Tweet

2.1 Growth performance VII: Economic Report on Africa 2007

Written by: United Nations Economic Commission for Africa

Article Overview: Africa needs a new approach to growth policies

2.1 Growth performance VII: Economic Report on Africa 2007

More than any time before, it is now understood that the general and one-size-fitsall
growth policies embedded in macroeconomic stabilization and second-generation
reform programmes are among the key reasons for Africa’s slow pace in achieving
and sustaining high growth (Rodrik 2004; Gottschalk 2005). These reforms
are founded on the premise that macroeconomic stability, if achieved, will stimulate
growth. After decades of the stabilization experiment, it is clear that this premise is
naive at best.

Moreover, this reform framework is too ambitious and cannot help developing
countries to design growth policies that are specific and feasible given the scarcity
of resources and the capacity constraints (McCord et al. 2005 and Zagha et al.
2006). According to these programmes, to achieve macroeconomic stability and sustainable growth, developing countries need, among other things, to promote faster
human and institutional development, accelerate privatization, develop the private
sector, promote exports to enhance economic diversification, lower transaction
costs, increase competitiveness, manage natural resource revenues for growth and
increase mobilization of domestic and external resources for development financing
(UNECA 1999).

A successful growth policy needs to have specific objectives and has to be based on
analyses that identify key country-specific constraints and priorities, and can therefore
vary across countries (Hausmann et al. 2006). In addition to general objectives,
as those embodied in the reform agenda, growth policies in high-growing developing
countries and newly industrialized countries, for example China, India and
Vietnam, are characterized by specificity and pragmatism.

Moreover, successful growth strategies require bold policy experimentation in both
the fiscal and monetary areas within a dynamic policy framework that is sensitive
to country-specific growth potentials, structural constraints, and development goals
(Hausmann et al. 2006). Failure to identify the sources of growth potential and the
binding constraints to growth result in ineffective growth strategies and inability
to achieve high growth even in the presence of abundant resources, including oil
revenues and aid flows.

While sustaining commitment to preserve macroeconomic stability, African countries
need to tailor their fiscal and monetary policies to promote investment, employment
generation, and growth (Pollin et al. 2006; Gottschalk 2005). For example, in
their efforts to ensure macroeconomic stability, governments need to define a more
flexible range for the budget deficit that can be adjusted to stimulate growth without
creating unsustainable deficits (box 2.2). Although this range may vary across
countries, evidence suggests that a deficit of 2-3 per cent of GDP is sustainable,
and gives the government enough room to expand public investment as a means of
boosting growth (Pollin et al. 2006). Moreover, while fostering price stability, monetary
policy needs to be broadened (i.e. beyond inflation targeting) to contribute to
the national agenda of achieving and sustaining higher growth. This agenda will be
undermined by tight and rigid targets for monetary and fiscal policy, as observed
in many countries and regions, and as is the case of countries in the West African
Economic and Monetary Union (WAEMU) (Gottschalk 2005).

Accelerating growth through policy experimentation

While committed to maintaining long-term fiscal deficit within a certain limit, a government can
increase spending on public investment/infrastructure, income transfers and social support,
and employment subsidies to businesses to promote accelerated employment growth without
exceeding the deficit limit. For example, a recent study suggests that South Africa can increase
spending in these areas by up to R30 billion per annum without exceeding the deficit limit of 3 per
cent of GDP (Pollin et al. 2006). A one per cent increase in the deficit-GDP ratio (from 2 per cent to
3 per cent, will finance about 47 per cent (R14 billion) of the increase in government expenditure.
The rest can be financed through increases in personal, corporate, and the value-added taxes
(R6 billion) and new revenue sources: (a) extending the Uncertified Securities Tax to cover bond
trading, in addition to secondary trading of stocks; (b) enacting a mineral and petroleum royalty
bill; and (c) the increase in incomes and decline in poverty that will result through the employmenttargeted
growth programme itself.

Meanwhile, persistent high real interest rates despite falling inflation rates have constituted a
constraint to private economic activity. It has been estimated that a one percentage point decline
in the prime lending rate, other things remaining the same, would lead to a 0.15 per cent rise in
real GDP growth, a modest increase in inflation of 0.2 per cent and also a modest exchange rate
depreciation of 0.6 per cent. Thus, easing monetary policy would boost growth with minimal and
easily manageable costs in terms of inflation and exchange rate changes.

Related Articles
  4.0 Diversification trends in Africa: Economic Report on Africa 2007
  V. D. The Future of China-Africa Economic Relations: FACTORS INFLUENCING THE GROWING TIES
  1.8 References: Economic Report on Africa 2007
  2.0 Gender in African economies: Gender Entrepreneurship and Competitiveness in Africa, 2007
  Introduction: Human Capital and Economic Development

Article Tags: growth policies, growth potential, macroeconomic stability, macroeconomic stabilization, monetary policy, newly industrialized countries



Related Forum Posts
Re: need advice - Africa is a pretty big place I think it is a question of where in Africa you would like to open a call centre. South Africa for example actually has plenty of call centres already operating, so it would very much depend on what part of Africa you are considering. MichelleJ
Re: Newbie from Africa - Hello Biiyke Welcome to the forum. Which part of Africa are you from it is quite a big continent? I live in South Africa. MichelleJ
Adventure travel to Africa. - Africa is a place where adventure is taking place. If you are a travel who loves adventure, nature, culture you should visit Africa. Safari Village operator is a .leading tour operator in Kenya who are offering marvelous tour packages to Africa. Saffari Villages Online is a trusted name for africa travel.
Re: Global Moderators - Hi GT, In my case, I only have the Report Post and the Quote buttons.
Re: Newbie from Africa - [quote="Evan":22gvtxlq]Welcome to the forums Biiyke! You asked if we know any sellers who were trying to reach the African market... I think you'd honestly have more luck going the other way - try to find sellers in Africa and sell to the rest of the world.[/quote:22gvtxlq] Hello Evan, You are absolutely correct.Thank you for your advice.That's actually the whole idea,Africa to the world and the world to Africa. So I will throw more weight on that area.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Emotional Intelligence in Business

Attracting Passionate Employees

Are You Fulfilled

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.