Regional review

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I. Developing country regions
II. Developed country regions

I. Developing country regions

Sub-Saharan Africa
The Republic of South Africa
Asia and the Pacific
India
Latin America and the Caribbean
Central America
Near east and North Africa
Jordan

Sub-Saharan Africa

REGIONAL OVERVIEW

Economic developments

Economic growth in sub-Saharan Africa is estimated to have accelerated from barely 0.5 percent in 1993 to about 2 percent in 1994. However, economic expansion in 1994 still remained well below population growth, bringing the region's cumulative decline in per caput income to 15 percent over the past 20 years (World Bank estimates).

Nevertheless, for many countries in the region the short-term economic outlook is more positive than it has been for a long time. Favourable factors include a better external environment, stronger agricultural commodity prices, the easing of some war situations, particularly in southern Africa, the positive effects of devaluation of the CFA franc, some progress in stabilization and economic liberalization and the increasing integration of South Africa into the regional economies (see following section). The World Bank projects that output will increase by 3.8 percent per year in the 1995 to 2000 period, although it recognizes that these projections may be optimistic. The realization of such positive forecasts will depend to a large extent on three factors that relate to economic and political management: first, the ability to use current windfalls from stronger commodity prices productively, while resisting pressure for increasing consumption beyond sustainable levels; second, the political determination to pursue reform while both external constraints and internal resistance from interest groups become less demanding; and third, the ability to achieve greater political and social stability. The region will have to face the fact that the high commodity price bonanza must come to an end and external assistance may be significantly reduced in the years to come.

Figure 6

Agricultural performances

In the agricultural sector, which typically contributes one-third of GDP and employs more than two-thirds of the economically active population, the last 25 years have been characterized by steadily declining per caput production. From a peak in 1975, per caput agricultural production had by 1993 declined by 20 percent, with a brief interruption of the downward tendency only during the second half of the 1980s. The pattern for food production has been almost identical, but with the decline in per caput terms over the same period reaching 23 percent. After a modest recovery in 1993, the downward trend in per caput production volumes was resumed in 1994, as agricultural production expanded only by an estimated 1.1 percent, implying a 2 percent drop in per caput terms.

Prospects for 1995 appear mixed across the different subregions. The current food supply situation appears to be generally satisfactory in western and central Africa, reflecting above-average to record harvests in most countries, although production and distribution in Liberia are hampered by civil strife.

However, a massive cereal deficit is forecast for southern Africa in 1995/96 as a result of expected drought-reduced harvests in many countries, including Botswana, Lesotho, Namibia, South Africa and parts of Swaziland, Zimbabwe, Malawi, Mozambique and Zambia. Cereal import requirements in the subregion are expected to rise dramatically and local emergency interventions will be necessary for drought victims. In East Africa large-scale emergency assistance will also be needed throughout 1995, despite some good harvests. Food production in Burundi and Rwanda has failed to recover fully from the effects of civil strife. Large numbers of internally displaced persons in both countries continue to require emergency food assistance. In Somalia the departure of United Nations Operations in Somalia (UNOSOM) may lead to renewed food problems if the security situation deteriorates.

Agricultural trade

The economies of many countries in the region benefited significantly from the new opportunities provided by recent developments in commodity markets. The gains from improved terms of trade that resulted from the increase in non-oil commodity prices in 1994-95 relative to 1993 are estimated to average 4 percent of GDP among the 20 largest gainers -13 of them being sub-Saharan countries.' The largest gains in net terms of trade as a percentage of GDP are estimated to be in Cote d'lvoire (12 percent) followed by Uganda and Ghana (close to 7 percent) and Chad, Cameroon and Zaire (around 4 to 5 percent). Agricultural producers and exporters, and the economy as a whole, may be expected to benefit greatly from terms of trade gains in the short term (see World Review). However, as mentioned earlier, gradually declining prices for Africa's main agricultural export products are expected.

The CFA devaluation

The export sectors and overall economies of the 14 CFA zone member countries also benefited from the devaluation of the CFA franc in early 1994 and the international financial assistance that accompanied this operation. One and a half years later the prognosis appears positive, in spite of the social and economic management problems caused by the initial price shock, and uncertainties on the success of the operation in the longer term. The devaluation initially resulted in sharp and sudden increases in the prices of imported goods, including food staples, which caused a wave of strikes and demonstrations in several countries. Stringent fiscal and monetary policies brought annual inflation rates down to around 20 to 40 percent over the following months. These were well below the hyperinflation rates many had predicted. Signs have emerged recently, however, of increased inflation and difficulties in maintaining budgetary discipline in some countries. In addition, the negative social impact of the devaluation continues to be felt. A meeting sponsored by the World Health Organization (WHO) and Unesco in February 1995 concluded that, in the 14 countries concerned, living standards in urban areas had fallen and access to health care and resources for schools had been seriously affected.

On the other hand, the devaluation contributed to a strong expansion of export earnings and a reduction of external deficits. This provided a welcome respite to stressed economies, although it is recognized that much remains to be done to consolidate competitiveness and current account balancing. Agricultural exporters benefited significantly from the devaluation, which coincided with a period of notable world market price increases for several of their main commodity exports. For instance, Cote d'lvoire, which had been suffering economic recession since the mid-1980s, increased its economic activity by close to 2 percent in 1994 and is expected to expand it by a further 5 percent in 1995, largely because of booming export performances. Cocoa exports were the main source of incremental gain, but other commodities also contributed significantly to the overall improvement. Economic growth is also expected to accelerate in Senegal, from 1.8 percent in 1994 to 3.5 percent in 1995, a significant contributing factor being groundnut exports that benefited from the devaluation and the strongest market prices since 1990. Other countries' export sectors showed mixed degrees of success. After an initial surge, Burkina Faso's agricultural sales, with the exception of cotton, lost dynamism.

As regards the policy response to the effects of devaluation on the food sector, a variety of consumer relief measures were provided in the form of price controls, trade regulations and social safety nets.

Price controls.

The first policy response of most governments following the devaluation was a tighter control or freezing of prices. This led to shortages and disruptions and prices were raised or allowed to rise, albeit often not continuously. Cameroon provides an example of the difficulties of adjusting price management to a fluid situation. On 19 January the government raised the prices of bread and wheat flour by 85 percent; three days later it cancelled that decision and announced a six-month price freeze; and this decision was itself reversed in late January, when the prices of wheat and wheat-flour were raised, but by only 30 to 40 percent over their predevaluation levels and well below what had been decided on 19 January. Although bread prices were kept at predevaluation levels, bakers were permitted to reduce bread weight. In June 1994, the government lifted price controls on five staples, including rice and flour.

Similar problems were encountered in Mali. Here the prices of a range of basic foods were initially frozen, but soon afterwards were raised on 34 essential commodities, including cereals. As hoarding and shortages continued, traders were permitted to raise prices moderately.

In the Congo the problems created by sharp food price increases consecutive to the devaluation were aggravated by disruptions in railway transportation caused by civil unrest. To alleviate the resulting shortages the official prices of bread and flour were frozen until early March. A price ceiling was also announced for wheat-flour.

Prices were also initially frozen in the Niger and Togo, but controls were relaxed soon afterwards.

Changes in external trade regulations.

Several governments responded to the initial crisis by reducing import duties on food and other essential items. In Cameroon, import duties on wheat and rice were suspended from 17 February until 30 June and were set at 5 percent thereafter. In the Congo, the government suspended taxes on imported basic commodities. Cote d'lvoire had imported significant volumes of rice and built up stocks before the devaluation and this helped to counter the negative effects on urban consumers. After the devaluation, which doubled cost, insurance and freight (c.i.f.) prices of imported rice, customs tariffs were reduced on most imported food and beverage products, including two grades of rice that are widely consumed in urban areas. In Senegal, in February, import duties on all products were reduced from 15 percent ad valorem to 10 percent, while those on rice and wheat were suspended altogether. In addition, imported rice and wheat were exempted from certain taxes. Import duties were also sharply reduced in the Niger and Gabon.

Safety net programmes

Most governments announced some form of safety net programme for the poor, at least as a transitional measure. These efforts were backed by international assistance, directly or indirectly intended for social relief. In particular, the Government of France earmarked 300 million French francs (US$51 million) for the CFA franc countries' "social funds".

Country measures included the introduction in Chad of food and nutrition projects and intensive public works programmes. in Cameroon, a special programme was introduced to create employment through public works and the maintenance of infrastructures. In the Comoros, the budget for the social sectors was increased and a community development support fund was established. Wages, salaries and pensions were raised in several countries, notably Cote d'lvoire, Mali and the Niger. In Gabon, the 1994 budget made provisions for temporary subsidies of basic consumer goods such as bread. In Cote d'lvoire consumer subsidies, intended as temporary measures to reduce the impact of devaluation-induced price increases, were expected to remain in place until at least October 1995.

Agricultural policies

The policy environment for agriculture in sub-Saharan Africa has remained dominated by the general targets of economic liberalization, market-oriented reforms and divestment. Measures to liberalize the sector have often been partial and fragmented, however, and have alternated with new or old forms of government market intervention. While in some cases such discontinuity was caused by the demands of social problems and economic and market circumstances, in others it was mainly the result of recurring crises and political difficulty in maintaining a consistent framework for reform. Liberalizing what were, and in some cases still are, heavily regulated markets presents particularly difficult problems in the region. While social problems allow only narrow margins for manoeuvring, the efficiency of operations is constrained by financial, administrative and infrastructural limitations. The following country examples illustrate recent attempts at overcoming such constraints.

In the area of market intervention an agreement between Cote d'lvoire and the World Bank led to a redefinition of the role of the state board in charge of the marketing of agricultural products. Under the agreement, the government will reduce the role of the state in the marketing of these commodities and allow private exporters and growers to play a greater role.

In Kenya, the National Cereals and Produce Board was unable to pay for wheat and maize deliveries and encouraged farmers to look for alternative markets. Instead of direct producer price support, the government strategy aims at supporting the rural community through improving rural access roads and providing marketing information, research and extension services - a strategy now widely adopted in the region. The privatization of the coffee industry is expected to be gradual in order that the continuing quality of the product can be ensured in internal markets. The reforms already in place include the licensing of private coffee millers and the holding of auctions in US dollars.

In Senegal, the government virtually stopped supplying subsidized fertilizers and only offered limited credit to farmers. While price controls on high-quality rice were removed, the government remained actively involved in cotton, rice and peanut production and marketing. An agricultural development policy declaration was issued in April 1994 outlining plans for price liberalization and privatization. This programme is to be implemented under a structural adjustment loan provided by France, Germany, the European Development Fund and the United States. It is expected to liberalize rice markets further and to stimulate more privatization. In particular, an agreement was reached to privatize the national groundnut processing agency, but the modalities remain under discussion.

In Ethiopia, a law was promulgated to improve the management of public enterprises and to eliminate the monopoly and power of some official marketing and trade corporations. Since April 1992, the government has allowed private companies to market and distribute seeds and fertilizers.

In the area of international trade, increasing external openness continued to be a general policy objective. However, many countries found it difficult to advance trade liberalization and there were numerous cases of the halting, reversal or relaxation of such policies. In Kenya, all imports of maize and wheat, except those for humanitarian purposes, were suspended in mid-1994 for six months. The ban on maize imports was lifted in late 1994 when variable duties were imposed instead. These measures were intended to curb maize imports, which had reached major proportions after the severe and protracted drought, and to protect local farmers from a potential crisis caused by the liberalization of maize marketing. The financial and market problems linked to excessive import dependence led the government to formalize a food policy strategy with the main objective of raising food self-sufficiency. Various policies, including trade measures, were adopted to this end. Among these were: the elimination of income taxes for maize producers; the encouragement of fertilizer imports through priority allocation of foreign exchange and subsidies, with a view to reversing the downward trend in fertilizer consumption; subsidized credit plans for small farmers; increased farm credit; and higher price protection for domestic staple cereal production through, inter alia, import duties.

In early 1994, the Government of Nigeria imposed a ban on imports of maize, barley and rice. The measure was reversed in early 1995 for rice, but imports of this commodity were subjected to a 100 percent customs duty.

At the end of 1994 the authorities of the copper belt in Zambia, banned the export of maize out of the area, because of erratic supplies. A shortfall of 270 000 tonnes of maize was expected in 1995, the country's maize consumption being 212 000 tonnes per month.

Acute food shortages caused by drought led the Government of Tanzania to encourage the local business community to import food as a way of averting famine. The government also banned food exports in late 1994, as the country was experiencing a grain drain, estimated at 95 000 tonnes per year, caused by smuggling to neighbouring countries.

Sierra Leone, once a net exporter of rice, experienced deteriorating supply conditions largely related to civil unrest and rebel activity, and progressively emerged as a net importer of this staple. To encourage domestic production, the government recently introduced a 15 percent duty on imported rice and removed a 10 percent turnover tax on domestic rice.


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