Sustained Growth for Africa, But Europe a Key Risk
Monday, 16 January 2012 | 00:00
Africa has weathered not only a global financial crisis, but also rising food and fuel prices over the past three years.
But now volatile commodity prices, weaker global growth, and continuing food insecurity are looming threats for the continent. Roger Nord of the IMF's African Department spoke about Africa’s prospects in 2012 and began by explaining the likely outlook for Africa's economy.
Nord: Our outlook for 2012 remains for strong and sustained growth, but at the same time the risks have also increased because of uncertainty, turmoil in other parts of the world, notably in Europe, and those developments will inevitably have an impact on other parts of the world including in Africa.
IMF Survey online: What about the channels of that impact—how do events in Europe impact events in sub-Saharan Africa?
Nord: The main impact, should there be an economic slowdown in Europe, will be through trade and through remittances. Africa exports a lot of products, mainly primary products, to the rest of the world and a lot of it goes to Europe, and of course African countries receive significant remittances from workers abroad. Those would be the two most immediate channels. Also official development aid would drop. I don't see that as an immediate threat, but over the medium term that is also an area that could be affected.
IMF Survey online: What are the sectors that we should be looking out for because of their potentially good or their potentially bad performances?
Nord: Primary products remain Africa's main export. Oil producers have been doing well in Africa because oil prices have been very high. Should there be a global economic slowdown, we will likely see oil prices decline. The same is true for other primary products—whether it's cooper, zinc, bauxite—all of these products are very much a function of the world economic cycle and, should the cycle turn down, prices will go down and revenues for Africa will decline.
IMF Survey online: The last Regional Economic Outlook for Africa warned about the dangers of inflation. Do those dangers still exist?
Nord: They currently do exist, particularly in Eastern Africa. In Kenya and Ethiopia, in Tanzania, and in Uganda, inflation has reached double-digit levels and to some extent well into double digits. Why? Two reasons. One is temporary. There has been a severe drought in the Horn of Africa that has affected agricultural production, and that has an impact on food products and their prices. That will pass. But there has also been an impact of looser economic policies, and looser fiscal policies in particular, and that needs to be brought back under control.
IMF Survey online: Are people in the region going to be more secure in their access to food?
Nord: Food prices and food insecurity remain major issues in many African countries. The reason for that is twofold. First is the unpredictable climate in many African countries—the drought in the Horn of Africa last year was one example. Currently the Sahel countries are also facing the prospect of poor harvests as a result of drought. The second reason is that in poor countries households devote a significant part of their household budgets to food. And again, particularly, the poor are therefore very exposed to fluctuations in food prices. That is an area that economic policy can address, and an increasing number of African countries have introduced targeted programs to help the poor.
IMF Survey online: If you had to identify one trend for the region, what would you identify as that trend?
Nord: Over the long term, Africa is well positioned because it has a young population, a growing labor force, and an ability to tap into the growth centers in the world. Over the last 10 years African trade has shifted dramatically. Ten years ago 70 percent of African trade was with its traditional partners in advanced economies. Today more than half of African trade is with new partners, mainly with emerging markets. And that allows African countries to create new opportunities, to increase both trade and economic growth and, over time, join the production value chains of the world which today are still mainly located in Asia but which in the next 10 to 20 years will increasingly shift toward Africa.