particular, the real price increases of oil were in fact significantly lower than the recent nominal price increases quoted in dollars, after adjusting for exchange rate movements and domestic inflation. Since 2000, the nominal price of oil has tripled, whereas the real price has doubled (see figure 9). Although the nominal price was approaching $100 a barrel toward the end of 2007, the real oil price for oil importers in Africa was only 2.6 percent higher than in 2006.

Nonetheless, although economic performance remains strong in many African countries (as seen in table 1), several non-resource-rich countries will have to be monitored because their terms-of-trade losses were exacerbated by unfavorable changes in both oil and import prices. These countries include Benin, Burkina Faso, Cape Verde, Comoros, Eritrea, Ethiopia, The Gambia, Kenya, Lesotho, Madagascar, Mauritius, Niger, Senegal, the Seychelles, and Togo. In most cases, the additional negative shock came from prices of staple imports, such as wheat, rice, and vegetable oils. Eritrea, for example, had an estimated negative terms-of-trade impact of greater than 5 percent of GDP from higher food prices, while Lesotho, Mauritania, Senegal, and Togo had an estimated negative terms-of-trade impact in excess of 2 percent of GDP because of changes in food prices.

**_Effects of external shocks on growth and poverty._** The importance of terms-oftrade shocks in Sub-Saharan Africa has been evolving. Historical data suggest that external shocks are important determinants of growth in Africa (see, for example, Deaton and Miller 1995; Collier and Dehn 2001). Collier (2007) finds this is especially true in resource-rich countries. Moreover, Collier and Dehn (2001) observe that aid may mitigate the negative consequences of external shocks. However, Hausmann, Pritchett, and Rodrik (2005) argue that positive external shocks are strongly correlated only with short-term economic expansions, not with sustained growth episodes. Collier and Goderis (2007) confirmed that positive shocks have short-term effects on outputs, but negative shocks have lasting damaging effects. IMF (2007a) finds that most ongoing growth spells in Africa are taking place amid negative terms-of-trade shocks since the current growth began, suggesting that other factors have been more important in recent years. Looking at these issues carefully, Raddatz (2008) finds that the relative importance of external shocks as sources of output instability in African countries has actually increased in the past 15 years and that this increase is the result of two reinforcing factors: (1) a decline in the variance of internal shocks, including policy failures or conflicts, and (2) a relative increase in the vulnerability of output to external shocks, while output variability in general is declining among African countries. Contrary to the importance attributed to oil prices in policy circles, Raddatz also finds that they are not particularly important for output volatility in the typical African country, but only among those countries that are net oil exporters. Without compensating developments, such as higher export prices, exogenous flows, or adjustment policies, however, the marginal impact of an oil price shock can be quite significant, as shown in two case studies - Andriamihaja and Vecchi (2008) on Madagascar and Essama-Nssah, Go, Kearney, Korman, Robinson, and Thierfelder (2008) on South Africa.

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