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Africa rockets out of recession

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Africa rockets out of recession

16th July 2010

By: Keith Campbell
Creamer Media Senior Deputy Editor

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Africa is the region that is growing fastest out of the global recession. “Our prediction is that this year the continent will have a growth of 4,5%, next year 5,5% and then 6%,” reported African Development Bank vice-president and chief economist Professor Mthuli Ncube at the launch of the bank’s ‘African Economic Outlook 2010’ report last week. Moreover, African inflation currently averages 6,3% and is trending downwards. “This is a great time to be marketing Africa.”

The continent suffered a sharp downturn owing to the recession but is now experiencing a strong upturn – a V-shaped recovery. Africa’s success is the result of the economic reforms of the 1990s. Command-style economies were abandoned in favour of more market-orientated economies. “These economic reform programmes worked,” he affirmed. “What economic reform managed to do was to push Africa’s [precrisis] economic growth to about 6%.”

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In addition, rigid exchange rates were, in most countries, replaced by flexible ones. “Flexible exchange rates are essential to absorb shocks. Flexibility is the way to go, to deal with crises,” he highlighted.

Another result of these successful economic reforms was that African countries faced the onset of the recession with fiscal surpluses, or only small deficits, which allowed them to adopt countercyclical policies. Ncube described this as a “resilience factor”.

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Another resilience factor was China. “China is the big story” and its economy is forecast to double in size in the next ten years, if not sooner. The giant Asian economy has had a very powerful effect on Africa and the exponential growth in trade between the two has been “really phenomenal”. Ncube argued that the next stage of Chinese involvement with the continent would see investment in industrial parks and export zones across Africa.

“The Chinese look after their interests and they do it very well. But China is giving Africa what it needs right now,” he stressed. “Africa needs a strong trading partner – it needs a strong investment partner. In fact, China is giving the world what it needs. The world needs a market right now. It’s not just Africa.”
Other partners for the continent are also emerging. “India is coming,” he cited. “India and Africa are going to be a big story in the next five years. Turkey has shown up, especially in Ethiopia. Brazil is very active in the Lusophone countries. And South Korea is very good in knowledge transfer.”

However, trade between African countries, particularly neighbours, remains disappointing.
“There is economic activity across borders,” said Ncube. “There just isn’t enough of it.” While intra-African trade remains very limited, intra-African investment is “much more exciting” and involves banks, mining groups and telecommunications companies.

Within Africa, the fastest-growing region is East Africa. “There are 85-million people in Ethiopia. Ethiopia has been growing at 10%. There is very good macroeconomic management in Tanzania, Uganda and Rwanda,” he explained. Rwanda is consciously seeking to emulate Singapore, and has created a Department of Strategic Planning and Execution.

In West Africa, Nigeria has managed to diversify its economy away from dependence on oil. Although oil still accounts for 95% of Nigeria’s exports, it is responsible for a much lower proportion of the gross domestic product (GDP) – 32,3% last year. Agriculture made a greater contribution, at 36,5%, while the services sector was responsible for 8,2% of GDP.

“In North Africa, Egypt is strong in entrepreneurship,” cited Ncube. “Algeria and the other states are resource economies but have good diversification with tourism and services.”

The slowest-growing region is Southern Africa. Of the ten African countries which experienced economic contraction last year, five were in Southern Africa (Angola, Botswana, Namibia, South Africa and Swaziland) – six, if you include Madagascar.

The risk factors facing Africa include political crises; a failure of the global economy to recover as expected; a return to rising food prices; and growth driven by commodities might result in African economies becoming more specialised and so more vulnerable to market volatility.

“A lot of countries in Africa have done quite a bit in [economic] diversification, but they need to do more,” urged Ncube. “What is missing in Africa is venture finance. There isn’t any in Africa. A lot of small and micro- enterprises in Africa are survival enterprises, not entrepreneurial ones.”

To date, the some $100-billion annual aid flow into Africa has not been affected by the global recession, but with a number of major developed countries now planning significant cuts in government spending, this could change. This might not, however, necessarily be a bad thing.

“I am worried about French West Africa,” he cautioned. “It’s very closely tied to France and the eurozone.” The other four African countries whose economies shrank last year were all in Francophone West Africa – Chad, Gabon, Mauritania and Niger. (From smallest to greatest contraction in percentage terms, the ten countries rank as follows: Swaziland, Angola, Chad, Niger, Gabon, Mauritania, South Africa, Namibia, Botswana and Madagascar).

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