F E B R U A R Y 2 0 1 2 U P D AT E 67996 An analysis of issues shaping Africa’s economic future u Despite a global slowdown, African countries saw robust growth in 2011 u Prospects remain strong, but elevated downside risks in the global economy could dampen the region’s economic momentum AFRICA’S PULSE TEAM: Punam Chuhan-Pole (Team Leader), Manka Angwafo, Mapi Buitano, Allen Dennis and Xiao Ye With contributions from Hannah Messerli This document was produced by the Office of the Chief Economist for the Africa region Summary u Amid weak and uncertain global economic conditions, African countries continue to grow at a brisk pace. u Prospects remain strong, but elevated downside risks in the global economy could dampen the region’s economic momentum. u Despite some diversification in export markets, the region’s vulnerability to commodity prices remains high. u Less policy space (than in 2008-09) could constrain policymakers’ response to global shocks. Recent economic trends GLOBAL ECONOMIC DEVELOPMENTS The second half of 2011 saw heightened uncertainty in global markets and a weakening of the global economy. Global growth in 2011 is estimated to have been a modest 2.7 percent. The economic slowdown was especially marked in developed countries, which saw growth slip to 1.6 percent in 2011, nearly half the rate of expansion (3 percent) in 2010. The sovereign debt crisis in Europe weighed heavily on growth in the Euro area (1.6 percent), and the United States saw tepid growth of 1.7 percent (fourth quarter US growth saw a sharp uptick). Developing country growth was estimated at 6.0 percent in 2011. Excluding China and India, the pace of output expansion was 4.4 percent (compared to 5.5 percent in 2010). China’s economy grew by 9.1 percent in 2011, slipping from the double-digit growth of 10.4 percent in 2010. Export growth slowed reflecting weak conditions in major export markets of Europe and the United States. Growth slowed in several other major developing countries, such as Brazil and India, on the back of tighter domestic policy stance in 2010 and early 2011 to combat inflationary pressures and overheating. Economic, financial and policy problems, which fueled uncertainty and investor concerns last year and roiled financial markets, continue to weigh down on the outlook for the global economy in 2012. The comprehensive crisis management approach of tighter budget rules and strengthened economic policy coordination, agreed to by most European Union leaders at the December 9-10 EU Summit, seems to have contained the European crisis for now, but questions remain about the adequacy and implementation of the plan. At the same time, fiscal consolidation in Europe is depressing growth, raising questions about the appropriate fiscal policy in achieving a speedy resolution to the debt crisis. The progress on structural reforms could also take time to yield the desired impact on growth. On a positive note, sovereign borrowing costs for high-spread Euro Area countries have declined from recent highs. But sovereign debt and weak economic prospects are also straining European banks’ balance sheets, with serious implications for global credit availability as banks deleverage and pull back lending. In the United States, there continues to be uncertainty about the appropriate fiscal policy to put government revenues on a sustainable path in the medium term without choking economic growth in the near term. Not surprisingly, the latest forecast for the global economy has been revised downward, with an even slower pace of expansion in 2012 (2.5 percent) before strengthening to 3.1 percent in 2013. Europe appears to have entered a recession, and the Euro area is forecast to contract by 0.3 percent in 2012 before seeing a turnaround of 1.1 percent in 2013. Elsewhere, growth is expected to firm in the United States (2.2 percent) and Japan (1.9 percent). The forecast for developing country growth has also been adjusted downward, to 5.4 percent and 6 percent in 2012 and 2013, respectively 2 > A F R I C A’ S P U L S E (from 6 and 6.3 percent, respectively in the September Pulse). Overall, there are considerable downside risks in the global economy, especially in high-income countries, with the potential to precipitate a major crisis and significantly downgrade prospects for high-income and developing countries alike. TRENDS AND OUTLOOK FOR SUB-SAHARAN AFRICA Despite a weaker and uncertain global environment, African countries continued to post solid growth: 2011 Percent growth in GDP FIGURE 1 8.0 growth is estimated at 4.9 percent, in line with earlier SSA GDP 7.0 projections, and just shy of the pre-crisis (average of growth for 2011 6.0 was widespread 2003-08) level of 5 percent. Excluding South Africa, 5.0 and higher than the regional average is 5.9 percent, more than one 4.0 the average 3.0 Sub Saharan Africa percentage point above that of developing countries for developing 2.0 Sub Saharan Africa ex. South Africa (excluding China). Growth has been widespread, with Sub Saharan Africa pre-crisis average countries 1.0 Developing countries average ex. China (excluding over a third of countries posting 6 percent or higher 0.0 China) growth rates; another 40 percent grew at between -1.0 -2.0 4-6 percent. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Global Economic Prospects 2012. Several African countries are seeing sustained high growth after the crisis: Ten countries had growth of over 6 percent in both 2010 and 2011. Many of these are oil- or mineral-rich countries such as Botswana, Ghana, Mozambique, Nigeria, Democratic Republic of Congo and Zambia. Their recent growth performance is above their 2007-08 growth rate. Non-resource rich countries such as Ethiopia, Rwanda and Tanzania are also seeing brisk, sustained growth, albeit below 2007-08 levels. Overall, about 20 countries are expanding at rates above their 2007-08 levels. The region’s economic performance continued to be supported by higher commodity prices, exports and strong domestic demand. After growing rapidly in the first half of the year, export growth slowed in the second half, in response to the global slowdown. A surge in commodity prices in the first half of 2011 pulled up export values, which jumped Several countries are experiencing growth above their crisis levels Several countries are experiencing growth above their pre2007-08 levels others have yet to catch up ...... othershave yet to catch up FIGURE 2 Ten SSA Ghana 2009 !Ethiopia 2009 countries grew more than 6% a Congo, Rep. 2009 Rwanda 2009 year in 2010-11, many of them Mozambique 2009 2009 are exporters of Tanzania oil or minerals. Uganda Non-resource- !Botswana 2009 2009 rich countries had high growth Nigeria 2009 Malawi 2009 but below 2007- 08 levels. Zambia 2009 Sub-Saharan Africa 2009 -6 -4 -2 0 2 4 6 8 10 12 0 2 4 6 8 10 12 Average growth 2007 - 2008 2009 Average growth 2010-2011 Source: Development Prospects Group, World Bank. A F R I C A’ S P U L S E > 3 38 percent for the first seven months of 2011 compared FIGURE 3 Terms of Trade changes as share of GDP (%) , January-September 2011. to the same period in 2010. Oil exporting countries Oil, metal benefited the most from higher prices, with improved Equatorial Guinea and mineral terms of trade contributing 8.5 percent to GDP. Metal Congo, Rep. exporters Gabon and mineral exporters also benefited from higher prices benefitted from Angola in the first half of the year. Several countries’ exports higher prices Nigeria in the first received a boost as new production capacity came on Zambia half of 2011. stream: oil exports in Ghana; iron-ore in Liberia and Benin Agricultural Mali Sierra Leone; and coal from the large Moatize mine in exporters and Malawi Mozambique. By contrast, agricultural exporters and oil oil importers Sierra Leone saw their importers saw a deterioration in their terms of trade. Mauritius terms of trade Senegal The increase in export earnings in 2011 was matched by a deteriorate. Eritrea jump in imports, especially capital goods imports, which Kenya Lesotho increased by 32 percent in the first seven months of the Cape Verde year compared with the same period in 2010. Oil exporters Seychelles saw a strengthening of their current account position -15 -10 -5 0 5 10 15 20 25 in 2011, while oil-importing countries saw little change. Source: Global Economic Prospects 2012. However, the deterioration of the external balance was quite sharp for non-oil resource rich countries. Intra-regional trade. Intra-African exports are growing, BOX 1 Commodity prices fell off their highs in the second half of 2011, in part and around 12 percent of exports are to neighboring Commodity because of weakening economic growth. After peaking at $120/bbl countries. Regional subgroups such as the East African prices (World Bank average) in April, the price of oil averaged $100/bbl in the Community (EAC) have seen trade with subgroup last quarter of 2011. Cyclically sensitive metals and minerals declined members and other African countries expand at a faster on average by 19 percent between July and December. Prices of non- food agricultural commodities inched higher overall with coffee and pace than total trade: intra-EAC trade increased from less cotton closing in 2011 at 38 and 46 percent higher than the year before than half billion to 2.2 billion between 2000-10,1 and EAC and the price of cocoa declining slightly by December 2011. exports to African countries outside of the subgroup increased from 200 million to 2 billion. Both Kenya and Uganda have seen more than a four-fold increase in exports to neighboring countries in 2000-10. FIGURE 4 Sub-Saharan Africa: exports and intra-regional trade Uganda’s exports to Kenya, Rwanda, Sudan, Democratic Intra-regional $1bn Republic of Congo, Tanzania, and Burundi are close to and south- 100% $59bn south trade are $6bn 100 percent of its total intra-regional exports in recent growing 80% $36bn years. Kenyan exports to the top six neighboring $15bn countries (Uganda, Tanzania, Sudan, Somalia, 60% $87bn $17bn Democratic Republic of Congo and Rwanda) account 40% $55bn for about 80 percent of its total exports to African countries in recent years. While Uganda exported 20% $29bn $76bn mainly food items in the early 2000’s, it has diversified 0% to manufactured products in recent years. Kenya’s main 1995 1997 1999 2001 2003 2005 2007 2009 exports to neighboring countries are manufactured China Intra-Africa Other countries Other industrial EU-27 goods, with increased exports recently in machinery and Source: WITS COMTRADE database and staff calculation. transport equipment. 1 Kenya, Uganda and Tanzania are the founding members of the EAC in 2000, while Rwanda and Burundi joined the Community in 2007. 4 > A F R I C A’ S P U L S E Uganda’s exports to neighboring countries by commodity groups Uganda exports to neighboring countries by commodity groups Kenya’s exports to neighboring countries by commodity groups Kenya exports to neighboring countries by commodity groups FIGURE 5, 6 700 2500 Trade with Other Other neighbors 600 Manufactures Machinery etc. 2000 is growing. Food Manufactures 500 Food Uganda has moved from Million $US Million $US 1500 400 exporting mainly 300 1000 food items (in 2000) to 200 manufacturing 500 100 goods. Kenya’s main 0 0 exports are in 1995 1997 1999 2001 2003 2005 2007 2009 1995 1997 1999 2001 2003 2005 2007 2009 manufacturing. Source: WITS COMTRADE database and staff calculation. Tourism. Despite a slowdown in Europe, there was positive news on the tourism front—a major sector in several countries, especially island economies—as international tourist arrivals edged up by 7 percent in 2011 (World Tourism Organization). The uptick was a combination of a shift in tourist origination countries and a fall off in tourism traffic in competing destination countries of North Africa. A number of African countries were able to attract new tourists from Asia. For example, Mauritius saw a 21.7 percent increase in tourist arrivals from Asia, while arrivals from Europe grew by only 3.8 percent. While the economic fluctuations in traditional source markets continue to unfold, emerging source markets are The latest Index of Economic Freedom finds that although Sub-Saharan BOX 2 becoming critical to the sector’s performance in Africa. Africa lags in overall economic freedom, the region led in expansion Africa’s FDI and remittances. The latest data show a sharp of economic freedom in 2011. The 2012 Doing Business report finds improving business rebound in FDI inflows to the region. FDI flows jumped that 78 percent of countries in the region enacted at least one reform, climate 25 percent in 2011, after declining sharply in 2009 and compared to about 56 percent less than a decade ago. While this 2010. But at an estimated $35.6 billion, FDI flows are transformation has been evident in the frontier economies for some time, it has started taking root in several post-conflict countries such still below their peak of $37.5 billion in 2008. Although as Liberia, Sierra-Leone and Burundi where governments undertook FDI continues to be concentrated in the extractive significant reform in at least three areas: obtaining credit, paying taxes industries--oil, base metals, and minerals--an improving and protecting investors. This progress notwithstanding, the region business climate and favorable economic prospects are still lags behind the rest in efficiency and strength of legal institutions, attracting investment flows in the telecommunications, making it challenging for entrepreneurs to start and maintain a business. real estate, and retail sectors. Remittances have rebounded as well, posting a high of $23 billion (est.) in Change in Index of Economic Freedom score (in 2011) FIGURE 7 2011. Several countries remain heavily dependent on 5 Africa is the 4 most improved remittance flows. Change in overall score of economic freedom 3 region in the 2 2012 index Consumption. Private consumption growth has 1 of Economic rebounded from the 2008/09 decline, and averaged 0 Freedom 4.2 percent per year during 2009-11. This growth rate -1 Equatorial Guinea Guinea-Bissau Côte d'Ivoire Madagascar Cape Verde Zimbabwe Botswana Mauritius Rwanda Burundi Nigeria Zambia Liberia Ghana Kenya -2 is below the pre-crisis peak of 6.3 percent in 2007. -3 Consumption expenditures, which account for 60 -4 percent of GDP, were supported by rising incomes and -5 Source: Heritage Foundation, 2012 Index of Economic Freedom. improved access to credit. Note: The overall score is based on four broad areas of economic freedom: rule of law, regulatory efficiency, limited government, and open markets. Scores are on a scale of 0-100, where 100 represents maximum freedom. A F R I C A’ S P U L S E > 5 Policy space. Although the region saw solid growth in Domestic demand drives GDP growth in Sub-Saharan Africa FIGURE 8 Contribution of domestic demand and net exports to GDP growth 2011, many African countries are entering 2012 with Domestic Domestic Demand less fiscal and monetary policy space. The expansionary 7 demand drives Net exports 6 fiscal policy stance, that started in 2008, has translated GDP growth in GDP growth 5 into a deterioration in the fiscal balance excluding Sub-Saharan 4 Africa grants, from a median value of -5.2 percent of GDP 3 2 in 2008 to -7.8 percent in 2010 and an estimated -7.1 1 percent in 2011. The decline is evident across all country 0 -1 groups, albeit with considerable variation. The average -2 balance for oil-exporting countries fell sharply from 6.8 2009 2010 2011 percent in 2008 to -2.9 percent in 2010. High oil prices Source: Development Prospects Group, Workld Bank. have helped to strengthen the fiscal balance to 2.6 percent in 2011. Non-oil resource rich countries saw a deterioration of the fiscal balance from -3.2 percent of GDP in 2008 to -6.7 percent in 2011, and non-resource rich countries’ balance declined from -3.4 percent of GDP in 2008 to -6.1 percent in 2011. Seventy-five percent of countries have seen a deterioration in their fiscal balance since 2008. A notable exception is Ghana, which had a moderate risk of debt distress in the period preceding the crisis, and tightened fiscal policies. A large number of countries saw an increase in the public debt-to-GDP ratio between 2008-2011. Elevated oil prices have helped strengthen the current account balances of oil exporting countries; some countries have re-built reserves. However, close to half of the non-oil rich countries are seeing larger current account deficits. African countries’ debt burdens remain moderate and manageable, but 11 countries have seen a six percentage point or larger increase in their debt-to-GDP ratio between 2008-2011. FIGURE 9 Current Account Balance as percent of GDP, before and after the crisis Fiscal Account Balance as percent of GDP, before and after the crisis Despite solid 40% 20% growth in 30% 2007/08 2007/08 non oil resource rich countries Current account balance as % of GDP 2011, many non oil resource rich countries 15% 2010/11 2010/11 Fiscal balance as % of GDP 20% SSA countries 10% are entering 10% 2012 with 0% 5% less fiscal and -10% 0% monetary -20% Oil exporting countries policy space. -5% -30% Oil exporting countries -40% -10% Rwanda Kenya CAR Mozambique Gambia Zimbabwe Zambia Namibia Botswana Niger Sierra Leone Gabon Nigeria Angola Côte d'Ivoire South Africa Burkina Faso Liberia Senegal Kenya Uganda Tanzania Niger Zambia DRC Gambia Mozambique Namibia Sierra Leone Botswana Cameroon Chad Sudan Nigeria Equatorial Guinea Côte d'Ivoire Source: IMF WEO database and staff calculation. Source: IMF WEO database and staff calculation. Several African countries saw an uptick in inflation in 2011: median inflation rose from 4.3 percent at end 2010 to 7.2 in the third quarter if 2011. There was considerable variation across countries. Inflation in the region’s oil exporting countries was stable, but not in oil importing countries. Rising global food and fuel prices in the first half of the year put pressure on headline consumer price inflation in oil importing countries. Most countries allowed a pass through of higher food prices to domestic markets, but the pass through of higher fuel prices was mixed. East African economies were particularly hard hit as poor rains and harvests added further pressure to food prices. In several countries accommodative monetary policy with higher food price inflation contributed to overall inflationary pressures. Monetary financing of the government deficit intensified inflationary presures in Ethipia and Uganda. In Ethiopia, inflation ratcheted up to 40.1 percent in September 6 > A F R I C A’ S P U L S E from 14.5 percent at the beginning of 2011. In Uganda, External debt burden (debt/GDP in %) FIGURE 10 inflation climbed to 30.5 percent in October. In Kenya inflation surged to 19.7 percent in November. There Higher fiscal São Tomé & deficits and Príncipe 82 was some moderation of inflation in December. debt mean Expansionary monetary policy put pressure on Senegal 49 it would be harder for SAA exchange rates, and several countries saw a weakening Sierra Leone 40 countries to of their nominal exchange rates. use monetary Tanzania 40 and fiscal The combination of weaker internal and external policy to Kenya 30 absorb the balances and higher inflation mean that it will be Ghana impact of 27 more difficult for monetary and fiscal policy to absorb global shocks. exogenous shocks. Burkina Faso 26 Mali 25 Outlook for Sub-Saharan Africa. What can Africa expect in 2012? Barring a serious deterioration in the Botswana 23 External debt as a percent global economy, the outlook for the region is positive, of GDP in 2008 Uganda 20 with an uptick in growth to 5.3 percent in 2012 and Change in debt burden between 2008 Ethiopia and 2011 (in percentage points) 5.6 percent in 2013, above the pre-crisis average of 5 19 0 20 40 60 80 100 percent. High commodity prices and strong domestic demand are expected to sustain the expansion. Source: IMF WEO database and staff calculation. Inflation Nominal exchange rate FIGURE 11 East African 30 3000 105 Uganda Shilling/US$ economies saw 2010/11 2011/12 2800 100 Ugandan/Tanzanian Shilling to USD 25 Tanzania Shilling/US$ an acceleration 2600 Kenya Shilling/US$ 95 in inflation and kenyan shilling toUS$ 20 2400 In ation rate in% 2200 90 a depreciation 15 17.9 of the nominal 2000 85 10 14.4 6.7 1800 exchange rate 80 1600 5 75 1400 0 1200 70 Kenya Tanzania Uganda Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Sources: Country Statistics Bureaus, Country Economic Updates Sources: Central Bank of Kenya, Bank of Tanzania and Bank of Uganda Kenya Food and fuel price increases 30.0% are not the only Food Transport Core Overall Uganda 2008/9 2010/11 2010/11 2011/12 cause for rising 25.0% prices Monthly In ation yoy % change Headline 20.0% 14.2 9.4 6.5 24.4 inflation (%) 15.0% Inflation 10.0% (excluding 12.5 7.8 6.3 26.2 food) (%) 5.0% 0.0% Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct 2010 2011 Source: Country Economic Update and Staff Estimates A F R I C A’ S P U L S E > 7 BOX 3 African countries have seen a dramatic shift in trade partners, thanks to a rapid growth of trade with emerging market countries: Between 2000 and Sub-Saharan 2010, the share of exports to the advanced economies (EU, US and Britain) has fallen from 67 percent to 47 percent and that to China has grown from 5 Africa: percent to 18 percent. Although African countries have been successful in diversifying export partners and markets, their dependence on commodities Diversifying remains high. Export diversification is still in the nascent stage among Sub-Saharan African countries, with little progress in the last decade. Oil export partners, but exporting countries remain the least diversified, with the share of crude petroleum exports in total exports unchanged at 94 percent between 1998- not exports 2000 and 2008-2010. Costal countries have the most diversified export base, but the share of commodities in total exports has declined very slowly.1 Consumer-goods exports, which tend to generate more employment than raw-materials exports, have become very important for a number of countries, especially small island countries. These goods account for more than 50 percent of total exports for Madagascar, Mauritius, Seychelles, Lesotho, and Kenya. For Cape Verde, Comoros and Swaziland, they account for more than 30 percent of total export. European markets absorb a much higher proportion of African consumer-goods exports than emerging economies or the United States. About one third of African consumer-goods exports are sent to EU countries. A few countries rely especially heavily on demand from the EU market, such as Cape Verde and Seychelles. A recession in Europe could affect these countries severely. The major European destinations for African consumer-goods exports include Germany for Comoros and Madagascar; Spain for Cape Verde; France for Madagascar, Mauritius and Seychelles; England for Kenya, Mauritius, and Seychelles; Italy for Seychelles; and Portugal for Cape Verde. 1 It should be noted, however, that the largest three commodity groups are based on SITC3 classification 4-digit subgroups. Therefore, if any diversification occurred within a 4-digit group, it will not appear as an export diversification. For example, if Rwanda exports washed coffee, it will still be lumped into “Coffee, not roasted�. FIGURE 12 The median share of the largest 3 commodities in total exports by country group Although SSA 100% Risks on the downside loom large, however. If the 1998~2000 2008~2010 countries have diversified their 80% 94% 94% situation in high-income countries deteriorates trading partners, 81% 80% significantly, growth in Sub-Saharan African countries they haven’t 60% 69% 67% diversified their could be substantially downgraded. A sharper 55% 54% exports. Oil ex- 40% contraction in the Euro Area GDP, i.e. from -0.3 percent porting countries remain the least 20% (Baseline Scenario) to -2 percent, would reduce Africa’s diversified, with growth rate by 1.3 percentage points, dipping it to little progress 0% towards diversifi- Oil countries Non-oil Coastal Landlocked around 4 percent. Commodity prices and trade are resource rich cation in the last decade. Sources: COMTRADE and staff calculation based on SITC3 classification 4-digit subgroups. the main channels through which shocks would be transmitted to African countries. A sharp slowdown FIGURE 13 Consumer-goods exports as a percent of total exports emanating in Europe would depress global demand Consumer- Madagascar putting downward pressure on commodity prices: oil goods Mauritius exports have Seychelles and metals prices, which could fall by nearly a fifth Lesotho increased Kenya (18 percent) according to the World Bank’s Global especially in Swaziland small island Comoros Economic Prospects, sharply lowering export revenues countries. Cape Verde Senegal and external and internal balances of commodity Benin Sao Tom & P. exporters. The effects will vary by country, depending Mozambique on the pattern, composition and concentration of SSA 0% 10% 20% 30% 40% 50% 60% 70% 80% trade. African countries’ exports continue to be heavily Sources: COMTRADE and Staff calculation. concentrated in primary commodities (Box). This is FIGURE 14 Consumer-good export to EU as percent of total consumer good exports especially so for oil exporters, but also for landlocked The EU countries. Under this crisis scenario, oil and mineral Cape Verde 93% absorbs Seychelles 92% exporters would be particularly hard hit. about a Mauritius 71% Ethiopia 70% third of the Madagascar 59% If the recession of 2008-09 is any guide, remittances region’s Comoros 39% consumer- Kenya 37% could dip as well. While Europe is an important goods SSA 33% South Africa 20% source of remittance flows, the impact on African exports 0 20 40 60 80 100 countries will differ. Countries with a high reliance on Sources: COMTRADE and Staff calculation. remittance inflows from hard hit source countries will 8 > A F R I C A’ S P U L S E be most vulnerable. Aid flows could come under pressure, too. Bilateral aid from advanced economies of Europe (and EU institutions) accounts for 45 percent of net official development assistance to Sub-Saharan Africa. Other transmission channels are likely to be less important for the continent as a whole. The impact of a decline in international cross-border lending will be limited to a few countries and sectors. Foreign bank claims average about 10 percent of GDP for the region.2 But these claims are more than 20 percent of GDP in countries such as Mozambique, South Africa and Senegal. A sharp pullback in lending by European banks, which account for the bulk of cross-border lending to the region, would require borrowers that rely heavily on foreign bank lending to seek alternative sources of financing. The impact of reduced portfolio flows (as a result of a decline in global investor confidence) will largely be felt on the more developed stock and fixed-income markets in the region. High and volatile local food prices are a source of vulnerability. Global food prices appear to have Wheat/Wheat Flour Prices FIGURE 15 stabilized, but local trends vary as domestic food 450 Food staple 400 prices in Sub-Saharan Africa reflect local conditions. price trends Price Index (Jan. ‘07+100) 350 reflect local The erratic rains affecting West Africa’s Sahelian staple 300 250 conditions crop harvests in 2011 are raising the spectre of food 200 insecurity in 2012, especially for parts of Mauritania, 150 100 Niger and Chad.  Prices of domestically produced 50 Jan-07 May-07 Aug-07 Nov-07 Feb-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Feb-11 May-11 Aug-11 Nov-11 cereals continued the mixed trends since September, increasing or remaining firm in several markets at the BI-Bujumbura* ET-Addis KE-Nat’l Ave.* MZ-Maputo* SD-Khartoum TZ-Dar World FAO Food Price Index tail end of the 2011 harvest.  In most countries, prices are generally higher than at the same time last year.  In Maize/Maize Flour Prices–Horn of Africa 450 East Africa, prices of cereals showed mixed trends into 400 Price Index (Jan. ‘07+100) December while still at high levels overall.  Secondary 350 300 rains (October-December) have been well above 250 average including in 2010/2011 drought-hit areas.  But 200 150 Sudan and South Sudan are vulnerable because of 100 delayed harvests and insecurity, and prices are on the 50 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 increase.  Southern Africa faces a more fragile food situation than a year ago, with the traditional surplus ET-Addis ET-Dire Dawa KE-Nat’l Ave.* SD-Khartoum UG-Gulu* UG-Kampala* World FAO Food Price Index supplier of maize, South Africa, hardly exporting on * maize flour (dashed lines) the heels of a poor 2011 harvest, and several countries Source: Country statistical office; World Bank Development Prospects Group; FAO World Food Situation, GIEWS Food Price Data & Analysis Tool including Zambia confronting poor weather for the planting period of the new cereals’ season.  In light of the vulnerabilities, countries need to be prepared to respond to unfolding events. The appropriate policy response will depend on country-specific conditions. In general, countries with weak internal and external balances, relatively high inflation, and large debt have less room for policy easing, and these countries will need to be more cautious in pursuing expansionary policies. Prudent fiscal spending will require prioritizing investment. Focus must also be on measures to strengthen safety nets and protect the poor. For example, Rwanda is increasing the capacity of its social safety net system and consolidating its safety net programs to make them more efficient. To develop a sustainable and permanent social safety net system that can be scaled up in case of crises, Mali is establishing a Technical Unit in the Ministry of Economy and Finance for designing, coordinating and monitoring social safety net interventions. 2 Benedicte Vibe Christensen, 2012, “Have monetary transmission mechanisms in Africa changed?� A F R I C A’ S P U L S E > 9 W W W. W O R L D B A N K . O R G / A F R I C A S P U L S E