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.
To learn more about this author, visit United Nations Economic Commission for Africa's Website.
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