By Antoinette M. Sayeh, Director IMF African Department
When meeting with people outside of Africa, I'm often asked whether Africa's growth takeoff since the mid-1990s has been simply a "commodity story" - a ride fueled by windfall gains from high commodity prices. But finance ministers and other policymakers in the region, and I was one of them, know that the story is richer than that. In this spirit, in our latest Regional Economic Outlook: Sub-Saharan Africa a team of economists from the IMF's African Department show that Africa's continued success is more than a commodity story. In fact, quite a few economies in the region have become high performers without basing their success on natural resources, thanks in no small part to sound policymaking.
In reaching their conclusions, my colleagues looked closely at six countries (Burkina Faso, Ethiopia, Mozambique, Rwanda, Tanzania, and Uganda) over the 1995-2010 period. All of these countries laid the foundation for sustained growth by turning around their macroeconomic situation, often after a period of destructive conflict. In particular, I was impressed that all these countries had encompassing visions and strategic frameworks that made their turnaround possible.
- Burkina Faso worked hard on its institutions and focused early on medium-term macroeconomic planning. It also skillfully managed the cotton sector, which is important for the country and provides a living for a large number of poor people.
- Ethiopia, by far the most populous country in the sample, accelerated growth by actively supporting agriculture and certain export products and services (cut flowers, tourism, and air travel).
- Mozambique attracted significant foreign investment and other external capital flows in the late 1990s, which funded capital-intensive megaprojects to produce and transmit electricity and gas, with the former used to produce aluminum.
- Rwanda experienced a rebound effect after achieving political stability, underpinned by a national recovery strategy that successfully focused on specific sectors, such as tourism and coffee.
- Tanzania achieved sustained high growth by three well-sequenced waves of macroeconomic and structural reforms, which reached across all sectors.
- Uganda started to carry out significant macroeconomic and structural reforms just before 1990, stimulated private investment, and launched a policy to diversify its export base to include nontraditional products.
The main takeaway from the country cases is what my colleagues called a virtuous circle. All six countries carried out sensible and medium term-oriented policymaking and important structural reforms, which in turn attracted higher aid flows and made it possible for these countries to receive debt relief, releasing their own resources. These gains translated into "fiscal space" to expand social spending and capital investment, in particular infrastructure, which in turn contributed to higher growth.
Importance of agriculture
When we look at the structure of these six economies, we immediately see that agriculture is still of enormous importance in most countries, employing about 80 percent of the active labor force in Mozambique and Burkina Faso, 71 percent in Uganda, and 65 percent in Tanzania. We also know that the poor are concentrated in rural areas, and most of the extremely poor rely on subsistence farming for their livelihoods.
All countries still have significant potential to increase their agricultural output going forward, which will be important to achieve more inclusive growth, growth that is shared more equally across all segments of the populations, including the poorest. Ethiopia and Rwanda have already shown that government programs to provide more access to seeds and fertilizers can improve agricultural yields dramatically.
Services were also an important driver of growth in our six sample countries, reflecting to some extent the expansion of the telecommunications sector. Mobile phones have now become an important tool for communication across African populations, and they also provide important information such as market prices for crops. Of course, they can also be used for mobile banking in some countries, including in remote areas where land lines are not available. I am excited about this financial inclusion through mobile phones of very poor people -- people that remain outside the formal financial system.
Room in the budget
I would also like to point out that our six countries have created and used their fiscal space wisely. Fiscal space is room in the budget for productive investment and other priority expenditure. The six countries benefited early from debt relief, and also received relatively large external flows, both in the form of budgetary aid and foreign direct investment - again a testimony to their advanced policymaking and strategic vision.
And I can say that these resources fell into a productive environment. Investment rates for the sample countries were higher than for their peers, and they invested in infrastructure and in the health and education sectors. Mozambique even experimented with public-private partnerships to develop its infrastructure, in particular for railway lines, ports, and toll roads.
Looking ahead, tough challenges remain, but I am also reassured by big opportunities. Despite massive investment, infrastructure in the sample countries still has a long way to go to meet the population's basic needs. Businesses are also hard to run if there are continuous power cuts and electricity shortages. Farmers cannot market their products properly, as there are no roads to connect them with urban centers. Therefore, sustained and high investment in infrastructure, particular in the energy and transportation sector, remains crucial.
Overall, though, the six countries my colleagues have studied -- Burkina Faso, Ethiopia, Mozambique, Rwanda, Tanzania, and Uganda -- have transformed themselves into high performers, even without being natural resource producers, and I believe that, with the right policies, they are on the trajectory to becoming emerging markets.