Africa hanging in there

By MOIN SIDDIQI

All developing regions are being hit by the slow-down in the Organisation for Economic Co-operation & Development (OECD) economies, particularly the US. This downturn in world trade has been caused by sustained weakness in non-energy primary product prices (the lowest in a generation) and stronger international oil prices.

Economic growth in the advanced countries is expected to drop sharply this year to 1.9%, against 4.1% in 2000, according to the International Monetary Fund, and in turn will reduce import demand from the OECD countries.

The forecast of world trade growth in 2001 has been downgraded to 5.5%, compared with a robust 13% expansion last year. Oil prices are projected to average $25 a barrel, exerting more balance of payments constraints upon poor fuel-importing nations. Recently, the Group of Seven (G7) Finance Ministers in Rome said: ?High and volatile energy prices were a cause of concern, especially for developing countries that are more vulnerable to crises.?

Africa to grow by 3%

The World Bank’s 2001 edition of Global Development Finance predicts that gross domestic product (GDP) growth in the developing world will decline this year to 4.2%, down from 5.4% in 2000. However, there could be a renewed recovery in 2002, unless the US’s downturn is more severe than anticipated.

Fall-out from the downturn in global business conditions and mixed fortunes of the commodity markets continue to exert a dampening impact across much of Africa, although growth performance differs among the various countries. The World Bank projects Sub-Saharan Africa (SSA) economy to grow by 3%, marginally up from 2.7% in 2000 and GDP growth in North Africa is expected at 3.9%.

Presently, the region’s oil producers are reaping the benefits of buoyant export revenues and investment spending in the hydrocarbons sector. Nigeria, Angola, Algeria, Gabon, Cameroon, Congo (Brazzaville), Equatorial Guinea, and recent producer Sudan, should register respectable GDP growth, averaging 3.4%-4.0% with a surpluse on their fiscal and external accounts.

Countries endowed with mineral resources, enjoying stable macroeconomic environments and good governance tend to perform better than average, growing at over 5% per annum. Notable examples are Uganda, Mozambique, Mauritius, Tunisia, Botswana, Senegal, Tanzania and Ghana. During the past two years however, major regional economies - Zimbabwe, Kenya and Côte d’Ivoire have been underperforming, mainly because of domestic political instabilities, leading to a lack of international funding and private investments.

For most non-oil commodity exporters, continuous deterioration in the terms of trade will further undermine their economic potential. The income loss, resulting from higher costs of imported fuel, will in effect depress domestic demand and lead to increases in trade imbalances.

On the positive side, declining interest rates in America, Japan and the European Union countries should help relieve the continent’s heavy debt burden. In 2000, Africa’s external debt totalled $334.3bn, equivalent to 58% of its GDP.

Capital inflows into Africa

The World Bank’s figures show that net capital inflow to SSA was $120.1bn between 1994-2000, of which 60.3% was official development assistance (foreign aid and grants), while foreign direct investment (FDI) constituted 30.4% and bank lending/portfolio investments (primarily to South Africa) represented 9.3% of aggregate resource flows. The top ten recipients were South Africa, Nigeria, Mozambique, Ghana, Tanzania, Angola, Uganda, Côte d’Ivoire, Ethiopia and Senegal. Excluding South Africa and Nigeria, most SSA countries rely heavily on aid inflows, especially Mozambique and Tanzania, where aid accounts for over 80% of total capital inflows.

Brighter prospects ahead?

Economic reforms in trade liberalisation, market deregulation and privatisation are having a favourable impact on Africa’s prospects. SSA’s medium-term outlook is for sustained GDP growth of around 3.5%, coupled with manageable fiscal deficits (2% of GDP) and low inflation (3%). In contrast to the early 1990s, Africa’s basic economic indicators are now much healthier.

The region’s oil exporters should outpace the continent’s average growth, thanks to firmer oil prices (projected to exceed the 10-year average of $18 a barrel) and ongoing oil and gas investments.

The exploitation of new oil deposits and structural development programmes should increase exports from Nigeria, Angola and Equatorial Guinea in coming years. The large capital projects, like the West African gas pipeline, (connecting Nigeria to down-stream markets in Ghana, Togo and Benin) and the Chad-Cameroon oil pipeline, should underpin regional growth and job creation.

For non-oil exporters, weaker prices especially of coffee and cocoa will, sooner or later, bottom out and modest recoveries are anticipated in the near-term.

This would improve the export earnings of Côte d’Ivoire and Ghana, the world’s leading cocoa producers.

Overall, the World Bank predicts Africa’s export volumes to expand by 5.5% annually over the next three years, compared with 4.6% between 1990-2000.

Distorted media images

Africa remains a region of astonishingly rich mineral and energy resources, but the main problem is its negative image within the international investment community. Despite strong commitments to market reforms attracting significant improvements in FDI during the 1990s, in diverse regions of Africa the Western media largely presents a profile of a continent mired in civil strife, political turmoil, corruption, famine and disease.

But their perception is distorted. In fact, only six of Africa’s 54 countries are embroiled in military conflicts, the rest are at peace and many have undergone landmark political reforms. Almost two-thirds have achieved economic stability and are recording buoyant growth.

Whilst the former socialist Eastern European countries have managed to convince foreign investors that the era of state monopolies, inefficiency and rampant corruption is now over, most African countries have yet to reap the rewards of improved governance. Foreign investments into SSA remain quite modest, totalling only $7.3bn in 2000, equivalent to 4% of aggregate FDI flows ($178bn) in the developing world.

The challenge for African leaders is to tell the world that economic and political conditions have changed for the better.

Notwithstanding improvements over the past decade, the World Bank warns that Africa’s growth will lag behind East Asia and South America. This reflects a combination of structural problems still needing to be overcome, mainly infrastructural deficiencies (transport and telecommunications), low private savings, limited access to international capital markets and an investment ratio (17% of GDP) well below the 25% level deemed necessary by the IFC to sustain robust economic growth.

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