AFRICA: Global Crisis Hits Hard – ‘But Don’t Despair’

By IPS Correspondents Reprint | | Print |

Ramesh Jaura

BERLIN, May 12 2009 (IPS) - The financial crisis that has sent economies reeling the world over is beginning to adversely affect Africa, threatening to plunge many people back into poverty and thwarting efforts to meet the target of halving the share of the population living on less than one dollar a day by 2015.

But there is no reason to despair, says Louis Kasekende, chief economist of the African Development Bank (AfDB). This is because Africa is better placed to weather the crisis than it was ten years ago.

“Asian and Latin American emerging markets have become increasingly important trade and development partners (of Africa), which also reduces the continent’s vulnerability to the economic performance of OECD countries,” says Javier Santiso, director and chief development economist of the Development Centre of the Organisation for Economic Co-operation and Development (OECD).

The Development Centre, comprising 33 OECD countries and nine non-OECD members, perceives itself as a forum for dialogue between the developing and emerging economies and their development partners.

The new report titled African Economic Outlook (AEO) was released May 11 simultaneously in Berlin and Paris. It has been published jointly by AfDB, the OECD Development Centre and the United Nations Economic Commission for Africa with support from the European Commission.

Following half a decade of more than 5 percent economic growth, the continent can look forward to only 2.8 percent in 2009, less than half of the 5.7 per cent expected before the crisis. But the authors of the report anticipate growth rebounding to 4.5 percent in 2010.

The report covering 47 African states notes that many countries have taken prudent macroeconomic reforms in the past few years. These have strengthened fiscal balances and reduced inflation to single-digit levels. Many have also benefited from substantial debt relief, with the result that debt service/export ratios are low in most countries.

The report expects growth in oil-exporting countries to fall to 2.4 percent this year compared to 3.3 percent for the net oil importers. The collapse of commodity prices and plummeting demand from OECD countries will have an adverse effect on Africa’s budget balances, with the regional budget deficit predicted to be around 5.5 percent of GDP (gross domestic product) compared to a surplus of 3.4 projected in the AEO report one year ago.

The report also finds that while official development assistance (ODA) increased in 2008, there are concerns over downward pressure on donor aid budgets due to the ongoing economic crisis.

For most of the 1970s and 1980s, growth in Africa was largely constrained by internal factors. But reform combined with a favourable external environment to enable Africa to enjoy half a decade of growth rates above 5 percent.

The financial crisis has now become an economic crisis; it has eroded benefits accumulated over the years of reform, says the report. Using an updated methodology, the African Economic Outlook reports that only a handful of African countries are on track to meet the target of halving the share of the population living on less than one dollar a day by 2015.

“However, we should not despair.” says Kasekende, “The decade of reform has introduced efficiency in macroeconomic management and made African economies more competitive. Countries should therefore desist from implementing policies that restrain further integration of the continent into the global trading and financial environment.”

The report’s regional overview reveals that economic growth in Southern Africa registered at 5.2 percent in 2008, down from 7 percent in 2007. It is expected to slow dramatically in 2009 to 0.2 percent before recovering to 4.6 percent in 2010.

Average GDP growth in North Africa is expected to improve slightly from 5.3 percent in 2007 to 5.8 percent in 2008. It is then expected to slow significantly in 2009, to 3.3 percent before increasing to 4.1 percent in 2010. All North African countries will grow more slowly in 2009, due to cutbacks in oil production and tourism receipts, says the report.

Real GDP growth in West African countries is projected to slow to 4.2 percent in 2009, from 5.4 percent in 2008 and 2007, before strengthening to 4.6 percent in 2010. Projections for 2009 indicate a slowdown in Nigeria’s growth rate to 4 percent, as a result of the OPEC quota on oil production and declining investment.

In 2008, average GDP growth in the seven countries of Central Africa registered at 5 percent, up from 4 percent in 2007. In 2009, GDP growth is expected to slow sharply to 2.8 percent and increase to 3.6 percent in 2010. Reduction in demand for oil and minerals will undermine growth in resource- rich countries, forecasts the report.

The average growth rate for East Africa is projected at 7.3 percent in 2008, down from a very strong 8.8 percent in 2007. The region’s performance is expected to slow to 5.5 percent in 2009 and remain about the same in 2010.

Ethiopia, Rwanda, Sudan, Tanzania, and Uganda – which were the fastest growing economies in East Africa in 2008 – are projected to maintain moderately robust growth in 2009 and 2010 because demand for their major agricultural and horticultural exports is less sensitive to the effects of the crisis. But Burundi, The Comoros and Seychelles would continue to stagnate; the latter two experiencing depressed tourism due to the global recession and, in the case of The Comoros, civil unrest.

Growth in Djibouti, which registered at 5.9 percent in 2008, is projected to accelerate in 2009 and 2010 to about 6.6 percent. Kenya is expected to exhibit strong growth in 2009 (5 percent) due to the recovery of domestic demand following the sharp slowdown in 2008.

The 2009 AEO has a special focus on innovations in information and communication technologies (ICTs). It concludes that despite low penetration rates for new technologies, innovative applications of ICT have been proliferating to areas such as e-banking, e-payments, e-agriculture, e- trade, e-government and e-education.

Many of these new tools are helping to shape an improved business environment by contributing to market development, overcoming traditional infrastructure constraints and reducing business costs.

“These enterprising uses of ICT show that African countries can pursue growth based on greater domestic investment and consumption, in turn reducing the impact of exogenous shocks and crises,” says Santiso.