The structural slowing of potential output
growth in emerging market economies that led to lower commodity prices has been simulated in the latest IMF WEO, released in October 2015 (Scenario
Box 1, p 25). In particular, the marked decline in investment and growth in
China—together with the generalized slowdown across emerging market economies—implies
a sizable weakening of commodity prices, particularly those for metals,
resulting in a weakening of the terms of trade for commodity exporters. Lower
expected growth leads to lower investment. Africa´s resource mobilization might tighten via the
various resource constraints for investment and output. The Bacha
(1990) three-gap model has highlighted the foreign-exchange constraint, the private
domestic-saving constraint and the fiscal constraint[1].
Countries
at early stages of development (optimally) pursue an investment-based strategy,
which relies on existing firms and managers to maximize investment. Most of Africa is still at that early stage.
High domestic savings and investment rates have underpinned latecomer
development in the 19th century in Europe and in the 20th
century in Asia. In Africa growth after 2000 tended to be higher in countries
with higher investment shares in GDP, as discussed at length in AEO 2014),and investment tended to be
higher in countries with higher national savings.
Table 1: Variables to
Determine Financing Needs
Structural, rigid short term
|
·
Import content of investment
·
Crowding-in coefficient
·
Global interest rate
|
Policy, rigid short term
|
·
Private savings
·
Remittances
·
Net factor payments abroad
·
Net capital inflows: of which
direct foreign and portfolio
equity investment
·
Private investment
·
Exports
·
Imports
·
Exchange rate, in monetary union
|
Policy, manageable
|
·
Public investment
·
Change in FX reserves
·
Exchange rate, unless monetary union
·
Net capital inflows, of which
Loans, foreign bonds and aid
inflows
|
The gap model provides a
consistent list of variables that matter for resource mobilization in Africa.
To be sure, only some of those variables can be influenced by policy, at least
in the short term. Therefore, the gap equations also provide the basis – as was
their historical motivation 50 years ago already – to quantify Africa´s public
financing needs. Table 1 attempts to classify the variables into three
categories, although the underlying distinctions may be fluid and somewhat
arbitrary: structural (rigid short term); policy (rigid short term); and policy
(manageable).
Investment in Sub-Saharan Africa has
traditionally been constrained by low domestic savings.
Only in the ´golden decade´ of the 2000s the region recorded a saving rate that
averaged almost a fifth of its combined output.
Since 2009, Africa´s saving rate has been declining, and the IMF
projects for 2015 the domestic savings rate to drop even further (Table 2), to
a meagre 15.4 percent of GDP. This compares to an average saving rate of 31.9
percent projected for the total of emerging and developing countries in 2015.
Sub-Saharan Africa is the developing region with the world´s lowest saving
rate. First and foremost, investment and future output are saving constrained.
Table 2: Financial Balances 2001-08 and 2015p,
SS Africa
and Total Emerging and Developing Countries (EMDC)
- percent of GDP -
As domestic
investment is projected to remain sustained at more than 20 percent of GDP in
the Fund projections but savings are depressed, the current account is pushed
into deficits, exceeding five percent of combined GDP in Sub-Saharan Africa.
The projected deficit on Africa´s current account is consequently considerable,
mostly financed by running down official reserves. This begs the danger of currency
attacks, with subsequent currency mismatches and balance-sheet recession.
[1] Edmar l. Bacha (1990), “A
three-gap model of foreign transfers and the GDP growth rate in developing
countries”, Journal of Development
Economics, Vol. 32, Issue 2, April, pp. 279–296, doi:10.1016/0304-3878(90)90039-E. While it can be objected that the
gap model is too structuralist, it seems relevant in the current African
situation as several constraints can be taken as given for short-term analysis.
