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Sunday, June 17, 2012

Africa and the Great Recession

"In previous global downturns, sub-Saharan Africa has usually been badly affected—but not this time around":

Africa and the Great Recession: Changing Times, by Antoinette Sayeh, iMFdirect: The world economy has experienced much dislocation since the onset of the global financial crisis in 2008. ... But in sub-Saharan Africa, growth for the region as a whole has remained reasonably strong (around 5 percent)...
Of course,... not all economies have fared equally well. The more advanced economies in the region (notably South Africa) have close links to export markets in the advanced economies, and have experienced a sharper slowdown, and weaker recovery, than did the bulk of the region’s low-income economies.  Countries affected by civil strife (such as Cote d’Ivoire, and now Mali) and by drought have also fared less well...
So why has most of sub-Saharan Africa continued to record solid growth against the backdrop of such a weak global economy?  And can we expect this solid growth performance to continue in the next few years?
First... As we show in the latest IMF Regional Economic Outlook for Sub-Saharan Africa ... the region has been growing consistently strongly for over a decade.  ... This solid growth record has been supported by ... significantly less civil conflict, the generally favorable commodity price developments benefiting Africa’s natural resource exporters; and the extensive debt relief provided to most highly-indebted poor countries. But I would ascribe key importance to sound policy choices by African governments – both in terms of pursuing appropriate macroeconomic policies and pressing ahead with important reform measures.
Specifically, economic policies in the last decade have been directed firmly toward economic stability and market liberalization. Inflation has been tamed, foreign reserves have risen, and debt burdens have been reduced. Fast-growing export markets in Asia have been tapped. The result has been rising investment—domestic and foreign—the deepening of financial sectors, and stronger productivity growth.
Second, sub-Saharan Africa has been partially insulated from the adverse cyclical effects of the Great Recession because of a number of key factors.  Commodity prices for African natural resources have remained relatively high to date, sustained by the continued strong growth of major emerging market economies, most notably China.  African banking systems have not experienced the severe financial stresses recorded in the advance economies... And African policymakers were able to ease budgetary policies to support economic activity during this crisis, instead of being forced to cut outlays because of severe borrowing constraints as occurred in past downturns.
Looking ahead In 2011, output growth in sub-Saharan Africa averaged 5 percent. In 2012, we project that it could be a touch higher...
Not that everything is rosy. Unacceptable levels of poverty and poor social conditions still plague the region. Employment growth lags behind most emerging markets, with much of the growth still in agriculture and traditional services. Progress toward the Millennium Development Goals is too slow. And of course, with European finances still uncertain and geopolitical uncertainty troubling oil markets, the world economy could still take another turn for the worse. A resumed global downturn would hit African exports, investment, tourism, remittances, and aid flows to varying degree – slowing the pace of regional growth for a period but not derailing it over the medium term. ...
Longer-term development Lastly, but crucially... How does sub-Saharan Africa keep up its good growth performance? Mainly, I think, by ... maintaining prudent macroeconomic policies and improving the business climate further. It also requires broadening the revenue base and modernizing public financial management so that essential spending—including on infrastructure and public services—can be financed.
It is also vital that we keep a focus on the young and on inclusive growth. Better education, robust health, and realistic job opportunities are, in the long run, truly the only secure foundations to sustained prosperity.

    Posted by on Sunday, June 17, 2012 at 02:43 AM in Economics, Kenya | Permalink  Comments (23)


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