By Joachim Arrey
The African Development Bank (ADB) Group on Sunday, May 13, 2007, in Shanghai,China, released a report on the continent’s economic outlook. The report, which is jointly published with the Organization of Economic Cooperation and Development (OECD), provides a clear picture of how the continent is fairing economically and the challenges it is dealing with. The African Economic Outlook (AEO) is based upon the experience and skills of the OECD and the African Development Bank to provide an annual snapshot of the economic condition of the African continent. The report is a reference point and a health check for the continent as a whole, taking into account the international situation and the influences of both internal factors and of the global economy.
Launching the report, the Bank Group’s Chief Economist, Louis Kasekende, indicated that China’s economic performance offered hope to African countries that sustained high economic growth rates could be achieved and millions of people could be lifted out of poverty, adding that “the continent has experienced the highest economic growth in the last two decades, with the rate of GDP growth averaging about 5 percent annually in the past six years, and is expected to reach 6 percent in 2007. Growth has been more broad-based, with non-oil exporters growing as fast as the oil exporters. Yet, we still need to accelerate and sustain growth to the level of 7 to 8 percent to be able to achieve the Millennium Development Goal (MDG) of halving the proportion of people living in extreme poverty by 2015.”
The report indicates that economic activity in Africa rose by nearly 5.5 per cent in 2006, and is expected to remain high, at 5.9 per cent and 5.7 per cent in 2007 and 2008, respectively. Oil-exporting countries, however, are outpacing others by a substantial margin. Moreover, some countries continue to face serious problems including the humanitarian catastrophe in the Darfur region of Sudan, the economic collapse in Zimbabwe, conflicts and political unrest in Ethiopia, Côte d’Ivoire, Somalia, and security problems in the oil-rich delta region of Nigeria, which are likely to dampen their growth prospects. The outlook for much of Africa continues, however, to be highly favorable. The continued global expansion, although slowing, continues to sustain demand for oil and other industrial raw materials at relatively high prices. At the same time, a significant increase in official development assistance (ODA) to Africa, driven largely by debt relief and emergency assistance, and improving macroeconomic stability have all contributed to this positive economic outlook.
In addition, increased oil and mineral production in Southern and Central Africa and some improvements in the security situation have boosted growth. Inflation, however, has returned to double-digit numbers in net oil-importing countries, mainly due to increasing oil prices. Current account balances have improved in many countries, with the largest gains for oil and metal ore exporters, while some countries were adversely affected by higher import bills and lower prices for some agricultural products, especially cocoa and cotton. The windfall gains from commodity prices have improved public finances, notably in net oil-exporting countries. These gains, the report continues, will need to be managed carefully with a sizeable proportion used for investment in transport and other infrastructure and in human resource development to lay the basis for sustained economic growth once the current commodity boom has run its course. The report identifies recent efforts by a number of oil-exporting countries to improve the transparency of their petroleum-sector operations and introduce fiscal rules for the use of oil revenue.
The challenge for net oil-importing countries, the report says, is altogether different. While GDP growth is expected to remain buoyant in 2007 and 2008, inflation is now running at double-digit levels, mainly due to a more complete pass-through to consumers of oil price increases, and reducing inflation to single-digit levels may have adverse consequences for growth. Moreover, the GDP growth forecasts in the report are associated with increases in current account deficits that result from sustained higher oil prices even while the boom in non-oil commodity prices appears largely to have run its course. The forecasts, therefore, assume that the additional funds required to finance the deficits will be forthcoming. This set of challenges for macroeconomic policy is one of the risks that must be borne in mind in assessing the current economic outlook for Africa, the report indicates.
Another challenge, the report says, is the widening of the large imbalances in the global economy. The report also indicates that should these imbalances unwind in a disorderly fashion, with sharp sudden movements in exchange rates, there could be a precipitous decline in world output and this could hurt demand for African exports. After a significant decline throughout much of the last decade, aid levels have increased in recent years and Africa is the continent that has benefited the most. The launch of NEPAD, the Monterrey consensus on financing for development in 2002, and the implementation of the Enhanced Heavily Indebted Poor Countries (HIPC) initiative and the commitments made at the G8 Gleneagles Summit (2005) which are expected to further ease external debt burdens significantly – have all played important roles in increasing flows of development finance to Africa.
However, it remains to be seen whether the amount of aid will continue to increase, once the temporary surge in debt relief and emergency aid has passed. The question is, therefore, whether donors will be able to mobilize sufficient resources to meet their commitments, which already fall well short of the amounts required to help most countries attain the Millennium Development Goals (MDGs) by 2015.
The report was released within the framework of the Bank Group’s Annual Meetings which are holding in Shanghai. The Meetings bring together several heads of state and finance ministers of the 77 member countries of the Bank Group, as well as chief executive officers of major corporations around the globe, representatives of the civil society and non-governmental organizations. This year’s Annual Meetings in Shanghai are held on the theme: Africa and Asia: Partners in Development and they constitute an ideal opportunity for the pan-African financial institution to woo Asian investors to Africa.
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