Into Africa

©Zohra Bensemra/Reuters

Africa did not cause the economic crisis, but will suffer from it. What are the prospects?

With developing countries now accounting for about 30% of world trade, development policies are about more than lifting people out of poverty and achieving the UN Millennium Development Goals. They have a serious and systemic impact on the welfare of the entire global economy.

Developed countries should be particularly concerned about Africa. Aid and technical support, but above all more trade and investment, would help reverse what is becoming an increasingly worrying economic outlook.

Only a year ago Africa's economic growth prospects seemed historically bright. However, then the OECD warned of an uneven picture, with oil exports, for instance, accounting for a disproportionate amount of growth. Poverty was still widespread, and was not helped by high food prices.

Institutional reform and human capital were also areas in need of attention. But with the economy then looking relatively good, there was widespread optimism about progress.

But with the global crisis, GDP in the OECD countries is now expected to contract sharply in 2009 and be virtually flat in 2010, while growth in emerging economies will slow dramatically. World trade is expected to contract by 13.2% in 2009-its first decline in 60 years. For Africa, this means that growth projections for 2009 have fallen to 2.8% after four consecutive years above 5%, though further downward revisions cannot be excluded.

The hardest hit African economies are those that rely heavily on commodity exports for their income. Oil prices are starting to rise now, but some of that rise may be speculation. Most commodity prices are right back towards their 2005 or 2006 levels, many of them registering declines of 40% or more since early 2008. At the same time, the world downturn and dip in oil prices from last year have led to a slowdown in investment in oil and mineral production, which will affect growth in 2009 and 2010.

African countries that rely on importing oil and other commodities face challenges too, with GDP growth in many of them expected to fall sharply in 2009 and 2010. For many countries in the region, high prices for imported food persist, seriously affecting the poor, particularly in the cities. Meanwhile, inflation has been volatile, as increases in international commodity prices from recent years pass fully through to consumers.

If there is good news, it is that several years of solid expansion and reform were not for nothing. Africa is now better equipped to withstand an economic crisis than it was ten years ago. Wiser macroeconomic policies have strengthened fiscal positions, while debt relief has eased financing constraints. This should help many countries to avoid drastic spending cuts and even run budget deficits.

The business environment has greatly improved both for domestic and foreign operators, as shown by higher scores on the World Bank's "Doing Business" indicator. One reason is Asian and Latin American emerging markets whose growing influence in trade, investment and aid is reducing the continent's vulnerability to the woes of OECD countries.

The trouble is, Asia and Latin America have also been affected by the crisis, and a prolonged downturn could leave a real dent in Africa's economy.

In other words, African countries need donor support more than ever to continue investing in infrastructure and structural reforms. To abandon these efforts would damage confidence and growth prospects, and the price of that would be more poverty.

Indeed, with foreign private capital flows and government revenues drying up, official development assistance (ODA) should not only be maintained, but scaled up and used against the downturn.

 Globally, aid has risen and most donors are so far holding to their promises in the face of the crisis. Africa was not an exception. In 2008, net bilateral ODA from OECD donors to Africa totalled $26 billion, of which $22.5 billion went to sub-Saharan Africa. Bilateral aid to Africa and sub-Saharan Africa, excluding volatile debt relief grants, rose by over 10% in real terms.

The danger in 2009 and 2010 is that ballooning fiscal deficits and fragile political support could trigger a slide in aid levels. Donors must resist this. Also, though developing countries are increasingly important players in world trade, world trade remains essential to development. This makes it doubly urgent for countries to strengthen their efforts to conclude the Doha trade talks in 2009.

Trade finance has become more essential than ever, and fortunately OECD countries and other large economies have pledged to ensure that sufficient funds are available for exporting companies the world over, including in developing countries. Meanwhile, as the latest African Economic Outlook suggests, cash-rich countries, such as China, could set up facilities with regional multilateral agencies, like the African Development Bank, to provide the needed financing. Good governance is essential More trade and aid will have little effect without action on other fronts. Take political governance. Some countries continue to face particularly serious problems, such as the humanitarian catastrophe in the Darfur region of Sudan, the economic collapse in Zimbabwe, and political unrest in Guinea, Guinea-Bissau, Equatorial Guinea, Madagascar and Somalia. There is also embedded corruption in some states. Maintaining political and social stability will be a challenge, particularly if commodity prices spike again in the months ahead.

There are promising signs, though. Increased political awareness among the population has made some governments more accountable. They now convene regular electoral consultations and implement structural reforms in public administration, which have improved governance and increased transparency. In addition, some countries have improved their macroeconomic management and the regulatory environment. Positive signs also come from regional co-operation on governance in the framework of the African Union and in the African Peer Review Mechanism. However, while violent conflicts appear to have subsided, social instability worsened overall in Africa between 2007 and 2008, and many governments responded with tough measures. How this will evolve in the current period of economic stress is a matter of some concern. Meanwhile, the economy presents major challenges to resolve in areas such as infrastructural development and maintenance, communications and investment. Technology offers some respite. Innovative use of information and communication technologies is breaking down long-standing barriers to market development. Four out of ten Africans own a mobile phone, and mobile-banking solutions are quickly scaling up on a continent with low levels of bank users. In Kenya, where only 26% of the population has a bank account, mobile-payment services have attracted over five million users in less than two years.

Such developments are making it possible for businesses to deliver sophisticated services to the continent's population for the first time. In agriculture, IT has brought together farmers and buyers in more transparent online marketplaces. In Senegal, farmers can check market prices in real time on their mobiles to obtain the best prices for their crops. Regional integration is being reinforced as more inland broadband links are built. Pan-African operators are already offering free roaming services across several countries. In fact, Africa is the only region in the world where this innovative business model exists. MA/RJC

 

References

See www.africaneconomicoutlook.org and www.oecdobserver.org/africa

See also "Africa emerges", in OECD Observer No 267 May-June and "Make aid work", in OECD Observer No 269 October 2008

Visit www.oecd.org/trade and www.oecd.org/development

©OECD Observer No 273, June 2009

 

 

 




Economic data

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive print editions delivered to you directly


Online edition
Previous editions

Don't miss

  • “Nizip” refugee camp visit
    July 2016: OECD Secretary-General Angel Gurría visits the “Nizip” refugee camp, situated between Gaziantep and the Turkish-Syrian border, accompanied by Turkey’s Deputy Prime Minister Mehmet Şimşek. The camp accommodates a small number of the 2.75 million Syrians currently registered in Turkey, mostly outside the camps. In his tour of the camp, Mr Gurría visits a school, speaks with refugees and gives a short interview.
  • OECD Observer i-Sheet Series: OECD Observer i-Sheets are smart contents pages on major issues and events. Use them to find current or recent articles, video, books and working papers. To browse on paper and read on line, or simply download.
  • Queen Maxima of the Netherlands gives a speech next to Mexico's President Enrique Pena Nieto (not pictured) during the International Forum of Financial Inclusion at the National Palace in Mexico City, Mexico June 21, 2016.
  • How sustainable is the ocean as a source of economic development? The Ocean Economy in 2030 examines the risks and uncertainties surrounding the future development of ocean industries, the innovations required in science and technology to support their progress, their potential contribution to green growth and some of the implications for ocean management.
  • OECD Environment Director Simon Upton presented a talk at Imperial College London on 21 April 2016. With the world awash in surplus oil and prices languishing around US$40 per barrel, how can governments step up efforts to transform the world’s energy systems in line with the Paris Agreement?
  • Happy 10th birthday to Twitter. This 2008 OECD Observer interview with Henry Copeland said you’d do well.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Once migrants reach Europe, countries face integration challenge: OECD's Thomas Liebig speaks to NPR's Audie Cornish.

  • Message from the International Space Station to COP21

  • COP21 Will Get Agreement With Teeth: OECD Secretary-General Angel Gurría on Bloomberg

  • The carbon clock is ticking: OECD’s Gurría on CNBC

  • If we want to reach zero net emissions by the end of the century, we must align our policies for a low-carbon economy, put a price on carbon everywhere, spend less subsidising fossil fuels and invest more in clean energy. OECD at #COP21 – OECD statement for #COP21
  • They are green and local --It’s a new generation of entrepreneurs in Kenya with big dreams of sustainable energy and the drive to see their innovative technologies throughout Africa. blogs.worldbank.org
  • Pole to Paris Project
  • In order to face global warming, Asia needs at least $40 billion per year, derived from both the public and private sector. Read how to bridge the climate financing gap on the Asian Bank of Development's website.
  • How can cities fight climate change?
    Discover projects in Denmark, Canada, Australia, Japan and Mexico.
  • Climate: What's changed, what hasn't, what we can do about it.
    Lecture by OECD Secretary-General Angel Gurría, hosted by the London School of Economics and Aviva Investors in association with ClimateWise, London, UK, 3 July 2015.

  • Climate change: “We should not disagree when scientists tell us we have a window of opportunity–10-15 years–to turn this thing around” argues Senator Bernie Sanders.

  • In the long-run, the EU benefits from migration, says OECD Head of International Migration Division Jean-Christophe Dumont.
  • Is technological progress slowing down? Is it speeding up? At the OECD, we believe the research from our Future of ‪Productivity‬ project helps to resolve this paradox.
  • Is inequality bad for growth? That redistribution boosts economies is not established by the evidence says FT economics editor Chris Giles. Read more on www.ft.com.
  • Catherine Mann, OECD Chief Economist, explains on Bloomberg why "too much bank lending can slow economic growth".
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .

Most Popular Articles

Poll

What issue are you most concerned about in 2016?

Unemployment
Euro crisis
International conflict
Global warming
Other

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2016