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Overview IV: Economic Report on Africa 2007

Written by: United Nations Economic Commission for Africa

Article Overview: Growth prospects for 2007 and the medium-term outlook

Overview IV: Economic Report on Africa 2007

Africa is expected to grow at a rate of 5.8 per cent in 2007, slightly higher than the
rate recorded in 2006 (5.7 per cent). Global demand for African products – especially
oil, minerals and agricultural – is expected to remain upbeat, but this is contingent
on successful economic recovery in major industrial countries and continued
strong growth in emerging Asian economies, especially China. Moreover, delivery of
the promised aid and debt relief will allow African countries to boost expenditures in
key sectors including public infrastructure and social services. Furthermore, consoliOverview
dation of macroeconomic management will not only reduce inflation in the short
run, but also encourage private investment and strengthen growth.

Factors that are likely to hinder growth in 2007 and subsequent years include lack
of diversification of production and exports and subsequent instability and vulnerability
to shocks, and the increasing spread of the HIV/AIDS pandemic, which
undermines labour supply and labour productivity. In addition, inefficient public
infrastructure and unreliable energy supply at the national level as well as poor integration
of transportation and energy network at the regional level will continue
to undermine productivity and international competitiveness. Moreover, higher oil
prices are a major concern for African countries, which need to continue to control
inflation, promote fiscal stability, improve current account position, and increase
growth.

Challenges and opportunities in development financing

The past few years have witnessed encouraging developments in development
financing for Africa, which should have positive impact on the continent’s growth
prospects in the coming years. However, much more needs to be done in both the
volume of external finance and the effectiveness in the use of these resources.

External debt remains high and private capital flows insufficient

The hope that Africa’s external debt will be significantly reduced under the Highly
Indebted Poor Countries Initiative (HIPC) and that economic reforms will stimulate
private capital inflows has been very slow to materialize. Although Africa’s
debt stock declined considerably relative to GDP, total debt service obligations
remained unchanged in 2006 due to rising interest rates. The debt burden seriously
constrains spending on public investment and ultimately retards growth and
employment generation.

The continent has benefited from substantial inflows of external financing in the
form of official development assistance (ODA) (including debt relief ), which should
boost economic growth in the coming years. The Multilateral Debt Relief Initiative
(MDRI) announced at the G-8 summit in Gleneagles in 2005 provided much
needed relief for 13 SSA countries. However, this debt relief package is not enough
and more external funding is needed to help African countries increase growth rates
and achieve a meaningful reduction in poverty. Gross domestic investment remains
far below the level considered necessary for Africa to half poverty by 2015. Higher
external inflows will be needed to fill the chronic investment-saving gap in order to
boost economic growth.

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Article Tags: Africa, African countries, debt relief, debt relief, debt relief package, debt service, economic growth, Highly Indebted Poor Countries Initiative HIPC, investment, public infrastructure



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