Book Club

The Chair read for you African Economy 2021 by the Agence Française de Développement (AFD)

Published on 28 March 2021

African Economy 2021[1] is structured in six main chapters and aims to analyze the main economic and social issues affecting the African continent at the beginning of 2021. The first major point noted is that although the economic recession virus has circulated more widely on the continent than the Sars-CoV-2 virus, African economies have shown remarkable macroeconomic resilience to the pandemic. The second focus of the book is on the agricultural sector in West Africa, more specifically, the trade-off between improving agricultural yields and preserving biodiversity and the environment. Other important issues are also addressed: the question of African emergence, the need to reform the business environment to promote the development of the private sector, youth employment, or the exchange rate regime to be adopted by countries or for a possible future common currency on the continent, following the example of the forthcoming West African common currency (ECO).

The authors first point out that the health shock announced in Africa has not really happened (only 4.2% of the world’s Covid-19 cases have been recorded on the continent for 17% of the world’s population), except for a few countries such as South Africa, Morocco, Egypt, Nigeria, Algeria and Ghana, which together account for 75% of the Covid-19 cases recorded on the continent. However, Africa has experienced an unprecedented economic shock (the largest in the last 30 years) linked to Covid-19. Even though, contrary to forecasts, Africa has so far shown resilience, thanks in particular to its great experience of pandemics, the responsiveness of its authorities (rapid borders closure, lockdown despite strong constraints linked to the structure of its economies, curfews, etc.) and, especially, its very young population (the elderly being the most vulnerable to the virus). Indeed, the African economy has recorded much smaller recessions due to Covid-19 than those recorded by the global economy. In 2020, African real GDP fell by only 2.6% (4.7% for GDP per capita, due to population dynamics) compared to a decline of around 4.4% at the global level. According to the authors, this economic shock is mainly due to the fall in the price of raw materials, the borders closure (lower customs revenue, problems of supply to economies and a fall in tourism) and especially the lockdown measures in certain countries (economic activity shutdown and a drastic fall in household consumption due to the absence of social protection for around 70% of workers on the continent). To this should be added the drop in migrant remittances (20% according to the IMF). There are, however, major differences between regions and between the economic structure of countries. Except for Egypt (+3.5%), which was able to rely on the strength of its domestic market and thanks to adequate responses from the country’s monetary and fiscal authorities, all the other North African countries experienced fairly strong recessions, amplified in particular by their strong dependence on oil. Other regions that also experienced recessions were Southern Africa (driven by a historic 8% contraction in South Africa), Central Africa (due to heavy dependence on oil and other extractive resources) and Africa along the Indian Ocean (decline in tourism). The other regions of the continent, on the other hand, have proved more resilient to this economic shock. These include the large countries of the Gulf of Guinea (apart from Nigeria due to its heavy dependence on oil), the countries of East Africa (with little dependence on extractive resources) and the countries of the Grand Sahel (which have benefited from the rise in gold prices, a safe haven in crisis times). However, in 2021, the IMF expects a recovery that should reach +3.7% on average on the continent. In the short term, this recovery will be conditional on the evolution of the pandemic on the continent, the strength of the recovery of the global economy, the extent of the shock suffered by each country, and the mobilisation of international financial support. In the long term, it will be necessary to strengthen health and social protection systems, diversify economies to better cope with future shocks (limit the high dependence on extractive resources), develop the domestic market, strengthen regional integration (particularly through the AfCFTA) and reinforce the financial capacity of states (fiscal consolidation).

The authors then present agroecology in West Africa, and particularly in Senegal, as a means of improving the sector’s yields while minimizing its environmental consequences, even though many factors still hinder its diffusion throughout the continent. They first recall that the agricultural sector is quite important for sub-Saharan Africa (15.6% of real GDP and 54% of employments), but this sector is in a bad position, particularly in the Grand Sahel, due to soil impoverishment and the effects of climate change. As a reminder, increasing agricultural production to meet food self-sufficiency objectives, particularly in a context of demographic growth in the region, would require an increase in either cultivated areas or yields per hectare. Unfortunately, the growth of agricultural production on the continent has been achieved through the expansion (in size and/or number) of farms from 1960 until nowadays, to the detriment of forests (loss of around 90% of forests in Côte d’Ivoire between 1960 and 2020, mainly due to cocoa farming). The alternative to this extensive agriculture would therefore seem to be intensive agriculture, which requires the use of chemical inputs, or the massive use of irrigation techniques. But these farming practices are also harmful to the environment (pollution of water resources, soil impoverishment, loss of biodiversity), we could also mention the effects on food quality (source of obesity and anemia). As an alternative to both extensive and intensive agriculture in the region, the authors present in this book a third way that is both resilient to the effects of climate change and pro-environmental. This is agroecology, which is defined as the application of ecological principles to agriculture to ensure sustainable production in optimized quantities. Although it does not yet achieve the yields of agriculture using large quantities of chemical inputs, agroecology is already presenting levels of yield that are much higher than those of traditional farming practices in Africa. Indeed, in Senegal, farms with a strong integration of these agroecological practices are already experiencing an increase in yields of more than 52% for cereals compared to extensive or traditional agriculture (Levard and Mathieu, 2018), we could also mention the extension of the sustainability of parcel production. In addition, agroecology guarantees higher incomes for producers (higher product prices with certification for example and lower production costs due to fewer inputs). The authors add that agroecology is better adapted to climate change (increase in soil carbon content and water retention capacity) and contributes to the reduction of environmental pollution (especially through the limited use of inputs). However, the diffusion of this farming practice is still hampered by the low level of support from public authorities to farmers, the problems of availability of organic fertilizer, the lack of training for farmers, the risk aversion of farmers and credit constraints; hence the need for coordination between all actors involved in this sector.

Finally, on the issue of Africa’s emergence, the book shows that most international definitions still leave African countries out, apart from the continent’s three largest economies (South Africa, Egypt, and Nigeria). Nevertheless, considering development indicators, social criteria and criteria of governance and quality of infrastructure could be useful to identify the potential emerging countries of tomorrow in Africa. The emergence of Africa as an entity (thanks to its demographic dividend, the complementarity of its economies, its AfCFTA and especially its governance at continental level with the African Union in particular) would seem to happen more likely than the emergence of individual African countries. Secondly, regarding issues related to the development of the private sector in Africa, the authors point out that African private enterprises are characterized by a fairly high level of informality and are small and not very productive. Among the difficulties encountered by these companies, the authors mention the scarcity and misallocation of factors (labor and capital), the low level of training, management problems and the lack of energy, transport and communication infrastructures (weak public governance). The authors therefore propose the adoption of reforms aimed at strengthening the public administration and professional organizations (employers’ organizations, producers’ unions, chambers of commerce or trades, etc.) and the application of policies to support business creation. The book also mentions the persistence of very precarious working conditions for young people and women across the continent (very few decent employments). Finally, the authors note the predominance of fixed exchange rate regimes across the continent despite the high vulnerability of most countries to term-of-trade shocks. They argue that this is partly due to the low level of development of the banking systems of these countries, which hampers the effectiveness of a flexible exchange rate regime.

Alpha Ly, Ph.D. Candidate “Low-carbon energy transition in Sub-Saharan Africa and the MENA region”.

[1] L’économie africaine 2021, Agence française de développement (AFD), éditions « La Découverte », collection « Repères »