However, they still fare poorly when compared to GCC countries which saw their current account surplus exceed 20% of GDP during the same period. Somehow, GCC countries tend to smooth negative terms of trade shocks better than Sub-Saharan African countries during economic downsides, and perform far better during upsides. More recently and under the latest oil price hikes, their stronger growth and economic performance has been reflected in the dramatic increase in their holding of foreign reserves, which reached levels only comparable to holdings of the very successful and more diversified emerging market economies of East Asia [Sturm (2008)].

The sustained deterioration of current account balances of SSA countries probably reflects either the excess of aggregate expenditures on imported goods and services, and particularly noncapital goods, over national output or that of investment over savings. However, in a context of sustained deterioration of gross capital formation in the majority of countries in the region, the excess of aggregate expenditure on imported noncapital goods may be driving the structurally large current account deficit [Akyuz and Gore (2001), Artadi and Sala-i-Martin (2003)].<sup>18</sup> The plausibility of excess aggregate expenditures over national output is further supported by widening trade deficits in the absence of economic diversification in the region, particularly in the new globalization landscape where manufactured goods account for an increasingly larger share of global trade [World Bank (2002), Fofack (2009b)]. In contrast, GCC countries have seen a consistent decline in their marginal propensity to spend on non-oil imports, reflecting increasing rates of economic diversification and expanding sources of growth in the region [Fasano and Iqbal (2003), Magnus (2006)].<sup>19</sup> And this, coupled with global commodity prices boom only led to further consolidation of their current account surpluses.

Still, evidence of absolute divergence between the two regions is also illustrated by the stark differences in their external position. GCC countries drew on their sustained current account surplus to significantly increase their holding of foreign currency-denominated assets. More recently, the strength of their external position has also been reflected in the impressive and growing size of their sovereign wealth fund [Nyarko (2008), Phillips (2008)].<sup>20</sup> Indeed, these countries are managing some of the largest sovereign wealth funds estimated at several trillions dollars, an impressive war chest which has turned them into major players in the global capital markets [Shochat (2008)].

Ironically, just as GCC countries were becoming major players in the global capital markets, an overwhelming majority of Sub-Saharan African countries faced debt overhang, a consequence of further deterioration of their external position. Naturally and consistent with the symmetric argument—net international debt is the accumulation of current account deficit over time—most countries in Sub-Saharan Africa resorted to external indebtedness to finance their structurally rising current account deficits.<sup>21</sup> Although consistent with economic theory—current account deficits are financed by net capital inflows from abroad—this mode of external deficit-financing resulted in a dramatic increase of external liabilities, however. These liabilities reached unsustainable levels in the mid-1990s when

> 18 According to these authors, SSA suffered a long period of sustained decline in investments which reached the lowest threshold of 7.5% of GDP in the first half of 1990s. In comparison, average investment rates for East Asian Emerging Market Economies and GCC countries exceeded 30% during the same period.

> 19 According to Magnus, the marginal propensity to import non-hydrocarbon products of GCC states declined from 0.34 to 015 between 1973 and 2005, significantly below the average in OPEC ( 0.24).

20 According to the IMF statistics on official reserve holdings, the Kingdom of Abu Dhabi had the largest sovereign wealth fund in 2007, in excess of US$625 billion [Phillips (2008)].

21 More specifically, net international debt is the accumulation over time of the trade deficit plus any borrowing that is required to make interest payments on the debt.

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