The recently released Africa Development Indicators (ADR) report gives a rather poor score card for sub-Saharan Africa (SSA). It says the region is yet to improve sufficiently to warrant a major shift in projected development. The various fronts the study has covered indicate a wanting situation despite marginal progress. As the first detailed study of its kind, the report provides a rich menu of all the 48 SSA countries covering the whole gamut of national accounts and the Millennium Development Goals (MDGs).

“Despite pockets of success, nearly half of the region’s population still lives in extreme poverty, and Africa still houses most of the world’s poorest countries,” says the report. It, however , recognises that average economic growth remains strong, exports are increasing and many countries are making tangible progress. It also notes that despite the continued decline of hot spots, more resources are being channelled towards social sectors such as education, health and infrastructural investment. Since the 1990s, 14 African countries have had average growth rates of above five per cent, while micro-economic indicators have improved with containment of inflation at historical low levels, cap on exchange rate volatility and a marked decline in fiscal deficits.



Globalisation has seen African nations reap the windfalls through increased agricultural exports, especially of flowers and vegetables. The enactment of the African Growth and Opportunities Act (AGOA) provided a window of opportunity for the textile industry with countries such as Kenya, Mauritius and Tanzania growing their export volumes. However, the biggest gain has been realised on hard commodities sectors due to rising prices and an unquenchable global demand led by China and India. With the economies of the two countries growing at two-digit levels, demand for copper, diamond, aluminum and iron has seen countries endowed with these commodities reap returns not seen for a long time. The rising spike in petroleum prices and dwindling volumes in the traditional Middle East market has also heightened interest in Africa.

In their rush to have a piece of the oil cake, the windfall has helped some oil producing countries repay a portion of their external debts. Nations such as Angola and Nigeria have repaid their debts. However, the flipside of the rising oil prices has been felt by oil importing countries. Comprising a substantial component of household expenditure in terms of lighting and transport, rising prices have hit the poor most.



In addition, rising input costs such as transport costs have been passed on to the final consumer hence impacting on the level of consumption. The ADR report indicates that the collapsed trade talks are likely to affect Africa, especially given the need to abide by the World Traded Organisation (WTO) rules, which will see the elimination of preferential treatment by the end of 2007. “Trade barriers need to be dismantled to level the playing field. With the end of the Multifibre Arrangement nearing, WTO members have yet to define the nature and extent of preferences to be extended to the least developed countries (LDCs) and the role of “aid for trade” in multilateral system,” says the report. The role of the private sector in economic development is scarcely appreciated despite the multiplier effects that the involvement of these players will generate. While there has been progress on this front, a buoyant private sector is still not in place. There is urgent need to create an active private sector to enhance the capacity of African and foreign entrepreneurs. For example, a World Bank study on doing business found out that six out of 10 countries judged as having the most difficult environment for starting business are in Africa.



The study further states that it takes an average of 64 days to start a business, contract enforcement takes 439 days and litigation is long- drawn, leading to loss of business opportunity beside the cost implication. “Climate Assessments in more than a dozen countries point to specific changes that governments can effect to encourage higher levels of investment and faster job growth”, says the ADR report. And the pay off is both significant and immediate. In Madagascar, a garment exporter estimates that if port clearance were reduced to one day, it would cut total costs by a sum equal to as much as 30 per cent of the wage bill. The poor business environment in Africa is well documented. The report says that factors such as entry barriers, poor governance, and limited property rights protection, weak market institutions and undeveloped infrastructure hamper investments.



The report also notes that Africa has a major infrastructural deficit, which inevitably slows down economic growth, in addition to reducing trade and international competitiveness. For instance, transport cost for intra-Africa trade–including transshipment– is unusually high, estimated at nearly twice the levels in other developing regions. On average it cost a Kenyan exporter three times to ship out a container compared to his South African counterpart. On average, a South African trader will pay $850 while a Kenyan exporter will pay $1,980 for the same load of export. Similarly, import cost in Kenya is more than twice in South Africa. Kenya is a net importer of both raw materials and intermediate inputs which are used for manufacturing. While a Kenyan importer will pay $ 2,325 to bring in a container, his South African counterpart will part with $ 850 to ship in the same container. Such high costs absorbed by investors are eventually loaded into the product leading to high final prices per unit. The end result is its locks out Kenyan goods from one of its most lucrative market. In addition, unreliable energy supply affects production. It is estimated that Kenya loses the equivalent of 9 per cent of its output to power outages compared to say, China, which loses two per cent.



A World Bank Survey titled Doing Business acknowledges that inadequate roads, inefficient ports, power outages slow African enterprises in their push to secure a place in global markets. Other roadblocks to business are undeveloped infrastructure, low technical capacity of firms, low managerial skills and small market sizes . Low Savings. Low savings have been attributed to the marginal role of the private sector in the economy. With little financial resources to tap into and unbankable inflow of Foreign Direct Investment (FDI) the private sector has been constrained in its operations. The ADR report indicates that the average gross domestic savings as a proportion of GDP in SSA has ranged between 15 to 22 per cent in the last decade. The situation is grimmer when individual countries are considered as have nothing to write home about. For instance, figures for the last decade indicate that Eritrea, Lesotho, Sao Tome and Principle, and Somalia have negative savings of 30.9, 38.1, 20, and 12.5 per cent.



Of the 48 nations making up SSA and other than South Africa, only 11 countries have double digit savings rations. These are Kenya (15.6 per cent), Angola (22.5 per cent) Botswana (39.3 per cent), Cameroon (20.1 per cent), Republic of Congo (28.8 per cent), Mauritius (24.1 per cent) and Namibia (12.7 per cent). Others are Nigeria (24 per cent), Seychelles (21.7 per cent), Equatorial Guinea (13.7 per cent) and Zimbabwe (16.9 per cent). This situation has recorded marginal change In the new decade, with Zimbabwe at (8.1 per cent). New entrants into the bracket include Central African Republic (11.4 per cent), Chad (11.7 per cent), Gambia (11 per cent), Ghana (10.2 per cent), Mali (12.2 per cent), Sudan (14.7 per cent), Swaziland (11.7 per cent) and Zambia (16 per cent). The remaining 29 countries have either negative savings ratio or single digit ratios. Eleven of these are in the former category while the remaining 18 are classified under the latter.



Mauritania, Malawi, Sierra Leone and Guinea-Bissau have dropped into the negative region. These mixed saving performances have impacted heavily on Africa progress. The low savings are attributed to a shallow real GDP base with the extractive sector constituting the largest proportion of the economies. Due to low cyclic returns from the primary sector, these economies have not been able to leverage on global growth. Coupled with low Per Capita Income (PCI), a substantial amount is allocated to consumptive utilisation at the household level. This leaves a small portion to savings.

At the moment increased regionalisation of the continent is seen as beneficial to the economies and regional integration is seen as a panacea to the smaller nature and fragmentation of African economies. This is expected to promote internal and external economies of scale encouraging product differentiation and diversification.



In addition, the ADR report notes that regional blocs will allow room for intra industry trade and learning by exporting process, which will make local firms more competitive in international markets. Kenya is currently leading export destinations is the COMESA region with export value estimated at Sh 80 billion. Indeed, the main destinations of Kenya’s merchandise export are Uganda which accounts for 11.1 percent, Tanzania 7.3 per cent, Sudan 4.1 per cent and Egypt 4.0 per cent. Increased regional blocs will provide an immediate market access due to lower trade tariffs and unlimited access.