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Solid Growth in Sight, but There Are Risks

Written by: OECD Development Centre

Article Overview: Solid growth is expected to continue in 2005 and 2006 – although at a slightly lower rate of 4.7 per cent in 2005 as the effect of new Central African oil fields ends. West Africa is expected to recover in 2005 and 2006, while the trend of positive growth in Eastern Africa and Southern Africa will continue over the next two years, reflecting rising oil production in Angola and improved performance in South Africa. This positive outlook is however highly dependent on the continuous expansion of the global economy, an overall easing of regional conflicts, and favourable weather conditions.

Solid Growth in Sight, but There Are Risks

Solid growth is expected to continue in 2005 and 2006 –
although at a slightly lower rate of 4.7 per cent in 2005
as the effect of new Central African oil fields ends. West
Africa is expected to recover in 2005 and 2006, while the
trend of positive growth in Eastern Africa and Southern
Africa will continue over the next two years, reflecting
rising oil production in Angola and improved performance
in South Africa. This positive outlook is however highly
dependent on the continuous expansion of the global
economy, an overall easing of regional conflicts, and
favourable weather conditions.
African economies are still likely to be confronted with
external or internal, global or idiosyncratic shocks. Positive
prospects might be derailed by:
♦ A slowdown of the global economy: imbalances at
the global level are building up (starting with large US
current account and fiscal deficits and China’s near
overheating) and macro-adjustments are therefore bound
to occur. They would bring down commodity prices, cause
a further slide of the US dollar and might raise global
interest rates. As a result, African countries would suffer
from a worsening of their terms of trade, diminished
competitiveness (especially for countries pegged to the
euro) and, for some at least, rising financing costs (e.g.
South Africa).
♦ The spectre of regional conflicts. In Africa these
remain the strongest threat to democracy and human rights
on the continent, and menace economic performances and
poverty alleviation alike. The Democratic Republic of Congo
is in the midst of transition to peace and democracy, but
new fighting in the east could threaten that progress. In
Côte d’Ivoire and in Sudan’s Darfur region, conflicts have
lingered and their spilling-over onto neighbours can not be
fully ruled out.
♦ Adverse weather conditions and parasites infestations
have the potential to destroy crops on which some African
countries are strongly reliant for growth, household income,
rural poverty alleviation, exports and fiscal revenue.
This is thus a strong case for reducing the vulnerability of
African countries. Policies are needed that facilitate the
adjustment of African countries to the changing
environment, such as swings in commodity prices
(e.g. cotton) and changes in international trade
arrangements (e.g. removal of textile quotas).
The capacity to absorb the expected higher donor
assistance must be increased. This will require ambitious
reforms, in particular if the MDGs are to be reached while
macroeconomic stability is maintained.
Finally, economic diversification needs to be encouraged
through structural reforms, an improved environment for
the private sector, and enhanced governance.

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

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Article Tags: adverse weather conditions, african countries, african economies, commodity prices, conflicts in africa, continuous expansion, democracy and human rights, democratic republic of congo, eastern africa, economic performances, fiscal deficits, global economy, global interest, global level, household income, infestations, positive outlook, poverty alleviation, regional conflicts, republic of congo



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