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Can Africa's growth be sustained?

Shanta Devarajan's picture

We had a fascinating seminar on this topic yesterday.  Goolam Ballin of Standard Bank said that Africa today looks like Asia did 20 years ago--poised to grow rapidly over the next two decades.  At the same time, he was worried about the next two years because of Africa's dismal experience in adjusting to the external shocks of the 1970s.  Nigerian central bank governor Chukwuma Soludo struck a distinctly more optimistic note, pointing out that, for example, Nigeria's non-oil sector was growing even faster than its oil sector.  Justin Lin (chief economist of the World Bank) reconciled the two positions by noting that we may be somewhat pessimistic in the short-run, but the medium-term prospects are definitely good.  If East Asia could bring its poverty rate down from 80 percent to 18 in 25 years, Africa could do the same with its 50 percent poverty rate in the coming quarter century. 

Tanzanian central bank governor Benno Ndulu was cautiously optimistic even in the short-run, saying that if private capital flows declined as a result of the financial crisis, African countries could still look to domestic sources of capital, such as local currency bonds.  He emphasized though that maintaining macroeconomic stability was paramount.  Francis Beddington of Insparo Asset Management was even more upbeat.  He thought the big difference between the 1970s and now was that today "Africa is in charge".  Finally, Mike Spence of the Growth Commission pointed out that, in addition to seeking internal sources of funds, African countries could look to some of the sovereign wealth funds, which had been investing in Europe and the U.S. (and losing money these days), looking to Africa as an investment destination.  Mike did point out, though, that if Africa is to accelerate to 7 percent or more per capita growth, savings and investment rates will have to increase to the 25-30 percent of GDP level, and growth must be employment-creating.

With all the bad news in the financial markets these days, I came away buoyed by the optimism and insights of these wise gentlemen.

Comments

Submitted by Aly Nazerali on

I believe that if the international community, including those doing relatively well (or those with surplus savings) viz. BRICS, Japan, Middle East, were able to focus soon on and thus move beyond the immediate context of restoring faith in the financial system, a few key fundamentals have to be addressed all of which would argue for additional development investments (not just aid) in the poorer countries. These are:

1) Addressing the more recent first time phenomenon of global supply exceeding global demand;

2) Savings not being translated sufficiently into productive investments;

3) Ensuring that the gap between the global productive base and consumption (especially through debt let alone debt passed on further to 'bad' debt sectors) doe not grow to the extent that has been allowed to date- for which probably some added financial architecture would be required.

Fundamentally this should be "the case" to intensive efforts to 'connect the poor to growth'; ensure that 'growth benefits reach the poor' for those who cannot connect to it; build more of the equivalent of the 'aspiring' class (as India refers to it) and where possible invest in formalising this connect (for multiplier effects to take place, enhance the tax base etc).

Submitted by Kwabia Boateng on
Growth in Africa may decline only slightly as a result of the global recession (and financial crisis). However, the poverty situation may worsen, because much of the reduction in poverty in Africa in recent decades has been due to remittances from abroad to support household consumption at home. The point has been highlighted of Africa's abysmal performance to adjust to the global crisis of the 1970s and 1980s. This time Africa has a better chance because of the more capable institutional and policy environment that exist. The 1970s and 1980s were days of military rulers when economic policy was largely in the hands of non-commissioned officers (NCOs)of the armed forces, who had no training in economics, finance or statistics. Today Africa has some of the best brains in the ministries and other government agencies, who undertand the practical issues of policy management. Hence, I expect Africa's performance during this global crisis to be better than it was two decdes ago.

Africa's economy is very dependent on Europe and the United States. When there is an financial crisis throughout the world, this have very big influence on Africa. I hope the crisis will end soon, otherwise the situation will not be good in the near future. And it could be bad news for all region.

The economic growth of Africa will basically depend on the stability of the world economy. I believe that each country is interdependent to some other country, the fall of one will likely give a negative effect on the dependent country. Now that we are still on recession I think it will be hard to expect for more growth in Africa UNLESS there are investors who are willing to put the money, or if Africa will engage to commitment of funds by buying securities or other monetary or paper (financial) assets in the money markets or capital markets, or in fairly liquid real assets, such as gold, real estate, or collectibles. The Financial Accounting Standards Board, or FASB, are making it acceptable for companies heavily invested in the questionable asset to write them off as having long-term value, and get cash advances for them, but in reality they are toxic mortgage assets. Basically, what this boils down to is that companies that got bad investments (because they didn't want to do something traditional, like sell something to customers that want what they sell) get to fix their books so that what is known to be bad is good. I'd give a heck of a cash advance to find out where FASB gets their logic.

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