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
To learn more about this author, visit OECD Development Centre's Website.
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