African Economic Outlook 2019

Some summary notes and reflections on some of the key themes and points made in the 2019 African Economic Outlook - linking to a number of growth, trade and development topics important in Year 2 Macroeconomics.

High inflation in Africa

"Africa’s average inflation fell from 12.6 percent in 2017 to 10.9 percent in 2018 and is projected to further decline to 8.1 percent in 2020. Double-digit inflation occurs mostly in conflict-affected countries and countries that are not members of a currency union."

Q: Why are conflicted affected countries most likely to suffer persistently high rates of inflation?

Q: How might membership of a currency union help to bring down the rate of inflation?

Q: To what extent is high inflation a barrier to growth and development for many African countries?

External financing flows

"Remittances grew to $69 billion in 2017, almost double the size of portfolio investments. Meanwhile, FDI inflows have shrunk from the 2008 peak of $58 billion to a 10-year low of $42billion in 2017. Underlying factors include the global financial crisis and the recent rebalancing of portfolios due to rising interest rates among advanced economies."

Q: What are remittances? Read an article here

Q: Examine the role that remittances might play in improving the macroeconomic performance of a lower or middle income country.

Q: To what extent is foreign direct investment important in promoting faster economic growth and sustainable development in a country of your choice?

Current account deficits

"The weighted average current account deficit was 4 percent of GDP at the end of 2017 (the median was 6.7 percent) and, despite recent improvement, has been deteriorating since the end of the 2000s."

Q: What is meant by a current account deficit? This article might help

Q: Outline three reasons why the current account deficit of a country might have increased?

Q: To what extent is running persisted current account deficit of around 5 percent of GDP an economic problem for the country concerned?

Government debt

"By the end of 2017, the gross government debt-to-GDP ratio reached 53 percent in Africa. 16 countries—among them Botswana, Burkina Faso, and Mali —have a debt-to-GDP ratio below 40 percent; while 6 countries—Cabo Verde, Congo, Egypt, Eritrea, Mozambique, and Sudan—have a debt- to-GDP ratio above 100 percent."

Q: Explain two possible causes of a high government debt-to-GDP ratio

Q: To what extent is a high level of government debt a barrier to development?

Demographics

"Africa’s working-age population is projected to increase from 705 million in 2018 to almost 1.0 billion by 2030. As millions of young people join the labor market, the pressure to provide decent jobs will intensify."

Q: Explain two factors causing a rapid growth of working age population

Q: Assess two benefits and costs of a rapid expansion of the working population

The importance of scale in lifting wages and per capita incomes:

"Large firms are more productive and pay higher wages than small firms. For instance, a 1 percent increase in firm size is associated with a 0.09 per- cent increase in labor productivity....Wages are twice as high in large manufacturing firms as in large service firms and 37 percent higher in small manufacturing firms than in small service firms."

Q: Explain two advantages of economies of scale (one each for employees and consumers)

Low economic complexity

"With many African countries dependent on extractive industries, building economic complexity is challenging. The capabilities and productive knowledge in extractive industries have little overlap with those needed to produce more complex manufactured products."

Q: What is meant by economic complexity?

Q: Outline two economic policies that a government might introduce to encourage an expansion of manufacturing industry in their economy