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African Economic Performance in 2004: A Promise of Things to Come?

Written by: OECD Development Centre

Article Overview: Against a backdrop of sustained global growth and high commodity prices, Africa has experienced its best economic performance in many years. While recent economic performance is not merely driven by favourable external factors, African economies still lack proper “shock-absorbers” to withstand internal (e.g. drought and floods, political instability, HIV-Aids, etc.) and external (e.g. volatility of commodity prices and exchange rates) shocks alike. They remain strongly vulnerable. In this context, creating the conditions for the development of indigenous drivers of economic activity (starting with a thriving local private sector) is a top priority.

African Economic Performance in 2004: A Promise of Things to Come?

Growth in Africa: Best Performance
in Years

Africa is currently experiencing its best economic
performance in many years. The continent’s economies are
benefiting from global expansion, notably through higher
demand for commodities at higher prices; improved
domestic macroeconomic management; and the easing of
conflicts in many countries. While serious problems persist
– including the humanitarian catastrophe in western Sudan,
the political hardening in Zimbabwe, and conflicts in Côte
d’Ivoire – prospects for much of Africa appear to remain
more favourable than they have been for many years.
The aggregate eight-year high of 5.1 per cent growth in
2004 masks striking divergences at country levels. Surges
in oil and metal prices, the dollar depreciation, record low
cotton prices, and a locust plague in the Sahel region,
affected individual countries differently.
The global economic recovery and the general rise in global
commodity prices gave a positive impetus to African oil
and metal exports. Some oil exporters also benefited from
new oil fields in Southern and Central Africa (Angola, Chad
and Equatorial Guinea). However, West African countries
are facing losses from lower prices for cotton and cocoa.
The sharp euro appreciation has adversely affected the
Franc Zone countries, while the strengthening of the rand
has affected the Southern African economies whose
currencies are pegged to it.
Africa benefited from the rise in official aid in the last three
years, although much of the increase was due to
emergency assistance and debt relief. Good performers,
such as Ethiopia, Mozambique and Tanzania, accounted
for the bulk of aid; conversely, aid to Zimbabwe and the
Central African Republic has decreased considerably,
reflecting mounting governance problems. Despite rising
aid levels, the Millennium Development Goals (MDGs)
remain underfinanced (by more than $40 billion, overall)
and progress on most of the eight goals set for 2015
remains limited (see table).
Favourable weather conditions in Eastern, Central, and
Southern African translated in a rebound in agricultural
production (mainly in Ethiopia, Malawi, Zambia and
Rwanda). In contrast, agricultural output in West Africa
suffered from locust infestation, although its impact was
limited by early treatment of infested areas.
Prudent macroeconomic policies have helped economic
recovery. Inflation has reached overall historical lows,
despite increasing oil prices. Low world-wide inflation
benefited countries with pegged exchange rates, such as
CFA franc countries, while prudent monetary policy played
a key role in an increasing number of floating-rate
countries. The windfall gains from commodity prices have
improved public finances in oil-exporting countries.

African Economic Performance in 2004:
A Promise of Things to Come?
by Nicolas Pinaud and Lucia Wegner
Policy Insights No. 6 is derived from the African Economic Outlook 2004/2005, a joint publication
of the African Development Bank and the OECD Development Centre

Related Articles
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  Solid Growth in Sight, but There Are Risks
  African Reforms are essential to Boost Private-sector Development and Improve Governance
  Improving Management of Oil Revenue during Periods of Price Booms
  Facts about SMEs in Africa

Article Tags: african economies, central africa, commodity prices, cotton prices, economic performance, emergency assistance, equatorial guinea, franc zone, global commodity, global expansion, humanitarian catastrophe, locust plague, low cotton, macroeconomic management, millennium development goals, new oil, oil exporters, oil fields, sahel region, western sudan



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