
beyond the economy’s absorptive capacity is not desirable or optimal either because it will lead to thetypical distortions associated with Dutch disease.81 Thus for a lasting impact on development, part of theresource earnings needs to be saved. Moreover, the portion that is to be saved into a wealth fund isclosely related to the value society attaches to inter-generational equity, and has important implications
for short- and long-term macroeconomic policies, consistent with fiscal and external sustainability.82
Quality of public investment. A further key issue is the quality of the investment financed by the jumpin earnings stemming from the resource boom, as this has implications for growth and economic
diversification as well as for building an equitable society, with a well-designed social protection system.
Many resource-rich African countries need to build up their project formulation and implementation
capacity, as well as strengthening their capacity to enhance the quality and effectiveness of educationand health services. They also need to increase their absorption capacity. These efforts are criticallyimportant, and require considerable time to bear fruit. Therefore, there is a need to avoid rushing into
wasteful spending, which will certainly hinder achievement of the goals just mentioned.83 Moreover,rushing may lead to an unwarranted real appreciation of the currency caused by jumps in non-tradable
good prices, and thus an otherwise avoidable loss of competitiveness. Once both the absorption
capacity of the economy and the ability of government officials to design and implement projects havebeen built, a cautious use of revenue from natural resources should play an important role intransforming the country.
Because the exploitation of mineral resources does not generally lead to significant increases in
employment, given its capital-intensive nature, policy makers need to plan government spending andinvestment carefully, with a view to foster economic sustainability, including diversification. Enhancing
infrastructure and human capital, removing bottlenecks and distortions, and encouraging ancillary
activities, non-resource exports and other employment-intensive activities (especially agriculture,

80 Despite their large resource earnings, many resource-rich African countries have had very low saving ratios to GDP.
81 For instance, most oil-exporting African countries record very high levels of government spending in relation to non-resource

GDP (around 50 percent of GDP), thereby generating intense price pressures on domestic resources.
82 A priori, the shorter the reserve horizon, the more important are the intergenerational (and fiscal sustainability)
considerations, and therefore the larger portion or resource earnings to be saved.
83 It may also lead to significant governance, rent-seeking and corruption problems, which underscores the need to build andmaintain sound institutions.

137

agroindustry and services) would help contain the real appreciation of the currency.84 Moreover,
diversification into these activities is critical for long-term development, as, over time, employment inmineral resources is likely to decline in relative (and in some countries in absolute) terms.
The fiscal rules or approaches described above, i.e., the non-resource primary balance and the structural
primary balance, are key for fiscal policy to be consistent with the objective of building a wealth fund.
The deficits in those balances (minus the overall budget deficit) represent the amount of resource
earnings that is being consumed and/or invested by the government. To address the pressing needs thatprevail in most resource-rich African countries, it would seem appropriate to target deficits that are
somewhat larger in the early years of the resource boom (to enable some scaling up of high priority
investment in human and physical capital and in poverty reduction)85 and smaller in subsequent years,
consistent with fiscal and external sustainability. The size of these deficits would also need to takeaccount of the resource reserve horizon of the particular country. The shorter the time horizon, thesmaller the deficit necessary to avoid an abrupt spending adjustment when resource revenue or theintergenerational fund are exhausted; such an adjustment would otherwise disrupt economic activity
and the provision of services.
Having determined the portion of natural resource earnings to save in a wealth fund, countries need todecide how such a fund is to be managed. Chile’s Economic and Social Stabilization Fund (ESSF, formerly
the Copper Stabilization Fund; see Box 6) and Norway’s Oil Fund offer good examples. Similarly,
countries will also need to decide whether—and to what extent—it would be advisable that the wealthfund lend to the private sector given that the domestic capital market is underdeveloped, bearing in
mind that such lending would add pressures on domestic resources.86 Along the same lines, countries
will need to decide how much to consume and invest from the wealth fund or from its return, balanced
against the need to preserve the wealth for future generations.87
While discussing the tax regime appropriate for resource-rich countries is beyond the scope of thischapter, taxation on the non-resource sectors of the economy is closely related to the discussion on
wealth funds. Many resource-rich countries worldwide reduced the tax burden on these sectors, given
the high revenues from resource activities. This reduction (or subsidy) could help diminish thedistortions of the tax system, but it would—obviously—lower the portion of resource earnings that
could be saved into a wealth fund and, indirectly, add to pressures on domestic resources. Moreover,many countries (e.g., Angola, Mexico, Nigeria, Trinidad and Tobago, and Venezuela) with low tax
revenue from the non-resource sectors experienced major adjustment needs and costs when they faced
a severe drop in resource earnings due to a major decline in commodity prices. Again, society will need

84

However, as the country becomes richer with the resource boom, some real appreciation of the currency is unavoidable.

85 How much larger these deficits could be depends on the absorption capacity of the economy and the project formulation andimplementation capacity, which should increase over time, and—linked to these issues—the need to avoid pushing up the priceof non-tradable goods.
86 Transparency and accountability should help direct such lending to socially profitable projects and thus avoid the temptationof lending to entities or individuals just because they are too closely associated with government officials.
87 An approach based on the permanent income hypothesis would be advisable to guide such a decision, allowing for an initialperiod of higher spending to address pressing needs, as indicated above.

138to balance these considerations when deciding on the portion of resource earnings to be saved in a
wealth fund.

Box 6: Chile’s Structural Overall Balance Rule and Wealth Funds 1
Chile has been recognized for the rigor and boldness of its macroeconomic management and its ability to weather theboom and bust cycle of its main export, copper. It has applied the kinds of rules outlined in this chapter to deal with thecyclical nature of commodity prices and created two successful wealth funds.
The Structural Overall Balance Rule. Chile started implementing a structural fiscal balance rule in 2001 with the objective of
determining the level of fiscal spending consistent with the government’s structural revenue. This rule detaches suchspending from fluctuations in the copper price, as well as in economic activity and other factors. This allows thegovernment to save in boom times, and thus avoid drastic adjustments to fiscal spending during unfavorable economic
periods. While initially implementation of the rule did not have legal backing, it was formalized under the Fiscal
Responsibility Law (FRL) in 2006. In 2011, the Ministry of Finance created the Fiscal Council; its main role is to guarantee
independence in the estimation of the structural variables and to verify the structural balance estimates.
The methodology to calculate the structural balance has been improved over time, mainly to better estimate structural
revenue. For example, following the recommendations of an Advisory Committee, the 2011 budget excluded fromstructural revenue proceeds from temporary tax measures with a legal deadline, and cyclical adjustments to other revenue
and to interest income on financial assets held by the Treasury.
The structural overall balance target has also changed over time. The target was set initially at a surplus of 1 percent ofGDP, in order to cover the losses of the Central Bank of Chile. The surplus was reduced to ½ percent of GDP in 2008, as thegovernment considered that the Economic and Social Stabilization Fund had accumulated substantial resources. In 2009,
faced with the Global Crisis, the government reduced the target to zero. (The methodological change of 2011 implied thatthe 2009 target actually was a deficit of 3 percent of GDP.) The target has been adjusted since then and is expected toconverge to a structural deficit of 1 percent in 2014.
The Economic and Social Stabilization Fund (ESSF). The ESSF replaced the Copper Stabilization Fund (which was created in1985) in 2007, and has the same macroeconomic stabilization objectives, as established by the FRL. The ESSF aims ataccumulating excess copper revenues when the price of copper is high in order to transfer resources back to the budget
when the price of copper is low, thereby smoothing out government expenditure. The ESSF receives all fiscal surpluses thatexceed 1 percent of GDP, the structural fiscal target until 2009 when the government implemented a fiscal stimulus
package to counteract the adverse effects of the Global Crisis. In October 2011, the government adopted a series ofmeasures recommended by a panel of experts to improve the transparency of fiscal policy and to minimize the discretion in
its application.
The Central Bank of Chile appoints the members of the Financial Committee; they must have vast experience in theeconomic and financial areas. The Committee reports to the Ministry of Finance and is responsible for advising the Ministerof Finance on long-term investment policy and all other matters related to investment, on selecting fund managers, and on
the contents and structure of the reports of the ESSF. Although the ESSF does not report to Congress, good governance isassured by the fact that Congress decides on the government’s budget. The General Treasury produces the Fund’s financial
statements in accordance with International Financial Reporting Standards.
Management of the ESSF follows the Generally Accepted Principles and Practices, known internationally as the “Santiago
Principles”, agreed by the International Working Group of Sovereign Wealth Funds (IWG-SWF) in Santiago, Chile in
September 2008. In 2012 the government published a self-assessment of Chile’s compliance with these voluntary principles
with a view to improve the publicly available information about the ESSF and to show that it is managed in accordance withbest international practices. 1/
As of end-2011, the market value of the assets of the ESSF amounted to US$13.2 billion. As a stabilization fund, it mustremain relatively liquid and therefore has to take a short-term view regarding its investments; its return was 5.1 percent in2011. External managers play a key role in managing the Fund’s resources, although the Financial Committee defines thestrategic allocations (66.5 percent in sovereign bonds, 30 percent in money market instruments, and 3.5 percent ininflation-indexed sovereign bonds; the currency exposure is 50 percent to the US dollar, 40 percent to the Euro and 10
percent to the yen). The Central Bank of Chile prepares daily, monthly, quarterly and annual reports on the state of theFund and performance of its investments, which are submitted to the Ministry of Finance and the General Treasury.
The Pension Reserve Fund. It was also created in 2007, and its purpose is to address an expected future fiscal shortfall in
the area of pensions and social welfare. Specifically, the fund backs the state guarantee for old-age and disability solidarity
pension benefits, as well as the solidarity pension contribution, as established by the pension reform. Given its nature, thefund takes a longer-term view for its investments than the ESSF, and therefore it invests in a broader range of assets
classes. As of end-2011, the fund had accumulated US$4.4 billion. The fund must receive a minimum annual contribution of
0.2 percent of GDP. If the fiscal surplus exceeds this amount, the contribution can be increased by the amount of thesurplus up to 0.5 percent of the previous year’s GDP. The Fund is managed in a similar fashion as the ESSF.
1See Chile, Ministry of Finance. Chilean Self-Assessment of Compliance with Santiago Principles, January 2012139

Monetary and Exchange Rate Framework. The stability/liquidity fund and the wealth fund, to theextent they can be set up and made to work, would help considerably in the conduct of monetary policy,
as the first removes the pro-cyclicality of fiscal spending and the second prevents the excessive pressure
on domestic resources that a natural resource boom would cause. Similarly, in a more stable
macroeconomic environment, exchange rate tensions will be significantly less than otherwise.
The combination of the two funds provide a strong foundation for monetary policy to be based on an
Inflation Targeting (IT) Framework, especially given the absence of fiscal dominance (i.e., thatgovernment deficits do not condition the growth of money supply). Some African countries are alreadyusing such a framework with success. Others will require time to develop the conditions necessary for its
introduction. The IT framework will allow the implementation of a flexible exchange rate policy, which
will, in turn, help reduce the impact of external shocks.88
Some resource-rich African countries have a fixed exchange rate or are part of a currency union, mostnotably those in the West African Economic and Monetary Union (WAEMU) and the Central African
Economic and Monetary Union (CAEMU). If these regimes continue, it would be important that credit
policy remain cautious and consistent with preserving external competitiveness. The combination of thetwo funds provides a similar strong foundation for such a policy.

B. Broad Economic Policy Measures:
To invest their resource rents to create the basis for sustainable growth and foster a diversified
private sector, policy makers will need to:






Apply the recommendations found elsewhere in this report, specifically those relating toinvestment in human capital (health and education) and in infrastructure.
Accelerate economic integration based on a common light-handed regulatory framework acrossthe region, reducing trade barriers and administrative red tape.89
Invest in cost-effective regional infrastructure to achieve geographic integration to bring down
logistics costs.
Standardize educational standards across the region to enable a greater degree ofinteroperability between Africa’s workers and achieve regional labor force integration.
Set in place much more business-friendly regulations and administrations to nurture indigenous
companies and attract foreign investors.

Nurturing the development of resource clusters. Although downstream processing may not have beena very significant success in Africa because of the continent’s geographic and other disadvantages (lowinfrastructure endowment, low labor productivity), the extractive industries have over the years created
88 The argument that a flexible exchange rate regime will lead to an unwarranted appreciation of the currency and that a fixedexchange rate regime will not is misleading. If the conditions for a real appreciation are present, it will happen irrespective of
the exchange rate regime: through a nominal and thus real appreciation under the flexible regime or through a rise in the priceof non-tradable goods. To avoid such conditions, the key is for policies to create the basis for sustained improvements incompetitiveness of the non-resource tradable sectors including through investment in human and physical capital and theremoval of bottlenecks and distortions, as discussed above.
89 Africa will need to develop to a much greater extent its existing economic areas such as ECOWAS, SADC and COMESA.

140

positive spinoffs in other ways. Most notably, ecosystems of firms providing support functions to oil, gas
and mining operations have emerged organically around the extractive sector. For example, West
African oil producers like Cameroon and Nigeria have seen the creation of internationally competitive
support firms in oil logistics, maintenance and other associated services, some of which started as
subsidiaries of international firms and others as local startups. South Africa has a record in the mining
industry of harboring the best providers of mining services, from geologists and mining engineers tospecialized banks, which now operate internationally. These clusters provide employment, create worldclass capacity and possess strong links into the rest of the economy, and are a model for African
resource-based sectors going forward. They are not significantly capital intensive and have been good atcreating specialized human capacity, often of a world class nature.
In addition to sound macroeconomic policies and effective management of public finances through fiscal
rules and funds, governments can proactively seek to nurture these related-industry clusters to increase
the positive spillovers of their natural resource sectors. This will require creating a business-friendly
regulatory environment and economy, and providing specialized targeted infrastructure. For example, acountry with offshore oil production might target the development of its port, an efficient low-cost ICT
infrastructure and a modern commercial legal framework that favor the installation of service firms forthe delivery of services such as offshore platform maintenance, cleaning and hospitality, oil-field geology
and crude oil trading. High quality and low cost communications services will allow local firms to bid for
projects outsourced from the headquarters of producing companies. Ease of setting up firms andsimplified tax procedures will lower the barriers to entry for local entrepreneurs. Availability of visas andwork permits for foreign workers will allow them to work locally, facilitating the transmission of skills.

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APPENDIX: Model for Developing Global Growth Scenarios
This study estimates GDP as a function of labor force, capital stock, and total factor productivity for 187
countries between 2013 and 2050 under three different growth scenarios, the “Convergence Scenario”,“Business as Usual Scenario”, and the “Downside Scenario”. This section offers an abbreviateddescription of the model; a more detailed exposition, in Kohli, Szyf, and Arnold (2012), is available on
request.90
As seen in equation (1), a Cobb-Douglas function with constant returns to scale is assumed, with α equal
to two-thirds:(1)

where TFP is total factor productivity, L is labor, and K is capital stock.
GDP figures are generated for three different measures: real GDP (constant 2010 prices); GDP PPP(constant 2010 PPP prices); and GDP at expected market exchange rates, which incorporates expectedexchange rate movements and serves as the best proxy for nominal GDP.
The model first estimates annual real GDP growth for each country between 2013 and 2050. Theseestimates are applied to the previous values of real GDP, GDP PPP, and a measure equal to nominal GDP
deflated by US inflation (on which GDP at market exchange rates is based) to derive the full series.
Finally, to derive GDP at market exchange rates, real exchange rate changes are estimated andmultiplied by nominal GDP deflated by US inflation to obtain GDP at market exchange rates.
Labor force growth stems from population growth and from changes in labor force participation rates.
Population growth is based on the medium variant of the 2010 Revision of the UN’s World Population
Prospects, while labor force participation rates are projected separately, by gender, for seven age
cohorts (15–19, 20–24, 25–29, 30–49, 50–59, 60–64, and 65+) to better capture cohort-specific trends.
Male rates are projected directly; female rates are derived by projecting the difference between maleand female rates for each age group. Labor force participation rates from 1980 through 2012 are takenfrom the International Labor organization.
The cross-country, cohort-specific equations to forecast male rates are simple autoregressions of thefollowing form:(2)

where 𝑀 is the percent of males in age group age who are active in the labor force and 𝑚 age is aconstant that varies for each age group.

90 This appendix is based on Kohli, Szyf, & Arnold (2012)

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The cross-country, cohort-specific equations to forecast the differentials between male and female
participations rates are:(3)

where Dage equals the difference between the percentage of males in age group age in the labor force
and the percentage of females in age group age in the labor force, and 𝑑age is a constant that varies by
age group. In both male and female models, for certain cohorts, rough upper or lower bounds areincorporated to address outliers. Observations that begin in 2012 beyond these bounds are notgoverned by the regressions but instead gradually converge over time towards the bounds.
Capital stock growth, based on an initial capital stock and yearly investment rates and depreciation, isdefined as:(4)

where K is the capital stock, 0.06 represents the yearly depreciation of 6%, and It-1 is the capital
investment from the previous year, which is defined as the previous year’s GDP (measured in constant2010 PPP dollars) multiplied by the investment rate as a share of GDP.
The initial capital stock is calculated using the Caselli method, with the following equation:(5)

where K is the initial capital stock, g is the average GDP growth over the subsequent ten years, 0.06 is
the depreciation rate, and I is the initial year’s investment. For I, for each country, the earliest year forwhich there exists capital investment data (year y) is identified. The average of the investment rate
values for year y and the two subsequent years is computed and treated as the initial investment rate.
This smoothing out of fluctuations in the initial investment rate yields better estimates for certain
countries with high volatility in the earliest investment rate values. This rate is then multiplied by the
GDP in year y to determine I. The earliest year possible is chosen for this estimate because the longer
the timeframe before the projections commence the more the yearly depreciations will reduce theeffects on the model of any initial imprecisions in capital estimates.

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The model is calibrated by calculating total factor productivity (TFP) for an initial year (2012)91 based onlabor force, capital stock, and historical GDP, with GDP and capital stock measured in purchasing-powerparity dollars at constant 2010 PPP prices. For subsequent years, TFP is projected.
For the TFP projections, we differentiate four categories: rich or developed; converging; nonconverging; and fragile. All countries begin with a default TFP growth rate of 1 percent which, with astrong level of statistical significance, equals the average US rate over the past 40-, 30-, 25-, and 20years, and which, also with a strong level of statistical significance, equals the average rate of all nonconverging countries over the same four periods. In our model, this is the fixed rate of productivity
growth for the category of non-converging countries. For this study, different scenarios have beencreated in which each country’s convergence status falls under varying sets of assumptions. These
scenarios are described in detail later in this section.
Research shows that some growth differences between developing countries can be successfullymodeled by separating them into two groups: converging and non-converging countries (Gill and Kharas,2007).
A country is deemed to be converging at the start of the projection period if its per-capita income has
rapidly converged over a 20-year period to that of best practice economies or if its 2001–2011 TFP
growth is closer to what the model would predict for a converger (see below) than to what it would
predict for a non-converger; the lower a country’s productivity relative to the global best practice, thefaster the rate at which it converges. This convergence reflects technology transfers from richer
innovating countries, technology leapfrogging, the diffusion of management and operational researchfrom more developed countries, and other ways that a country can shortcut productivity-improvement
processes by learning from economies that are already at the productivity frontier.
In the model, the lower a converging country’s productivity relative to that of the US, the larger theboost and the quicker the pace of catch-up.92 The productivity growth of 14 of the 36 rich countries istreated the same as that of converging countries. Non-converging countries and 22 of the 36 richcountries maintain the default 1 percent yearly productivity growth and hence experience noconvergence boost. The rich countries are divided into these categories based on their past TFP
performance. The general equation for TFP growth is:

TFP Growth = 1.0% + CB – FP

(6)

where CB is the convergence boost benefiting “converging” countries and FP is the productivity growth
penalty suffered by fragile states.
91 IMF WEO GDP growth projections are used for 2012 and 2013.
92 TFP is used in the convergence term instead of the per-capita income used by others for three reasons: first, if the equation

were to use GDP per capita, over time the TFP of a converging country would not converge to that of the US but instead toother values. Also, since the convergence equation represents convergence of TFP, we use TFP in order to make the equationconsistent with its purpose. Third, using the convergence coefficient from past research in tandem with an income-based
convergence term yields large discrepancies with the recent historical data for TFP growth for many countries; using TFP yields
a better fit.

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The convergence boost is defined as follows:(7)

where i is the country, 2.69 percent is the convergence coefficient (derived from historical data), TFP is
total factor productivity, and c takes a value between 0 and 1 and identifies whether a country is treatedas a converger (c =1) or as a non-converger or fragile state (c =0), or in an intermediate state oftransition between being a converger and non-converger (0 < c < 1).
The productivity growth penalty for fragile states, FP, is defined as:

FP = f x 1.5%

(8)where f plays a role analogous to that of c in equation (7) above. For each fragile country, f is set equal
to 1, corresponding to a penalty in productivity growth of 1.5 percent, so that its productivity is assumed
to fall by 0.5 percent a year. The coefficient of negative 1.5 percent is derived by identifying state
failures and debilitating wars prior to the global financial crisis that lasted at least 2 consecutive years in
44 countries, and analyzing their effects on growth. The list of fragile states in Africa is the harmonizedlist prepared by the African Development Bank and the World Bank.
The projections of GDP growth are completed by applying the labor growth, capital deepening, andproductivity changes to each country over the period 2013–2050.
The measure of GDP at expected market exchange rates adjusts the GDP estimate by expected changes
in the real exchange rate. First, an equation is derived to establish a theoretical relationship between acountry’s real exchange rate and its PPP income relative to that of the US. Then, the country’s modeled
exchange rate converges towards the value that corresponds to its income in this theoretical equation.
These relationships are not linear, and the countries for which increases in GDP PPP per capita lead tothe largest appreciation of their real exchange rates are the countries whose incomes are between athird and two-thirds that of the United States, and not the poorest or richest countries.
The model also projects the sizes of the low, middle, and high-income populations, again following
Kharas, by measuring the number of people in each country with living standards—in PPP terms—withina certain absolute range. An income distribution for each country is derived from the World Bank’s
International Comparison Program.
The model calculates what share of the nation’s income is available for consumption, and it distributes
this consumption income over the population according to the income distribution. As the country’s
overall consumption income increases, the purchasing power of those at the bottom of the distribution
increases, raising more to middle-income status.

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For purposes of computing consumption income classes, the model projects changes in the share of thecountry’s income available for consumption using the following equation:(9)

where t is the year, i is the country, C is the ratio of consumption to GDP, GDPPCCap is the minimum ofeach country’s GDP PPP PC and $50,000 PPP (in 2010 PPP international dollars), and α0, α1 , and α2 areconstants.
The study makes separate projections for three different growth scenarios: the “Convergence Scenario”,
the “Business as Usual Scenario”, and the “Downside Scenario”. The difference between the scenarios is
how countries are classified at the outset, either as converging, non-converging, or fragile, and how
countries gradually transition between classifications.
For 145 countries the initial classification is based on the Kharas classification and for an additional 42
countries on a similar analysis of recent data. Under this classification, four African countries (Botswana,
Cape Verde, Mauritius, and Mozambique) are classified as “convergers”.
For the Convergence Scenario, a group of 15 additional African countries join the convergers listed
above, and are referred to in the study as “early convergers”. This group of 15 countries begins toconverge this decade (up to 2020). An additional group of 15 “late convergers” begins converging in thefollowing decade (up to 2030). The remaining 20 countries currently considered “fragile” transition outof fragility over the next 30 years.
Under the “Business as Usual Scenario” the convergence picture remains the same as today. Four
African countries that are currently converging are assumed to continue converging through 2050. All
current non-convergers continue to not converge, and all fragile countries remain fragile.
In the “Downside Scenario” an additional five countries become fragile, non-convergers do notconverge, and the four convergers stop converging. This scenario also includes cyclical fluctuations in
Africa’s terms of trade. Specifically starting in 2015 the terms of trade deteriorate by 15 percent over 5
years and then recover by 15 percent over the subsequent 10 years, after which this cycle repeats.
In all three scenarios, the transition of individual countries between converging and non-converging, orfrom fragile to non-converging, is gradual. That is, countries are made to adopt an intermediate state
between fragile and not-fragile or between converging and non-converging, by varying the values of fand c in equations (7) and (8).

146

Annex 1: Methodological Notes
First, Chapter 4: Demography offers a demographic analysis of all African countries between 2010 and
2050, using primarily the United Nations 2010 World Population Prospects and 2011 World Urbanization
Prospects, as well as the most recent data from DHS and MICS surveys not available in 2010. The
analysis also refers to the framework of the “Convergence Model”, which was adopted for the entire
Africa 2050 study.
Second, this chapter covers the 53 sovereign countries of Africa. South Sudan, which became
independent in July 2011, is not included in this chapter because of the lack of reliable data. The
population of South Sudan was estimated by the World Bank at 10.3 million people in mid-2011; thisestimate has to be confirmed by a new population census, which should be conducted shortly. Other
demographic indicators for South Sudan (e.g., expectancy of life at birth, total fertility rate,
contraceptive prevalence rate, etc.) were not available at the time of this report writing.
Third, this chapter uses the United Nations classification of countries where South Sudan is listed in
Eastern Africa, and Sudan, listed in Northern Africa (see also Population Reference Bureau 2012). ThisUN classification lists the countries, as follows:
Northern African: Algeria, Egypt, Libya, Morocco, Sudan & Tunisia
Western Africa: Benin, Burkina Faso, Cape Verde, Côte d’Ivoire, Gambia, Ghana, Guinea, GuineaBissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone &Togo
Eastern Africa: Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Madagascar, Malawi,
Mauritius, Mozambique, Rwanda, Seychelles, Somalia, Uganda, United Republic of Tanzania,
Zambia & Zimbabwe (plus South Sudan, not included in this chapter)
Middle (or Central) Africa: Angola, Cameroon, Central African Republic, Chad, Congo Republic,
Democratic Republic of the Congo (DRC), Equatorial Guinea, Gabon & Sao Tome and Principe
Southern Africa: Botswana, Lesotho, Namibia, South Africa & Swaziland

147

Annex 2: Demographic Indicators Estimated by the United Nations for2010 and 2005-2010 and Most Recent Fertility Estimates from 20092012 Surveys, by Sub-Region
Number ofPopulation

TFR UN

RecentDate of survey

DifferenceE(0) UN% urban

1000s

Estimates

surveysand periodwith UN

Estimates

Population2010

2005-10

resultsof reference

estimates

2005-102010

Burundi

8 383

4.7

6.40

2010 DHS (3 years)

1.7

48.8

10.6

Comoros

735

5.1

59.7

28.0

Djibouti

889

4.0

56.6

77.0

Eritrea

5 254

4.7

60.0

20.9

Ethiopia

82 950

4.6

57.2

16.8

1

Kenya

40 513

4.8

55.0

23.6

2

Madagascar

20 714

4.8

65.8

31.9

1

Malawi

14 901

6.0

51.6

15.5

1

Mauritius

1 299

1.7

72.8

41.8

Mozambique

23 391

5.1

5.90

2011 DHS (3 years)

0.8

48.8

31.0

2

Rwanda10 6245.4

4.60

2010 DHS (3 years)

-0.8

53.9

18.8

1

Seychelles

87

2.0

73.0

53.2

Somalia

9 331

6.4

50.2

37.3

1

Uganda33 425

6.4

6.20

2011 DHS (3 years)

-0.2

52.2

15.2

1

Tanzania

44 841

5.6

5.40

2010 DHS (3 years)

-0.2

55.4

26,3

1

Zambia13 089

6.2

46.9

38.7

1

Zimbabwe

12 571

3.5

46.6

38.1

1

Angola19 082

5.8

49.6

58.4

2

Cameroon

19 599

4.7

50.0

51.5

2

Cen. Af. Rep.

4 401

4.8

45.9

38.8

Chad

11 227

6.2

6.90

MICS 2010 (5 years)

0.7

48.5

21.7

1

Congo

4 043

4.6

5.10

2011-12 DHS (3 years)

0.5

56.0

63.2

2

DR Congo

65 966

6.1

6.30

MICS 2010 (12months)

0.2

47.4

33.7

5

Eq. Guinea

700

5.4

50.1

39.3

Gabon

1 505

3.4

4.10

2012 DHS (3 years)

0.7

61.3

85.8

Sao T.& P.

165

3.9

4.90

2008-09 DHS (3 years)

1.0

63.8

62.0

Cities in2010 over
750,000

Eastern Africa

4.80

5.70

4.10

2011 DHS (3 years)

2010 DHS (3 years)

2010-11 DHS (3 years)

0.2

-0.3

0.6

Middle Africa
5.10

2011 DHS (3 years)

Northern Africa

148

0.4

Algeria

35 468

2.4

72.3

72.0

2

Egypt

81 121

2.9

72.3

43.4

2

Libya

6 355

2.7

74.0

77.6

1

Morocco31 951

2.4

71.2

56.7

6

Sudan

43 552

4.6

60.3

33.1

1

Tunisia

10 481

2.0

73.9

66.1

1

53.3

61.0

46.0

26.8

5.60

MICS 2010 (3 years)

1.0Southern Africa
Botswana

2 007

2.9

Lesotho

2 171

3.4

Namibia

2 283

3.4

61.1

37.8

South Africa

50 133

2.6

51.2

61.5

Swaziland

1 186

3.6

3.70

MICS 2010 (3 years)

0.1

47.4

21.3

Benin

8 850

5.5

4.90

DHS 2011-12 (3 years)

-0.6

54.6

44.3

1

Burkina

16 4695.9

6.00

MICS 2010 (3 years)

0.1

53.9

25.7

1

Cape Verde

496

2.6

73.5

61.8

Côte d'Ivoire

19 738

4.6

53.0

50.6

Gambia

1 728

5.1

57.3

56.7

Ghana

24 392

4.3

62.7

51.2

2

Guinea

9 982

5.5

5.10

DHS 2012 (3 years)

-0.4

52.4

35.0

1

G-Bissau

1 515

5.3

5.10

MICS 2010 (2 years)

-0.2

46.8

43.2

Liberia

3 994

5.4

5.90

2009 MIS (3 years)

0.5

54.4

47.8

1

Mali

15 370

6.5

50.0

34.3

1

Mauritania

3 460

4.7

57.5

41.2

1

Niger

15 512

7.2

7.60

DHS 2012 (3 years)

0.4

53.1

17.6

1

Nigeria

158 423

5.6

5.70

MICS 2011(2 years)

0.1

50.3

49.0

14

Senegal

12 434

5.0

5.00

DHS 2010-11 (3 years)

-0.03

58.2

42.3

1

Sierra Leone

5 868

5.2

4.30

MICS 2010 (12months)

-0.9

46.3

38.9

1

Togo

6 028

4.3

4.80

MICS 2010 (12months)

0.5

55.7

37.5

1

28

28

Countries

36

3.30

2009 DHS (3 years)

-0.1

7

Western Africa

5.00

DHS 2011-12 (3 years)

0.4

2

Number ofcountries

53

Number of cities

Sources: United Nations 2011, and DHS and MICS 4 surveys results (final or preliminary results).

149

73

Annex 3: The 2010 United Nations Assumptions on Population and
Urbanization
The 2010 United Nations World Population projections’ assumptions made up until 2050 (oneassumption for mortality and international migration, and three assumptions for fertility decline:
Medium, High and Low) are presented in Table A7.1 for the five sub-regions of the continent. The
assumption made for urbanization until 2050 in the 2011 United World Urbanization projections is alsopresented.
Under the Medium variant, the TFR for Africa decreases by 1.9 children between 2005-2010 and 20452050 (from 4.6 to 2.8 children per woman), and by 2.3 children for sub-Saharan Africa (from 5.1 to 2.9
children per woman). The most rapid decline: minus 3.2 children over the 40 years period considered, isprojected for Middle Africa, and the least rapid declines are those projected for Northern and Southern
Africa: minus 0.9 children in both cases. By construction, the fertility declines projected for the Highvariant are 0.5 children higher than the decline of the Medium variant, and 0.5 children less with the
Low variant.
These figures are the weighted average of the fertility assumptions made for each country. Initial total
fertility rates (the 2005-2010 TFRs) were estimated on the basis of the information available for eachcountry in 2010. Then, as already explained, the Medium variant was built by projecting these TFRs up
to 2045-2050 according to three models of decline, yielding varying fertility declines between 2005-2010
and 2045-2050. Next, the High and Low variants were derived from the Medium variant. The
corresponding figures are presented in Figure A7.1. With the Medium or central variant, TFRs areprojected to remain above 3 children per women by 2045-2050 for a quarter of the countries (13). But
with the High variant, TFRs are projected to remain above 3 children per woman in more than half of thecountries (29 countries or 55% of the population), which is above what can be considered as theminimum level necessary to have lower dependency ratios. With the Low variant, only six countries(11%) have TFRs above 3 children per woman (these are countries with initial high TFRs and in four cases
landlocked countries). For the 40 years considered, these 2045-2050 projected TFRs imply for the
Medium variant a decline of 2 to 3.3 children for half of the countries (28 or 53%), for the Low variant a
decline of 2 to 2.8 children for 40 countries (75%), and for the High variant of a decline of 2 to 3.8
children for 11 countries (21%).

150

Table A7.1: Assumptions made in the 2010 United Nations population projections and the 2011
United Nations urbanization projections for Africa and African sub-regions until 2050
InitialMediumHigh
valuesvariant
Variant
Periods
2005-2010
2045-2050
2045-2050
Total fertility rate (number of children per woman)
Africa
4.64
2.77
3.25
Sub-Saharan Africa
5.10
2.85
3.34
Eastern Africa
5.11
2.89
3.37
Middle Africa
5.67
2.52
3.01
Northern Africa
2.97
2.03
2.52
Southern Africa
2.64
1.79
2.29
Western Africa
5.48
3.27
3.76
Life expectancy at birth, both sexes combined (years)
Africa55.2
68.2
Sub-Saharan Africa
52.5
66.7
Eastern Africa
54.4
68.0
Middle Africa
48.5
62.9
Northern Africa
69.4
77.1
Southern Africa
51.3
64.1
Western Africa
52.3
66.7
Net migration (per year), both sexes combined (thousands)
Africa-628-440
Sub-Saharan Africa
-397
-312
Eastern Africa
-365
-108
Middle Africa+7+22Northern Africa
-204
-141
Southern Africa+138+5Western Africa
-205
-174
Percentage of population residing in urban areas
Years
2010
2050
InitialMediumvaluesvariant
Africa39.2
57.7
Sub-Saharan Africa
36.3
56.5
Eastern Africa
23.3
44.7
Middle Africa
40.9
61.5
Northern Africa
51.2
65.3
Southern Africa
58.5
74.0
Western Africa
44.3
65.7
Sources: United Nations 2011 and 2012a.

151

Low
Variant
2045-2050
2.29
2.37
2.41
2.02
1.55
1.29
2.77

Figure A7.1: Low, Medium and High total fertility rates assumptions in 2045-2050 compared with thetotal fertility rates estimated in 2005-2010 by increasing order for each region
TFR 2045-2050 High variant, higher than TFR 2005-2010
TFR 2005-2010
TFR 2045-2050 High variant
TFR 2045-2050 Medium variant
TFR 2045-2050 Low variant

8,0
7,0

Total Fertilty Rate

6,0
5,0
4,0
3,0
2,0

0,0

Mauritius
Seychelles
Zimbabwe
Djibouti
Ethiopia
BurundiEritrea
Kenya
Madagascar
Comoros
Mozambique
RwandaTanzania
Malawi
ZambiaUgandaSomaliaGabon
Sao T.& P.
Congo
CameroonCent.Af.Rep.
Eq.Guinea
AngolaD.R.Congo
Chad
Tunisia
MoroccoAlgeria
Libya
Egypt
Sudan
South Africa
Botswana
LesothoNamibia
Swaziland
Cape Verde
Togo
Ghana
Cote d'Ivoire
Mauritania
SenegalGambiaSierra Leone
G-Bissau
Liberia
GuineaBenin
Nigeria
Burkina
Mali
Niger

1,0

Eastern Africa

Middle Africa

Northern Southern
AfricaAfricaWestern Africa

Source: United Nations 2011

These fertility declines appear rather optimistic for many countries given the recent fertility trends
observed (see Figures 4.4 and 4.6) and the persistent low levels of contraceptive use associated withthem (see Figures 4.7 and 4.8). Based on this evidence, for many countries fertility might well decline
more slowly than anticipated under the 2010 UN Medium variant, and for several countries (e.g., in the
Sahel), even more slowly than anticipated under the 2010 UN High variant. This point is importantbecause if fertility declines are slower than those projected under the Medium or even the Highvariants, dependency ratios will remain high, which will prevent many countries from achieving thedemographic prerequisites needed to capture a demographic dividend.
Concerning urbanization, the initial percentages of the population living in urban areas in 2010 in each
African country and their future levels were estimated and projected to 2050 by the United Nations intheir 2011 World Urbanization Prospects (United Nations 2012a). These data are presented in Figure
12. The projected percentage increases of the population living in urban areas vary of course from one
country to another, depending on several factors (initial percentages, past trends, etc.93). Given therelatively low levels of urbanization of many African countries in 2010, the projected percentage
increases are relatively large. They range from 20 to 30 percentage points for 21 countries between
2010 and 2050, and between 10 percentage points and less than 20 percentage points for half (28) of
the countries. The increase is less than 10 percentage points only for Gabon, Djibouti, Libya (which had
93 For more details, see World Urbanization Prospects, The 2011 Revision, Methodology

http://esa.un.org/unpd/wup/pdf/WUP2011_Methodology.pdf.

152high urbanization rates in 2010), and Swaziland. As a result, whereas in 2010 only one country out of
three (17) had a majority of its population living in urban areas (all coastal countries but one, Botswana),
in 2050 there will be 42 countries, four out of five, with a majority of their population living in urban
areas. Among the 11 remaining countries with still a majority of their population living in rural areas by
2050, most are Eastern African countries, and most are landlocked countries (Burundi, Swaziland,
Malawi, Ethiopia, Rwanda, Uganda, Niger, and Chad). Overall this means that a majority of African
people will be living in urban areas by 2035, and nearly 60% by 2050 (58% in sub-Saharan Africa).
Figure A7.2: Projected percentage of the population residing in urban areas between 2010 and 2050 of
African countries, by increasing order for each region
Percentage urban population in 2050
Percentage urban population in 2030
Percentage urban population in 2010

100
90

Percentage Residing in Urban Areas

80
70
60
50
40
30
20

Swaziland
LesothoNamibiaSouthAfrica
Botswana

Sudan
Egypt
MoroccoTunisia
Libya
Algeria

Eastern Africa

Chad
Eq.Guinea
D.R.Congo
Cent.Af.Rep
CameroonCongo
Angola
SaoT.&P.
Gabon

BurundiMalawi
Ethiopia
UgandaRwandaComoros
Eritrea
Kenya
Tanzania
Mozambiqu
Mauritius
Madagascar
ZambiaSomalia
Zimbabwe
Seychelles
Djibouti

0

Middle Africa

Northern Southern
AfricaAfricaSource: United Nations 2012a.

153

Niger
Burkina
GuineaMali
Togo
Sierra Leone
Mauritania
Senegal
G-Bissau
Liberia
Benin
Nigeria
Coted'Ivoire
Ghana
GambiaCape Verde10

Western Africa

Annex 4: Urban Land Cover Projections for Countries of Africa, 20102050
Country

Algeria

AngolaBenin

Botswana

Burkina Faso

BurundiCameroon

Cape Verde

Cen Afr Republic

Chad

Comoros

Congo, Dem. Rep.

Congo, Rep.

Cote d’Ivoire

Egypt, Arab Rep.

Urban Land
Cover, 2000
(Hectares)

341,628

57,52885,48926,79037,074

5,167

67,115

4,649

17,86830,062

2,932

120,291

21,16885,926

260,941

AnnualDensity
Decline(%)

Urban Land Cover Projections (hectares)

2010

2020

2030

2040

2050

0

441,035

546,608

638,411

713,574

775,6191

487,419

667,628

861,765

1,064,527

1,278,779

2

538,681815,443

1,163,260

1,588,088

2,108,350

091,210134,553

185,074

241,941

302,5891

100,803

164,344249,823360,933

498,8852

111,404

200,730

337,226

538,449

822,5220

128,085

187,638

266,593360,180

462,223

1

141,555

229,181359,862

537,325

762,0772

156,443

279,922

485,764

801,595

1,256,452

034,75942,611

49,90756,88563,795

1

38,41452,04667,36784,862

105,180242,45563,56990,937

126,599

173,412061,811102,022

162,496

242,880

341,133

1

68,311

124,611219,347

362,334

562,433

2

75,496

152,200

296,087

540,539927,296

0

9,838

18,06531,93154,71888,414

1

10,87322,065

43,103

81,630145,7712

12,016

26,95058,183

121,778

240,335

097,449129,754

162,017

194,254

224,6891

107,698

158,482

218,701

289,793

370,4502

119,025

193,570

295,215432,321610,768

0

6,684

8,981

11,317

13,605

15,6381

7,387

10,97015,276

20,29725,782

2

8,164

13,39920,62030,27942,5080

21,97328,35836,97947,03057,5901

24,284

34,63649,91670,161

94,9502

26,83842,30567,380104,667

156,546

049,16079,029124,033

182,673

253,3651

54,33096,527

167,427

272,516

417,7292

60,044

117,898

226,002406,546

688,718

0

3,798

5,122

7,224

9,958

12,983

1

4,198

6,256

9,751

14,856

21,405

2

4,639

7,641

13,16322,16335,292

0

193,283

312,105

479,821693,986

939,523

1

213,610381,205

647,690

1,035,305

1,549,012

2

236,076465,605

874,290

1,544,493

2,553,888

0

28,23736,895

46,77557,33067,682

1

31,20745,064

63,14085,526

111,5892

34,48955,041

85,230127,590

183,9790118,266

159,400

204,093

250,415

295,9221

130,704

194,691

275,497373,576

487,8932

144,450

237,796

371,882

557,309804,400

0313,174

383,490477,936

589,404

695,7241

346,111468,396645,146879,287

1,147,055

2

382,512572,100

870,856

1,311,743

1,891,174

154

Country

Equatorial Guinea

Eritrea

Ethiopia

Gabon

Gambia, The

Ghana

GuineaGuinea-Bissau

Kenya

LesothoLiberia

Libya

MalawiMali

Mauritania

Mauritius

MoroccoUrban Land
Cover, 2000
(Hectares)

3,962

5,896

120,328

14,026

12,023

263,057

23,5133,560

64,754

7,281

3,808

44,08923,61851,69720,015

9,785

136,949

AnnualDensity
Decline(%)

Urban Land Cover Projections (hectares)

2010

2020

2030

2040

2050

0

5,133

7,113

10,013

13,531

17,490

1

5,673

8,688

13,51620,186

28,8362

6,269

10,612

18,24530,11447,5420

10,33917,148

26,10437,822

51,711

1

11,426

20,94535,23656,42485,2572

12,62825,582

47,564

84,175140,565

0

182,980

283,614436,250642,808

898,8061

202,224

346,406

588,876

958,957

1,481,881

2

223,492

423,102794,899

1,430,596

2,443,209

0

17,69721,00724,02726,65028,8071

19,55825,65932,43239,75747,495

2

21,61531,33943,77959,31078,306

0

18,977

26,47334,804

43,61552,2601

20,97232,33546,98065,066

86,163

2

23,17839,494

63,417

97,067142,0580

380,554514,953

657,802803,391

940,9881

420,577

628,965

887,939

1,198,518

1,551,427

2

464,809768,220

1,198,593

1,787,979

2,557,871

0

32,73849,606

72,620100,525

131,951

1

36,18160,58998,027

149,966

217,5502

39,98774,004132,323

223,723

358,679

0

4,863

7,216

11,341

17,24324,558

1

5,375

8,813

15,30925,72340,4902

5,940

10,765

20,66538,37566,756

0

94,668144,226

217,780

314,218

428,415

1

104,624

176,159

293,973

468,758

706,337

2

115,628

215,161

396,821699,305

1,164,552

0

10,626

14,44818,44022,46526,446

1

11,744

17,647

24,89233,51443,603

2

12,97921,55433,60049,99871,889

0

6,062

9,080

13,134

18,134

23,661

1

6,699

11,09017,72927,05339,0102

7,404

13,54523,93240,35864,317

0

54,92566,38875,60383,93991,2181

60,702

81,087102,054

125,222150,3942

67,086

99,040137,758

186,809247,958

039,80065,427102,214

149,706

207,3171

43,98579,912

137,974

223,334

341,8092

48,611

97,605

186,246

333,176

563,547

083,518

133,665

204,423

292,810395,634

1

92,302

163,258

275,942436,821652,2912

102,010

199,404

372,483

651,661

1,075,446

027,17636,80649,86964,742

79,913

1

30,03444,95567,316

96,584

131,7552

33,192

54,90890,867144,086

217,227

0

10,625

12,060

14,117

16,092

17,735

1

11,743

14,73019,05624,00629,2402

12,97817,991

25,72335,81348,2090

163,665

196,566

230,548

260,808

285,860

1

180,878

240,086

311,208

389,080

471,3032

199,901

293,241

420,086

580,439

777,047

155

Country

Namibia

Niger

Nigeria

Rwanda

Sao Tome & Principe

Senegal

Seychelles

Sierra Leone

SomaliaSouth Africa

Sudan

Tanzania

Togo

UgandaZambiaZimbabwe

Urban Land
Cover, 2000
(Hectares)

12,721

20,083

464,192

15,818

1,445

33,922799

14,207

11,940506,638

274,226

46,334

22,182

71,96762,532

66,038AnnualDensity
Decline(%)

Urban Land Cover Projections (hectares)

2010

2020

2030

2040

2050

0

17,12722,542

28,82635,19441,546

1

18,92827,53338,91152,50368,4982

20,91933,62952,52578,325112,934

029,366

46,937

81,439138,385

219,7811

32,45557,329109,931206,446

362,3582

35,86870,021

148,391

307,981

597,427

0689,925

960,546

1,262,215

1,584,014

1,905,194

1

762,485

1,173,214

1,703,812

2,363,071

3,141,135

2

842,677

1,432,967

2,299,905

3,525,288

5,178,855

0

28,07743,61766,06897,284

136,4541

31,03053,27489,182

145,131

224,9742

34,29465,069120,384

216,510

370,919

0

1,986

2,631

3,339

4,045

4,687

1

2,195

3,213

4,508

6,035

7,727

2

2,426

3,925

6,085

9,003

12,739046,12262,54684,029108,764

134,058

1

50,972

76,394

113,428

162,256

221,024

2

56,33393,308153,111

242,058

364,408

0

935

1,083

1,238

1,371

1,465

1

1,034

1,322

1,671

2,046

2,416

2

1,142

1,615

2,256

3,052

3,983

0

21,01729,363

41,61657,15774,731

1

23,22735,86456,17685,269123,2112

25,67043,80575,830127,206

203,1400

18,083

26,91538,56352,643

68,225

1

19,98532,87452,05578,534112,484
185,4552

22,08740,15370,267

117,1590

596,440

669,589

744,816

810,855

867,7221

659,169

817,838

1,005,396

1,209,653

1,430,632

2

728,494

998,910

1,357,143

1,804,591

2,358,713

0424,902606,435

808,233

1,022,544

1,231,588

1

469,590

740,701

1,091,000

1,525,456

2,030,545

2

518,977904,694

1,472,696

2,275,714

3,347,803

070,486106,250

155,425

215,895

281,922

1

77,899129,774

209,801

322,078

464,811

2

86,092

158,506

283,202480,484

766,343

034,77450,956

69,90990,352110,292

1

38,431

62,23894,367

134,789

181,8402

42,47376,018

127,382

201,082

299,804

0

109,182

179,721305,275

493,629751,611

1

120,665

219,512412,078

736,4071,239,197

2

133,356

268,113556,247

1,098,590

2,043,090

077,495

101,659

137,363

181,231229,437

1

85,645

124,167

185,421

270,365

378,277

2

94,652

151,658

250,292

403,337

623,673081,361

103,587

130,324

159,287

190,073

1

89,918

126,522

175,919

237,629

313,3772

99,374

154,534

237,466

354,501

516,672

Source: S. Angel, J. Parent, D.L. Civco and A. M. Blei - The Atlas Of Urban Expansion (Lincoln Institute of Land
Policy)156

Annex 5: Reserves of Oil, Gas and Coalat end1991
Billionbarrels

at end2001
Billionbarrels

2010
Billionbarrels

Algeria

9.2

11.3

12.2

Angola

1.4

6.5

13.5

Chad

-

0.9

Rep. of Congo (Brazzaville)

0.7

Egypt

Oil

at end 2011
BillionBilliontonnesbarrels

Share ofTotal

R/P ratio

12.2

0.7%

19.3

1.8

13.5

0.8%

21.2

1.5

0.2

1.5

0.1%

36.1

1.6

1.9

0.3

1.9

0.1%

18.0

3.5

3.7

4.5

0.6

4.3

0.3%

16.0

Equatorial Guinea

0.3

1.1

1.7

0.2

1.7

0.1%

18.5

Gabon

0.9

2.4

3.7

0.5

3.7

0.2%

41.2

Libya

22.8

36.0

47.1

6.1

47.1

2.9%

*

Nigeria

20.0

31.5

37.2

5.0

37.2

2.3%

41.5

Sudan

0.3

0.7

6.7

0.9

6.7

0.4%

40.5

Tunisia

0.4

0.5

0.4

0.1

0.4



15.0

Other Africa

0.8

0.6

2.3

0.3

2.2

0.1%

27.0

Total Africa

60.4

96.8

132.7

17.6

132.4

8.0%

41.2

Total World

1032.71267.4

1622.1234.3

1652.61.0

54.2

at end1991
Trillion
cubic
metresat end2001
Trillion
cubic
metresat end2010
Trillion
cubic
metresTrillioncubic feetat end2011
Trillion
cubic
metresShare of
total

R/P
Ratio

Algeria

3.6

4.5

4.5

159.1

4.5

2.2%

57.7

Egypt

0.4

1.6

2.2

77.3

2.2

1.1%

35.7

Libya

1.3

1.3

1.5

52.8

1.5

0.7%

*

Nigeria

3.4

4.6

5.1

180.5

5.1

2.5%

*

Other Africa

0.8

1.1

1.2

43.5

1.2

0.6%

63.4

Total Africa

9.5

13.1

14.5

513.2

14.5

7.0%

71.7

Total World

131.2

168.5

196.1

7360.9

208.4

1.0

63.6

Million tonnes

Anthraciteandbituminus

Subbituminousand lignite

Total

Share ofTotal

R/P ratio

South Africa

30156

-

30156

3.5%

118

Other Africa

860

174

1034

0.1%

*

Total World

404762456176860938100.0%

112

Gas

1.5

Coal

157

Annex 6: African Resource-Rich Countries
Country

Congo, Dem.
Rep.
Liberia
Niger
GuineaMali
Chad
Mauritania
ZambiaNigeria
Cameroon
Sudan
Côte d’Ivoire
Congo, Rep.
of
AngolaGabon
Equatorial
GuineaSierra Leone
Madagascar
MozambiqueCentralAfricanRepublic
UgandaTanzania
Togo
São Toméand Príncipe
Ghana
Algeria
Botswana
Libya

Type of Natural
Resources

Minerals & Oil

GrossNational
Income(GNI)Per
Capita(in 2010
U.S.
dollars)
180

NaturalResource
Exports(in % of
Total
Exports,
average)

Human
Development
Index (2011)94

NaturalResource
FiscalRevenue(in % of
Total
Revenue,average,2006-10)30

Poverty
Headcount
at $2/day (in% ofpopulation)

0.29

80

2

94

Paved
Roads
(in %
of
total
roads)

Gold/Diamond/Iron
Ore
Uranium
Mining ProductsGold
Oil
Iron Ore
CopperOil
Oil
Oil
Oil/gas
Oil

210

…

16

0.33

95

6

360
390
600
710
1,000
1,070
1,170
1,200
1,300
1,650
2,240

…
93
75
89
24
72
97
47
97
…
90

…
23
13
67
22
4
76
27
55
…
82

0.30
0.34
0.36
0.33
0.45
0.43
0.46
0.48
0.41
0.40
0.49

76
70
77
83
44
82
84
30
…
46
74

21
10
19
1
27
22
15
8
36
8
7

Oil
Oil
Oil

3,960
7,680
13,720

95
83
99

78
60
91

0.49
0.67
0.54

70
20
…

10
10
…

Diamonds
Oil/gasGas/bauxite, etc.
Diamonds/gold

340
430
440
470

…
…
…
…

…
…
…
…

0.34
0.48
0.32
0.34

76
90
82
80

8
12
21
3

Oil
Gold & precious
stonesPhosphate
Oil

500
530

…
…

…
…

0.45
0.47

65
88

23
7

550
1,030

…
…

…
…

0.44
0.51

69
57

21
68

Gold/oil
Oil
Diamonds
Oil

1,250
4,390
6,750
12,320

…
98
66
97

…
73
63
89

0.54
0.70
0.63
0.76

54
…
…
…

15
73
33
57

Source: IMF
1.
Refers to different years, depending on data availability

158

Annex 7: Geographical Advantage for Crude Oil Refining
In the case of oil refining, geographic advantage generally relates to being located close to one of the
major spot petroleum product markets which set international prices for traded petroleum products(Rotterdam, Singapore, US Gulf Coast). Export prices for petroleum products in all other localities are
determined by subtracting the product transport cost to the closest of these market hubs (“net-back”).
Refineries located close to these hubs therefore command a premium because crude transport by sea
costs considerably less than product transport, due to the large, relatively unsophisticated maritime
vessels used to transport crude oil.
Refining margins in the best geographic locations range between $0/bbl and $5/bbl on average (under
5% of the value of the crude oil) (Figure A5.1). Except under exceptional circumstances this margin isconsiderably less than the transport differential between crude oil and refined products for distances
like those between West Africa and Rotterdam, so refineries operating in other localities will run at aloss.
Figure A5.1: Estimated Quarterly Refining Margin: Optimally Located Refineries
30.00
25.00

US Gulf Coast

15.00

NWE Rotterdam
10.00

Asia Singapore

5.00
0.00
-5.00

1Q92
1Q93
1Q94
1Q95
1Q96
1Q97
1Q98
1Q99
1Q00
1Q01
1Q02
1Q03
1Q04
1Q05
1Q06
1Q07
1Q08
1Q09
1Q10
1Q11

$ per Barrel

20.00

Source: BP Statistical Review

159

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