African economies continue to sustain the growth momentum of previous years, recording an overall real GDP growth rate of 5.7 per cent in 2006 compared to 5.3 per cent in 2005 and 5.2 per cent in 2004. As many as 28 countries recorded improvements in growth in 2006, relative to 2005. Only Zimbabwe recorded a negative growth rate in 2006. Africa’s growth performance in 2006, as in previous years, was underpinned by improvement in macroeconomic management in many countries, and strong global demand for key African export commodities, sustaining high export prices, especially for crude oil, metals and minerals.
However, for most African countries, real growth rates have remained low relative to their development goals. With only five countries recording an average real GDP growth rate of 7 per cent or more during 1998-2006, few African countries are positioned to achieve the Millennium Development Goals (MDGs) by 2015. Meanwhile, growth performance exhibits substantial disparities across the five subregions. North Africa recorded the highest acceleration in GDP growth, followed by Southern Africa. There was a deceleration in growth in West Africa and East Africa, whereas Central Africa maintained the same growth rate as in 2005. Heavy dependence on primary commodities remains a common feature of production, exports and growth in all the subregions. This exposes the continent to external shocks and makes economic diversification a top priority for growth policies on the continent.
Oil-exporting African countries as a group contributed 57.5 per cent of the continent’s 5.7 per cent growth rate in 2006, compared to 53.4 per cent in 2005. Efficient management of oil revenues and economic diversification are essential for oilexporting African economies to reduce vulnerability to oil price shocks, ensure that gains from oil revenue are broadly shared, and achieve sustainable growth.
Improved economic management and increases in non-oil commodity prices have more than offset the negative impact of high oil prices on the real GDP of African oil importers. The growth impact of higher oil prices was particularly moderate for nonoil and non-mineral-rich economies, where growth performance improved from 4.1 per cent in 2005 to 5.8 per cent in 2006, thanks to debt relief and increased aid flows as well as improved agricultural production and high agricultural commodity prices. The growth rate in non-oil, mineral-rich African countries was unchanged in 2006 relative to 2005, as gains from the higher prices of minerals were dampened by the effects of rising oil prices.
To minimize the effects of high oil prices on inflation and macroeconomic stability in general, African governments need to pursue prudent policies, especially by avoiding monetization of deficits. In the meantime, the international donor community and international financial institutions should provide special support to oil-importing, low-income African countries to mitigate the impact of higher oil prices. In particular, debt relief and additional non-debt-generating external financing of fiscal deficits are critically needed to assisting African oil-importing countries to sustain economic growth and achieve the MDGs.
To learn more about this author, visit United Nations Economic Commission for Africa's Website.
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