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Expected rapid development of African economies

         Date: 2012-04-19

           Tag: African economies, African economies rapid

Summary: The new report, Africa's Pulse, a twice-yearly analysis of the issues shaping Africa's economic prospects also says that the Euro zone debt crisis and tighter domestic policies in some large develop…

The new report, Africa's Pulse, a twice-yearly analysis of the issues shaping Africa's economic prospects also says that the Euro zone debt crisis and tighter domestic policies in some large developing countries pushed African exports lower in late 2011.

Metal and mineral exporters (e.g. Zambia, Niger, and Mozambique) and cotton exporters (e.g. Benin and Burkina Faso) were among the hardest hit in the three months ending in November 2011. Given the recent strengthening of other commodity prices in 2012, export values for both agriculture and metal and mineral exporters may already have started expanding.

Tourism slows but private investment up

The latest Africa's Pulse reports that the weakening global economy in the second half of 2011 affected tourist arrivals. For the year, tourist arrivals in Sub-Saharan Africa were up by 6.2 percent, higher than the global average of 4.4 percent, but lower than the 9.6 percent recorded for the region in 2010, when it benefitted from hosting of the World Cup. Tourism arrivals from Europe saw a decline in major destination markets such as Mauritius.

In a significant development, the World Bank says that overall capital flows to Sub-Saharan Africa rose by $8 billion in 2011 to $48.2 billion. Foreign direct investment, which accounts for about 77 percent of all capital flows to the region, contributed to about 83 percent of the increase.

Recent foreign direct investment to the region has been spurred by increased global competition for natural resources, higher commodity prices, robust economic growth and a fast rising middle class. The region is increasingly being recognized as an investment destination, including from private equity investors

Fuel subsidies benefit the rich more than the poor

The new Africa's Pulse devotes a special section to fuel price subsidies in Africa, reporting that in 2010-11 over half of all African countries had some subsidy in place for fuel products, and these in turn cost on average, 1.4 percent of GDP in public revenues.

Of the 25 countries with fuel subsidies, the fiscal cost of subsidies in six countries--primarily oil exporters--was at or above 2 percent of GDP in 2011. The fiscal cost in oil exporters was almost two-and-a-half times the levels observed for oil importers. These costs have grown sharply in some countries in recent years.

However, fuel subsidies overwhelmingly benefit better-off families, with survey results for 12 countries worldwide showing that the top 20 percent of households receive about 6 times more in subsidy benefits than the bottom 20 percent.

As world oil prices remain high, a number of African countries have raised domestic prices of fuel. For example, Ghana raised fuel prices by 30 percent in January 2011. Similarly, Mozambique raised fuel prices in 2011 (10 percent in April and 8 percent in July) and Guinea also introduced measures to reduce the fuel subsidy.

On January 1, 2012, the Nigerian government removed the fuel subsidy on gasoline. Following week-long protests, a portion of the subsidy was reinstated.

"That poor people protest the removal of fuel subsidies that benefit the rich shows how deep the continent's governance problems are. They simply don't trust the government to spend the savings on them," says Shanta Devarajan, the World Bank's Chief Economist for Africa and author of Africa's Pulse.

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