SUB-SAHARAN AFRICA: ECONOMIC PROBLEMS AND PROSPECTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000100060001-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 21
• Document Creation Date: December 22, 2016
• Document Release Date: April 22, 2010
• Sequence Number: 1
• Publication Date: February 14, 1985
• Content Type: REPORT

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Central Intelligence Agency
Washington. D. C.20505
DIRECTORATE OF INTELLIGENCE
14 February 1985
6
Sub-Saharan Africa: Economic Problems and Prospects
Summary
The outlook for Africa's economies is bleak. Although
Africa's economic problems appear to have been precipitated by
a number of external events, including drought and world
recession, they also reflect longstanding structural
problems. Further deterioration is likely because of the
failure to resolve such basic weaknesses as inadequate
infrastructure (human and physical), declining per capita food
production, sociopolitical instability, and balance of payments
problems. Most African governments will avoid, for reasons of
self-preservation, unpopular policy reforms on the scale that
is considered by most devel ooment authorities to be necessary
Acute shortages of foreign exchange will be common in many
countries because net capital inflow into the region will be
reduced by over 50 percent beginning in 1985. Governments will
have to cut imports vital to industries and reduce development
spending in order to conserve foreign exchange for basic
necessities and to meet debt service obligations. Even so,
some countries will still be unable to cover their needs, and
This typescript memo was prepared for the 18 February 1985 Senior
.Interagency Group on International Economic Policy, chaired by Treasury.
It was pre
ar
d b
p
e
y of the Office of African and Latin
American Analysis, wi contributions by and
was coordinated with the Office of Global issues, the Directorate of
Operations, and the National Intelligence Officer, Africa. It includes
information available as of 14 February 1985. Comments and queries are
welcome and may be directed to the Chief, Regional Issues Branch, ALA on
State Dept. review completed
ALA M 85-10010
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emergency loans and debt reschedulings will be an ongoing
pattern. Furthermore, we believe that drastic reductions in
imports will starve production and lead to infrastructural
decay, causing deep and long-term injury to economies that are
The Economic Crisis--a Legacy of Failure
Sub-Saharan Africa's grim economic situation today is testimony to
the failure of over two decades of development effort by African
governments, donor countries, and international organizations.* A Tow
level of economic growth--averaging less than one percent per year 1982-
1984--has combined with the world's highest rate of population increase--
3.1 percent-- to create conditions of declining per capita incomes and
deteriorating standards of living.
-- By 1983, Africa's GDP had shrunk to below the 1980 level, and it
continued to fall in 1984. Per capita income, which in 1983 was
estimated at 4 percent less than its 1970 amount, should continue
to fall through 1995 even in a best case situation, according to
projections by the World Bank.
-- Social indicators are equally discouraging. Child mortality in
Africa, for example, is double the average for all developing
countries, according to UN data. Twenty percent of Africa's
population eats less than the minimum needed to sustain good
health, according to the Food and Agricultural Organization, and
this is the only region in the world in which per capita food
production is falling and where nutrition has actually worsened
over the past ten years.
Sub-Saharan Africa's lack of success relative to other regions in
adjusting to such external shocks as the runup in oil prices in the 1970s
and the global recession in, the 1980s results from poor performance on
export expansion and restrictive trade policies, according to
international economists. African countries are particularly vulnerable
*This discussion includes countries south of the Sahara except South
Africa. In the interest of cross-country c onparability, all data cited
come from World Bank sources unless otherwise indicated. For an
i
exam
nation of specific regions, see Annexes.
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to flucxuati.ng prices for their commodities because they export mainly raw
materials and, even during periods of higher export earnings such as the
late 1970s, have maintained the world's lowest ratio of foreign exchange
reserves to imports, according to IMF data. Oil and non-oil exporting
African countries alike experienced a boom in foreign exchange earnings
when prices for their commodities rose during 1973-1980, but, rather than
building reserves against an eventual drop in prices, they chose to spend
their windfalls on such ambitious projects as prestige airports and on
expanding the size and role of governments. The continent is littered
with projects that are incomplete or deteriorating for lack of sufficient
funds for maintenance, and that, in our view, will never pay for
themselves. Examples range from the containerized port of Onne in
Nigeria, 65 percent complete and now abandoned, to the Kisumu gasohol
plant in Kenya which, even if comnlPted, will have output that is
uneconomically low.
When the terms of trade for oil importers began to deteriorate
sharply in 1980, we believe that governments failed to reduce imports
quickly enough, drew down on their foreign exchange reserves, and borrowed
more from abroad. The beginning of the recession in industrialized
countries resulted in a rapid drop in demand for African products and,
according to export price statistics, an average price decline of 28
percent during 1981-82. By the end of 1983, reserves for the region as a
whole covered only one month's worth of imports and Africa had the highest
debt relative to GDP in the world. From 1979 to 1984, 28 Sub-Saharan
African countries resorted to borrowing from the IMF and in 1982 25
percent of the Fund's total lending went to Africa.
Endemic Problems and Weaknesses
Chronic physical, demographic, and ideological-political factors
account for much of Africa's poor economic performance in the past, and in
our judgment, will continue to act as obstacles to growth and
development. For example, the myriad deficiencies--in food, physical
plant, education and skills--and unrealistic government policies combine
with the extremely small size of African national markets to limit the
return on most investment. Development efforts in Africa, therefore, tend
Dearth of Physical and Human Resources
Africa's poor infrastructure--both physical and human--is a
fundamental impediment to economic growth. Transport, communications, and
plant facilities are generally inadequate for modern economic activity.
In some countries major development projects such as ports, railways, and
plant sites are deteriorating because of poor maintenance complicated by
geography, climate, shortage of skilled labor, and financial
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constraints. The World Bank reports, for example, that minimal
maintenance costs for African roads are three timer ac high a proportion
Human development is an even more troublesome obstacle to growth
because high rates of population increase combined with little or no
economic growth guarantee that the magnitude of the problem constantly
increases.
-- The rapid rate of population increase strains the resources of
African economies in merely providing the very basics of life:
housing, food, water, and health care.
Evidence suggests that the general health of the population is
declining because of poor nutrition. Although improved since
independence, life expectancy still averages less than 50 years,
and infant mortality is the highest in the world, according to
United Nations data.
-- Africa trails the rest of the world in the rate of adult literacy;
in at least 20 countries, fewer than half the adults are
literate. Generally, the populations are not able to manage a
modern, technology-based economy.
-- Severe shortages exist of skilled managers and technical experts
needed to run the governments and industries efficiently,
according to business and academic sources.
Political Instability
Sociopolitical and ideological factors have persisted as major
constraints to economic stabilization since the 1960s. Deep ethnic,
regional, and religious cleavages divide the populations of most African
countries, whose regimes are preoccupied with keeping their own dominant
elites in power. Most regimes have avoided the implementation of long-
range economic planning, therefore, in favor of satisfying the immediate
In countries with economies run according to socialist principles
(such as Angola, Mozambique, and Ethiopia), ideology tends to dictate
economic policy. Even when policies prove counterproductive economically,
reforms that conflict with ideology are unlikely to be implemented unless
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Opposition to African regimes can take a variety of forms ranging
from systematic circumvention of government regulations to armed
rebellion. Combating insurgents and other civil disorders saps state
treasuries. In addition, warfare disrupts the production and flow of
goods and creates sometimes huge refugee populations that often remain
unproductive for years. According to academic studies, for example,
during the 1970s the number of refugees who crossed national borders in
Africa rose from 750,000 to 5 million and constituted half the total
Entrepreneurial instincts, when inhibited by government regulations,
simply ignore many government controls. Informal economies are now
thriving in places where the official modern sector is in disarray
(Nigeria, Tanzania, Sierra Leone, and Zaire, for example). People trade,
smuggle, provide services, and devise their own systems of currency
exchange -- all outside the formal sector. In our view, based on largely
diplomatic reporting, government control over economic activity is on the
wane in many parts of Africa, and the future base of revenue from customs
and taxes is threatened. According to a recent academic study, for
example, it is estimated that one-third of Sierra Leone's rice production
is smuggled abroad and that if smuanling were halted, Sierra Leone would
be eel-9
ff
-
su
ici in ri
Counter-productive Economic Policies
The extent of government intrusion into the formal sector of African
economies is pervasive partly because it is used by leaders as a means of
controlling their political competition. In our judgment, African leaders
build and maintain their power bases by deciding who has access to foreign
exchange, investment, resources, licenses, and contracts.
-- The $2 billion Inga Shaba dams project with its 1100 mile
transmission line in Zaire was designed to strengthen the
dependence of the copper-rich Shaba province on other parts of the
country.
-- Ivory Coast built s.ix sugar processing plants for political
reasons when sugar prices were high to provide the relatively poor
north with employment; sugar prices collapsed shortly after work
was begun.
-- In Nigeria, revenues were allocated automatically to governors of
the 19 states for their use with little accountability or control.
Public employment is commonly used to dispense patronage; African
governments employ an average of 30 percent of the non-agricultural,
formal labor force and over 50 percent in such countries as Tanzania,
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formal labor force and over 50 percent in such countries as Tanzania
- s
7amhia I ibe"ia
_
d
Gh
n
an
Production by state-owned industries is typically inefficient because
they are managed poorly, and sometimes corruptly, and often have goals
other than profitability. Academic sources
consistently show that they usually operate in deficit, receive huge
government subsidies, and are deeply in debt. For example, World Bank
studies show that, except for those that handle export sales, public
enterprises are generally serious fiscal burdens, and management
objectives are usually political rather than economic. Nevertheless, they
have proven difficult to dismantle in part because they provide jobs for
political allies and because there still is a widespread distrust.of the
free market and a deep sense, even among younger leaders, that colonialism
and
a
i
ali
-~-h
l_
c
p
t
w
are
State-owned enterprises in Africa contribute as much as 38 percent to
GDP (in Gh
ana and Zambia), compared with the 10 percent average for
developing countries as a whole. In Tanzania, government enterori sPs
account for over 50 percent of manufacturing and commerce.
Regimes stifle impulses toward a free market economy in a number of
other ways. Controls on wages, prices, and the sale and marketing of
goods abound. Restrictions are widely used to reduce or prohibit certain
imports, while overvalued currencies in some countries help to provide
cheap imported food for urban dwellers, whose political impact is
greatest. Import restrictions are especially pervasive in such countries
asia
K
,
enya, and Tanzania, according to US, embassy reporting.
At the urging of the World Bank, IMF, and other official lenders, a
number of countries have agreed to begin to institute basic reforms in
economic policy (Ivory Coast, Ghana, Mali and Zambia, for example).
Policies that are being targeted are those that interfere in the operation
of the free market, particularly agriculture, or that protect domestic
industry from competition. In addition, governments are being advised to
begin the privatization of state firms. While the long-term impact of
such policy corrections is advantageous, the immediate effect is that the
loss of jobs and rising prices, particularly for food, resulting from such
measures would have a
i
severe
mpact, especially on urban populations.
Many African leaders publicly acknowledge that reforms are necessary
but delay implementation because they regard such changes as Politically
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too risky or as ideologically undesirable. We believe, however, that they
also are striving to preserve the living standard of the administrative
class from which they draw their support and are determined to retain
their power by rewarding this and other key groups with employment and
favors. Although outsiders will undoubtedly continue to urge reform, we
believe that the leaders of most African countries--no matter how
convinced of the wisdom of the proposals--will be severely constrained
from implementing them by fear of political reprisals. For those
countries that do persevere in such reforms, which in most cases will be
painful and unpopular, economic benefits will not emerge quickly.
Food Shortages
Africa's diminishing capacity to feed itself is perhaps the most
alarming manifestation of the fusion of poverty and politics. The
declining rate of per capita food production can be attributed to a number
of factors, none of which is open to easy solutions. Drought, poor
agricultural resources, warfare, and government policies all play a part.
-- The region is subject to periodic droughts and cyclical food
shortages. Each subsequent drought is likely to have worse
effects because each food shortage forces farmers to expand
cleared areas for planting and grazing, which adversely affects
evaporation, rainfall, and erosion.
-- The Food and Agricultural Organization has identified 21 countries
that have chronic food shortages. Although the region generally
has the potential to increase production significantly, there are
14 countries--containing half the population of Sub-Saharan
Africa--that did not have enough productive land to support their
populations as of 1975.
-- The end of the drought will not solve the food production
problem. Per capita grain production in the countries most
affected by the present drought has been falling an average of 2
percent per year since 1970. According to an FAO analysis, per
capita production in 1988 will be the same as in the drought year
of 1984 even if 1988 has normal rainfall.
-- Food production in areas subjected to warfare, guerrilla activity,
or banditry tends to droo markedly. In such countries as Uganda,
Angola, and Chad, farmers migrate to secure areas, and armies and
bandits often steal or destroy the crooc. Snoilana increases
because marketing is difficult.
While drought and warfare have an immediate impact, the
counterproductive policies practiced by most African governments are
principally responsible for the long-term decline in food production,
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according to development experts. In order to avoid conditions that might
lead to political unrest in the cities --as well as to maintain the living
standard of officials--governments try to keep food prices low, according
to academic sources. Overvalued currencies often make imported food
cheaper than local produce. The low price of food encourages greater
consumption while the low prices paid to farmers discourage domestic
production. Falling rural income has been cited by academic experts as a
major reason why Africa has the highest increase in the rate of
urbanization in the world. The migration of young farmers to African
cities is contributing to the decline in food Dr A?- 'on and at the same
time increasing the demand for food.
Farmers face other aggravations that stem from the government-run
corporations that often handle marketing and distribution of foodstuffs,
i
l
l
agr
cu
tura
materials, farm equipment, and extension services. The
performance of these organizations has been marked by widespread
mismanagement, shortages of technical and administrative expertise,
i
ff
nsu
icient financing, and corruption, according to academic studies.
Chronic Balance of Payments Problems
African countries are chronically short of foreign exchange with
which to purchase imports, service debts, and pay for capital projects.
Their economies are highly dependent on imports for both the raw materials
and capital equipment needed to supply industries as well as basic
necessities, including an increasing amount of food. Depressed prices for
tropical agricultural products and most African mineral resources have
reduced Africa's earnings at a time when its food import needs and debt
service obligations are growing. Food imports and debt service payments
consumed over 40 percent of foreign exchange earnings in 1984, and oil
importing countries spent about another 25 percent of their hard currency
earnings on oil purchases, according to IMF and World Bank data. We
believe that many countries will have recurrent balance of payments crises
over the next several years because management of external accounts is
ll
genera
y poor and subject to political interference. P
Because most African countries depend on the export of only one or
two commodities for foreign exchange earnings, they are particularly
vulnerable when demand for their exports is low. World Bank data show,
for example, that on average the three principal exports of individual
countries account for almost 80 percent of total exports from the region
and that the share has been rising since 1961. When earnings drop,
governments must either cut imports, accumulate payment arrears, or use
cash reserves, which are usually meager. The reduction in imports
deprives domestic production of vitally needed materials, and jobs are
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lost. -F-rthermore, we believe that if export earnings rise, political
pressures would dictate that the flow of imports resume its previous
v of
ume
African countries have made very little progress- either in
restructuring industry to make use of local resources or in developing new
exports. The contribution of manufacturing to GDP is declining in most
countries, according to national accounts data. Trade surpluses occur in
some countries, but they usually reflect contractions in imports, not
significant expansion of exports. Consequently, trade surpluses often
signal ill health in the African context. We believe that because African
trade surpluses often are built by cutting imports of vital resources for
the transport and manufacturing sectors, the short-term benefits of easing
the foreign exchan
e
h
g
s
ortage are soon replaced by further economic decay
as is
i
occurr
ng in such countries as Nigeria, Zaire, and Ghana
Declining Investment
Faced with the need to reduce expenditures, many governments,
according to national statistics, have chosen to cut spending for capital
projects rather than in the more politically sensitive areas of defense
and social services. As a result, Africa's productive capacity is being
expanded more slowly than elsewhere in the developing world and the
existing capacity of some countries is deteriorating, according to IMF
data. Shortages of spare parts and reduced funds for maintenance will
continue to damage the region's transport and productive facilities,
actually reversing the development process in some countries. As a
r
s
lt
e
u
, many countries may not be able to take advantage of future
im
provements in the world market by producing more.
With few exceptions, most notably the oil producing countries of West
and Central Afria, new foreign investment in African countries is
declining and domestic investment has been discouraged by the poor rate of
return that is common in the region. African economies are not building
the foundation for future growth and their ability to compete in a rapidly
F__ I
changing world will be severel
li
i
y
m
ted.
OutI ook
The outlook for Africa's economies is bleak for the remainder of the
decade largely because of a number of longstanding structural problems and
a set of predominantly negative economic and social trends that span the
last 10 years These chronic shortcomings have been made worse in recent
years by a number of external events, including drought and world
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Afr-ica_is becoming progressively poorer. We believe that further
deterioration is likely because of the failure to resolve such basic
weaknesses as'inadequate human and physical resources, declining per
capita food production, structural balance of payments problems, and
sociopolitical instability. Most African governments will avoid unpopular
policy reforms that are considered by development authorities to be
necessary for sustained growth because such measures would threaten their
The stimulus for growth will not come from outside funding unless
extraordinary programs are undertaken by official lenders. Official
sources have compensated for the drop in commercial lending during 1980-
82, and the gross amount of capital inflow into Africa probably will
remain relatively steady for several years. Beginning in 1985, however, a
heavy repayment schedule will reduce the net amount of funds available to
the region from the 1980-82 average of $11 billion to only $5 billion.
Some hard-pressed countries (Senegal and Liberia, for example,) already
are using these funds, including development aid, to meet the ordinary
expenses of running the government and for debt payments, rather than
investing in capital projects that could contribute to future growth,
Acute shortages of foreign exchange will be common during 1985-87,
despite trade surpluses in many countries because of the reduced level of
net capital inflow. We believe governments will have to cut imports vital
to industries and reduce development spending in order to conserve foreign
exchange for basic necessities and debt service obligations. Even so,
sane countries such as Liberia, Zaire, and Somalia, still will be unable
to cover their needs, and emergency loans and debt reschedulings will
continue to be required. Furthermore, we believe that these drastic
reductions in imports will starve production and lead to further decay in
physical plant and facilities, causing deep and long-term injury to
In our view, the longer-term economic outlook also is dismal. The
potential exists for a long-term fall in the average real prices of some
of Africa's primary commodities because of technological advance. For
example, the development of new production techniques allows for the use
of cheaper raw materials or synthetics for rubber and a number of
metals. Fiber optics could largely eliminate the use of copper wire in
telecommunications which would have a severe impact on Africa's two
largest copper producers, Zaire and Zambia. Africa's weakened condition
also will limit its ability to capitalize on such potentially advantageous
conditions as improved markets for its products. Deterioration of
existing facilities will erode Africa's capacity to increase production
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and move-the greater volume through the transport system. Favorable world
conditions probably would help Africa only minimally, in our judgment.
Should the global environment turn negative, it would have a deep and
long-lasting impact because of the region's lack of economic, political,
and social resilience. Furthermore, we believe that as other regions move
rapidly to acquire increasingly advanced technology, the gap between
Africa, already the world's Poorest region, and the rest of the world will
Implications for the United States
Africa's deteriorating economic situation will create greater demand
on the United States and its industrial country allies for food
assistance, concessional loans, and aid programs. Because of the decline
in commercial loans and private investment, we believe that the
multilateral institutions will also play an ever larger role. The United
States and other major supporters of these institutions will come under
The United States, as the world's largest food producer, will attract
most attention from Africa's leaders. Declining per capita food
production in Africa provides a growing market for US agricultural
products, but Africa's cash-short economies will ask that sales be on
concessional terms. The demonstrated inability of many governments to
plan for periods of severe e will also prompt requests for more
emergency food aid.
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ANNEX I
Outlook for West and Central Africa*
Per capita GDP in West and Central Africa probably will continue to
decline for the remainder of the decade. Drought and recovery from
drought, foreign exchange shortages, and austerity or stabilization
programs, in our judgment, will constrain economic growth for the next
several years. While the overall outlook for the region is pessimistic,
some countries, such as Congo, Cameroon, and Togo, through a combination
of stronger exports, increased food production, and manageable debt
service, are likely to sustain their relatively positive performances for
the next few years; the decline also may have bottomed out for others, and
they could begin a period of slow but steady growth over the next few
years.
-- Ghana, with black Africa's second largest economy, according to
World Bank data, has received economic shock treatments that seem
to have checked its long downward spiral. Five devaluations since
April 1983, easing of price controls, budgetary discipline, and
the government's efforts to rehabilitate the key economic sectors
produced a second consecutive year of growth in 1984.
Nevertheless, the economy remains depressed--real GDP is still
below the 1973 peak--and further progress depends on the capacity
of the Rawlings government, under considerable political pressure
because of the dismal state of the economy, to survive.
-- Three Central African oil producers, Congo, Cameroon, and Gabon,
are likely to achieve modest growth over the next several years
despite the weak oil market, but only if they can adhere to plans
to limit imports, contain government spending, and avoid excessive
external borrowing. The longer term outlook is unfavorable,
however, because industry experts expect oil production, still the
major source of foreign exchange for all three countries, to
decline in the early 1990s.
Foreign Exchange Problems. The region's foreign exchange shortage is
not likely to ease m easurab,ly within the near term. Although the prices
for some West and Central African commodities, such as coffee, cocoa, and
*Benin, Burkina, Burundi, Cameroon, Cape Verde, Central African
Republic, Chad, Congo, Equatorial Guinea, Gabon, The Gambia, Ghana,
Guinea, Guinea Bissau, Ivory Coast, Liberia, Mali, Niger, Nigeria, Rwanda,
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palm kernels, strengthened somewhat during 1984, we judge that most
countries will face a continuing drop in foreign exchange earnings from
their peak in 1980 that lasts at least several years.
-- Even with improved prices for the Ivory Coast's principal exports,
coffee and cocoa, we calculate that Abijan will lack sufficient
foreign exchange to service external debt and to finance imports
at levels that would permit 5 to 6 perent annual economic growth
to resume. Ivory Coast, Africa's second largest debtor (after
Nigeria) probably will have to reschedule about $2 billion during
1985. The restrictions on vital imports are endangering the
maintenance of the region's best infrastructure and may cause a
fourth year of economic decline.
Nigeria, black Africa's largest economy, must continue to import
huge quantities of food since per capita food production in 1983
was 8 percent below the 1969-71 average. About 25 percent of
foreign exchange earnings--already depressed because of lower oil
revenues--will be spent for food and at least 45 percent must go
for debt service. We believe that Nigeria will'c ontinue to resist
a sizable devaluation as long as possible and that will preclude
Policy Reform. A number of West and Central African countries have
agreed to various economic reforms designed to reduce the role of
government and to encourage the operation of free market forces. Between
1979 and 1984, the IMF made loan arrangements that included requirements
for some policy reforms with the Central African Republic, Congo,
Equatorial Guinea, Gabon, The Gambia, Ghana, Guinea, Ivory Coast, Liberia,
Mali, Niger, Senegal Sierra Leone, Togo, and Zaire. Although these
governments generally have avoided implementing the most far-reaching
reforms, a few--like Ghana--are becoming so desperate that they are
willing to submit to IMF requirements in order to obtain assistance.
-- The government of Zaire has been able to sustain reform in part
because the standard of living is so low that the adverse short-
term will be reduced by corruption at high levels and by President
Mobutu's personal control of key economic elements. .Zaire has
rescheduled its debts every year but one since 1976, and,
according to the IMF, will have to reschedule every year until at
least the end of the decade.
-- Senegal has had four successive IMF stabilization programs, all
largely ineffective in reversing economic decline in part because
of the failure to comply with measures requiring reduced public
spending. As West Africa's largest recipient of foreign aid, the
government has been able to supplement its budget to support over
80 parastatals, in addition to providing subsidies for many basic
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'-, U iv r l U C. IN I 1 H L
items. We believe that the 1985 IMF program, which is involving
all major donors in consultation, is likely to be successful in
encouraging some gradual changes. In our view, however, social
pressures that could seriously threaten President Diouf's survival
will prevent him from moving decisively toward reform in such
sensitive areas as subsidies and public employment.
Agriculture. Food will continue to be West Africa's principal
concern for years. In our judgment, production shortfalls, food
emergencies, and chronic shortages are likely to continue their pattern of
the past.
-- Average per capita food production during 1980-82 declined from
the 1969-71 average everywhere but in the Central African
Republic, Cameroon, and Ivory Coast. Only Ivory Coast, however,
has sustained growth in per capita production. Ghana, on the
other hand, is producing less than 75 percent of its 1969-71
level.
-- Countries of the Sahel (Chad, Niger, Mali, Burkina, Senegal, The
Gambia, and Cape Verde), affected by periodic drought and without
substantial resources, probably will remain dependent on massive
food aid for years. Despite efforts by the World Bank and others
to overhaul Sahelian agriculture and some government efforts to
encourage food production in Senegal and Mali, little improvement
is likely soon, in our judgment because of the extensive
environmental problems.
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EAST AFRICA: TROUBLED ECONOMIES
The East African regional economy will expand, in our judgment, only
sluggishly over the next few years, and real per capita incomes probably
will continue to stagnate or fall.* Economic growth will be limited by a
combination of factors that apply, in varying measure, to each of the
countries: the paucity of human, physical, and capital resources; the
burden of corruption, political cronyism, and government efforts to
control the economy; continuing foreign exchange shortages; the effects of
drought; and disruptions imposed by scattered insurgencies.
Economic Policies. Government policies over the next few years will
significantly influence the economic environment--and, as a result,
production and investment decisions. Although some countries are moving
toward liberalization, we believe most governments will maintain strong
control over economic activity.
-- We see little evidence that the ideologically-driven Mengistu
regime in Ethiopia will substantially alter its policies, even in
the wake of the worldwide attention drawn to his mismanagement of
Ethiopia's food production.
-- Although the Tanzanian government has implemented some
liberalization measures, such as devaluation and higher producer
prices for food and export crops, we doubt that the wideranging
structural. reforms necessary to spur sustained economic recovery
will be implemented--especially since President Nyerere, a
committed socialist, is likely to maintain a strong voice in
government even if he retires as planned in late 1985.
-- Mogadishu's IMF-backed liberalization program has brightened
Somalia's economic prospects, but the short term costs--which
include hoarding and the depression of trade--could be steep.
Moreover, the program limits President Siad's ability to dispense
patronage, an important element of his power base. If the side
effects prove too painful politically or if donors do not quickly
respond with stepped up aid flows, we believe Siad will come under
severe pressure to back away from the agreement.
Economic policies in Kenvi have been relatively liberal compared
to the rest of East Africa. Nonetheless, pressure for more
---------------------------
* Ethiopia. Somalia. Djibouti, Kenya, Uganda, Tanzania, and
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liberalization will be opposed by the government because of a
strong resentment of foreign pressure, key policymakers' distrust
of technocratic Western economic solutions, and a personal
commercial stake b high level officials in the present system.
Foreign Exchange Shortages. We do not believe the region's foreign
exchange crunch will ease much over the next few years. Foreign exchange
reserves are nearly depleted in most countries; US Embassy reporting from
Ethiopia, for example, indicates that holdings at the end of 1984 were at
the lowest level in more than 30 years. Export earnings will be limited
by high-cost, low-quality production, which makes the region's goods
uncompetitive, and expected declines in coffee, tea, and cotton prices
from current levels. Foreign aid flows will be increasingly affected by
donor budget constraints.
-- Even if Somalia's IMF program is approved, the resulting inflow of
funds will only help ease--not end--Mogadishu's critical cash
shortages. The government still must reschedule quickly--growing
debt service obligations to meet IMF targets, and, we believe,
will be hard pressed to find alternative markets for its livestock
in the face of a continuing Saudi ban on Somali cattle.*
-- A solid foreign reserve level, current high world prices for
coffee and tea, and a bright tourism picture should provide some
insulation for Kenya but Nairobi still could encounter financial
problems later this year as the bills for its commerical food
purchases become due. Kenya soon will be looking for additional
aid. Foreign exchange pressures could continue in 1986 if coffee
output does not recover from the drought and stock drawdowns to
meet the 1985 ICO quota leave insufficient supplies for next
year's exports.
Drought. Drought in key countries will strain fragile agricultural
and agriculturally-based industrial sectors and transportation networks at
least through 1985. Moreover, financial pressures will intensify as
probable export crop losses lower hard currency revenues, and government
expenditures on relief efforts and food imports grow.
-- The recent harvest in Ethiopia, worst hit by drought, may be some
25 percent below normal, and food stocks are now exhausted.
Famine, therefore, almost certainly will continue spreading to
-----------------------
*As a result of Saudi Arabia's mid-1983 ban on Somali cattle imports,
Mogadishu's export earnings have fallen by more than half, to only $60
million. Little progress has been made toward lifting the embargo. fl
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_ other parts of the country this year. Moreover, refugee movements
have drained labor from agricultural areas and have made hundreds
of thousands of people dependent upon the regime for food,
clothing, and shelter.
-- Even though Kenya's November/December short rains--which water
about 20 percent of annual production--generally were on time and
adequate, it is too early to conclude that the drought is over.
To assure adequate food supplies and help rebuild national stocks,
therefore. Nairobi will continue its food import program this
Insurgencies. Internal conflict and border disputes will drain the
economies of several East African countries. In Uganda, for example, a
growing insurgency between the Obote regime and anti-government dissidents
threatens to derail recent economic progress. Ethiopia continues to
battle a longstanding and debilitating insurgency in the north, and both
Ethiopia and Somalia maintain a substantial military presence along their
joint border, in part to counter cross-border insurgent operations
sponsored by each government. These conflicts will directly affect
economic activity by causing high government spending on defense and
refugees, damage to infrastructure, lost agricultural and industrial
production, and disruptions to transport and distribution networks.
Indirectly, the economies will suffer from reduced business confidence,
capital flight, government preoccupation with military matters, and the
pursuit of economic policies designed to buy political support.
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Annex III
Economic Prospects for Southern Africa
Real economic growth for most of southern Africa's developing nations* in
1985 is unlikely, in our judgment, to exceed the region's 2-percent average
annual growth rate between 1978 and 1983. Economic performance probably will
be limited by low world prices for the region's commodity exports, recession
in South Africa, the continuing need for food imports, and insurgencies that
have disrupted economic activity in Angola and Mozambique.
Commodity Prices and Exports. Most of the developing economies of
southern Africa depend on a narrow-base of commodity exports for the bulk of
their foreign currency earnings. World prices of these commodities have
fallen in real terms since 1980 and cut export earnings for Angola, Namibia,
Swaziland and Zambia. Most private economic forecasters foresee no
significant recovery in the world price of oil, uranium, diamonds, copper or
sugar during 1985. Among the southern African countries heavily dependent on
one or two export commodities, only Botswana has escaped the impact of
stagnant prices through increases in the volume of its exports, principally
Economic Relations with South Africa. Business initiatives by South
African companies, and the attraction of job and marketing opportunities have
created a network of economic ties between South Africa and most of its
neighbors. As a result, the entire region has suffered from South Africa's
severe economic recession, only a marginal growth in its demand for migrant
labor and imported commodities, and reduc_1 private South African investment
in the region.
Zimbabwe--which has the broadest economic base of southern Africa's
developing countries--is also the most sensitive to swings in South
African consumer spending. Some 70 percent of its manufactured exports
are sold in South Africa. We believe that South African economic
growth will not exceed 2 or 3 percent in 1985, thus slowing Zimbabwe's
Drought and Food Imports. Drought in southern Africa has made the entire
region dependent on food imports. Even in years of average rainfall, only
South Africa and Zimbabwe are normally net food exporters. South Africa has
been the dominant grain producer, with Zimbabwe a distant second. Until 1983,
*Angola, Botswana. Lesotho, Mozambique, Namibia, Swaziland, Zambia
_ J
Zimbabwe.
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Pretoria had large surpluses available for export, but drought has forced
cancellation of grain sales to traditional customers such as Zambia. 25X1
Preliminary data on rainfall for the critical months of December and
January suggest that the 1984-85 growing season will be marred by a fourth
consecutive year of drought in much of southern Africa. Significant grain
imports will continue through 1985 for most of these developing countries, but
by mid-1985 serious food shortages probably will be limited to those areas
plagued by insurgency or extreme poverty.
Internal Policies and Conflicts. Insurgencies in Mozambique and Angola
have accelerated economic decline originally caused by inappropriate,
socialist-oriented policies and an exodus of skilled Portugese workers after
independence from Portugal in 1975. The rebels have pushed farmers from
productive lands and disrupted transportation.
-- For Mozambique, we estimate that the modern economy--including
exports--has shrunk by nearly 50 percent since independence. Anti-
government rebels have disrupted agricultural production, damaged the
country's economic infrastructure, and forced Maputo to increase
defense spendinq. We believe that unless the insurgency is brought
under control, Mozambique's problems will only increase as the country
continues its economic decline.
-- In Anqola, the insurgency has interrupted all economic activity except
for petroleum production--Angola's leading industry--which so far has
been protected from insurgent attacks. The level of the insurgent
attacks primarily will determine whether petroleum export earnings go
to rebuild Angola's war-torn economy or to buy more military hardware
and personnel support from the Soviet bloc. and Cuba.
Even in countries where internal conflicts have not reached the level of
guerrilla warfare, sociopolitical realities may constrain seriously government
options for enhancing economic performance.
-- To resume the rapid growth it enjoyed after independence in 1980 and
improve strained relations with the IMF, Zimbabwe must resolve its
foreign payments problems and reduce government expenditures.
Harare's last standby agreement with the IMF collapsed when it could
not meet the Fund's targets for limiting deficit spending. Imports of
military equipment used to control unrest rooted in ethnic
differences, however, have consumed increasing amounts of scarr_P
foreign exchange,
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SUBJECT: -SubSaharan Africa: Economic Prospects
Distribution:
Original- Ciro DeFalco, Director, Office of Developing Nations Finance,
Treasury Department.
1 - Princeton Lyman, Deputy Assistant Secretary, Bureau
of African Affairs, Department of State
1 - Arthur E. Dewey, Deputy Assistant Secretary for
International Assistance and Relief, Bureau for
Refugee Programs, Department of State
1 - Antonio Gayoso, Director, Office of International
Development, Office of the Deputy Assistant Secretary
for International Economic and Social Affairs, Bureau
of International Organization Affairs, Department of
State.
1 - Richard W. Bogosian, Director, Office of East
African Affairs, Department of State.
1 - Peter W. Lande, Director, Economic Policy Staff, Bureau
of African Affairs, Department of State.
1 - Pierre Shostal, Director, Office of Central African
Affairs, Department of State.
1 - Robert Gelbard, Director, Office of Southern African
Affairs, Department of State.
1 - Edward J. Perkins, Director, Office of West African
Affairs, Department of State.
1 - Jeffrey S. Davidow, Director, Office of Regional
Affairs, Department of State.
1 - Mark L. Edelman, Assistant Administrator, Bureau for
Africa, Agency for International Development.
1 - Anthony S. Dalsimer, Office of Analysis for Africa,
Bureau of Intelligence and Research, Department
of State.
1 - Lydia Giffler, Office of Economic Analysis, Bureau
of Intelligence and Research, Department of State
1 - Janet Henninger, Office of Global Issues, Bureau
of Intelligence and Research, Department of State.
1 - Clayton Norris, Vice President, Africa and the Middle East
Division, Export-Irnoort Bank.
1 - Richard B. Levine, ')eouty Director for International
Economic Affairs, National Security Council.
1 - T. Kelley White, Interagency Food Aid Analysis Working
Group, Economic Research Service, U.S. Department of
Aqriculture.
1-DCI
1 - DDCI
1 - DDO/Africa
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- NIO for Africa
1 - NIC Action Group
1 - PDB Staff
1 - ILS
1 - C/DDI/PES
1 - D/ALA
1 - D/NESA
1 - D/OEA
1 - D/SOVA
1 - D/OCR
1 - D/OGI
1 - ALA/PS
1 - ALA Research Director
~4 - OCPAS/IMD/CB
5 - ALA/AF
2 - AF/RI
4 - ALA/RI
ALA/AF/RIJ
(14 February 1985)
25X1
25X1
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