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Overview III: Economic Report on Africa 2007

Written by: United Nations Economic Commission for Africa

Article Overview: Current account balances are driven by developments in the resource sector

Overview III: Economic Report on Africa 2007

For the third consecutive year, Africa achieved a positive and increasing current
account surplus (from 2.3 per cent of GDP in 2005 to 3.6 per cent in 2006). Africa’s
average balance of payments position reflects largely developments in oil-rich
countries, which have recorded increasing trade surpluses, while their oil-importing
counterparts experienced deepening trade deficits. The deterioration of the trade
deficit is more pronounced for landlocked countries.

While exchange rates have been stable for most African countries, high commodity
dependence exposes African economies to terms-of-trade fluctuations and extreme
exchange rate volatility. The majority of African counties are dependent on oil and
minerals or a limited range of agricultural commodities such as tea, coffee, cotton
and cocoa. Thus, fluctuations in commodity prices have a significant impact on
export revenue and the exchange rate in these countries. This forces many African
countries to accumulate excessive foreign exchange reserves at high economic cost.
A better approach is to adopt a comprehensive (country-specific) strategy for prudential
regulation and capital controls that can minimize exchange rate risk while
allowing the countries to benefit from increased export revenue and foreign direct
investment (FDI) inflows.

African countries need a new approach to growth policy

More than any time before, it is now understood that the general, one-size-fits-all
growth policies embedded in macroeconomic stabilization and second-generation
reform programmes will not help African countries. Besides sustaining macroeconomic
stability, African countries need to tailor their fiscal and monetary policies
to promoting domestic investment, employment generation, and growth. Moreover,
it is necessary to identify binding constraints to growth as well as the sources
Economic Report on Africa 2007: Accelerating Africa’s Development through Diversification
of growth potential at a disaggregated level, and design incentive mechanisms to
channel resources to sectors with the highest potential for growth and employment
generation.

Social development: progress towards the MDGs remains below expectations

Compared to other regions, Africa continues to lag behind in all indicators of social
development. Measures of poverty have remained virtually unchanged over the past
decades. The average share of population below the poverty line was 44 per cent in
2002 compared to 44.6 per cent in 1990; thus, one can hardly talk of any progress
in poverty reduction. Sub-Saharan Africa (SSA) also lags behind in progress towards
universal primary education. This is despite notable progress in net enrolment rates,
which increased from 53.0 per cent to 64.2 per cent in SSA from 1990 and 2004,
and from 80.6 per cent to 94.0 per cent in Northern Africa during the same period.
It is critical to increase investment in education to match the expansion in demand
so that gains in enrolments are not achieved at the expense of quality of education.
More efforts are also needed to accelerate progress in gender equity in access to
education.

Progress is also modest in the health sector, with SSA visibly trailing behind North
Africa. A major threat to the health sector is the spread of the HIV/AIDS. Currently,
more than 25 million Africans live with HIV, and 2 million of the 2.8 million AIDS
deaths worldwide in 2005 were in Africa. In the 38 hardest hit African countries,
it is projected that there will be 19 million additional deaths due to AIDS between
2010 and 2015. Thus, more budgetary allocations are needed to increase both prevention
– including through education – as well as treatment to curb the spread of
the pandemic.

African countries also continue to face the challenge of other deadly diseases, especially
malaria, which remains the number one killer on the continent. Investment in
insecticide-treated nets has proved to be a successful approach to preventing malaria,
but more is still needed to win the war against this and other preventable and curable
diseases such as tuberculosis.

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Article Tags: Accelerating Africa s Development, Africa, African countries, African countries, exchange rate, exchange rates, foreign exchange, SSA



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