Africa in 2012: A Foresight

Published on 31st January 2012

What a momentous year 2011 was for Africa; indeed for the World – The tumultuous events known as the Arab Spring, and the determination of the people of this region to live in societies that  offer hope, freedom and opportunity. The reverberations of the aftershocks in the global economy and the impact on what has been called “innocent bystanders.” For Africa,  a Gordian knot, how to maintain growth momentum (built since a decade) at a time when the room for manoeuvre, the shock absorbing capacity, is lower than it was, at the height of the financial crisis. Add to this the famine and mayhem in the Horn of Africa, the birth of Africa’s newest nation South Sudan and the post-election violence in the Ivory Coast.

Growth momentum sustained

The long-term trajectory of some of these events cannot be fully fathomed at this time, and obviously, “history is still in the making.”

The African economy in 2012

Let me begin with North Africa. As one would expect, North African economies, are going through a delicate phase. They are dealing with the combined effect of revolutionary changes and the turbulence in the Eurozone, and this at a time when social expectations are high, fiscal positions weak, the risk profile higher and investors, still very much with a “wait and see” attitude. Much will depend on the policy clarity of the newly elected governments in creating space for wealth creation, in fighting crony capitalism and corruption, and in creating level playing field.

Above all, a lot will depend on the governments demonstrating that they are able to reconcile social demands, fiscal discipline, and an open society. The people of North Africa have high expectations. They have paid a high price. No doubt, there will be temptation for populist tendency for easy solutions. But there will also be reasonable expectations for better opportunities and more equitable, open society. And they deserve it. But that takes time. On the other hand, most of sub-Sahara African economies continue to perform quite strongly, 5.6 percent in 2011 and probably 6 percent in 2012, on average. There are, of course, regional and country differences but the broad picture is an encouraging one.

Commodity demand has played a major role. However we need to bear in mind the role played by domestic demand, buoyed by a growing urban consumer class.

Thanks to the sustained robust performance of the emerging economies, whose trade with Africa has almost doubled, from 20 percent in 2000 to 40 percent in the last decade, demand for African commodities has remained strong. Going forward, much will depend on what happens in the BRIC economies in 2012. Analysts seem divided. Some believe there could be a hard landing while others see a manageable slowdown. Either way, it is a cause for concern.

Whichever way the BRIC economies move in 2012, the turbulence in the Eurozone cannot but be a major cause for concern, not only for North Africa, with a large market share but also for other emerging markets like South Africa, Mauritius and Namibia, with strong links through exports, tourism, investment and financial flows.

But Africa is not immune

At this stage, with exception made for North Africa, the impact of the Eurozone turbulence is still muted for the time being. However, AfDB economists estimate that a one percent drop in GDP growth in the OECD countries translates into a 10 percent fall in demand for our exports. African economies have shown strong staying power, but immunity from the crisis in the global economy is not possible. Information available at this point indicates that already some of the smaller countries are beginning to experience problematic access to trade finance, and several frontier markets have postponed the launch of sovereign bonds. To sum up: North Africa remains very much on the descending part of the “J” curve. Recovery will be slow and could take time.

Sub-Saharan African economies, on the other hand, have shown remarkable resilience and, with other things remaining the same, as economists are fond of saying, they can expect to perform reasonably well in 2012. The big question now is: will other things remain the same? We cannot be sure. There are heavy, dark clouds on the horizon – the lagged effects of slowdown in Europe, the uncertainty about how the BRICs will fare in 2012 and what that means for investment flows and demand for our exports. That remains to be seen.

Jobs and inequality

I referred earlier, to the reduced room for manoeuver in dealing with external shocks. In 2008, when the financial crisis was at its apex, Africa was in a much stronger position. This time around, the resilience is not as robust, and the shock absorbers and fiscal space are weaker. In some countries, double digit inflation is back. In others reigning in subsidies and counter cyclical spending is proving to be politically challenging. The task is heavier this time around.

However, as if this were not complex enough, let me refer to another hill to climb: the veritable “Damocles Sword”: inability to translate the strong headline growth into jobs, lower poverty headcount, create opportunities for the young and make visible improvements in people’s lives. Statistics show that over the past 30 years, inequality has worsened especially in resource rich countries.

This is not difficult to understand. In such economies growth is an enclave in nature; it is concentrated and capital-intensive, and inevitable to the infamous “resource curse.” Broad sections of the population are excluded from the benefits, and the result is massive poverty amidst plenty, feeding sometimes into the hands of extremists, who take advantage in order to advance their agendas.

Oftentimes, governments have attempted to go around this conundrum by providing subsidies, on such products as petroleum, or major food products. The untargeted welfarism has not only undermined public finances but has also bred corruption, capture by the elites and not benefited the poor.

A broad consensus exists, therefore, which maintains that managing our finite natural resources, avoiding the resource curse, ensuring broad based benefits, building forward and backward linkages is the sure way to translate inherited wealth into real wealth. The management models are known. It is the political will that has to be galvanized.

The crisis will not go away

I consider myself to have been privileged to be a first-hand witness of changes taking place in North Africa. The legitimate expectations of the young for voice, accountability, a decent education and jobs is a cry that will not go away. With more than two-thirds of its population aged under 25, Africa is the youngest region of the world. This youth bulge will continue to accelerate and so will the social and political temperature. The world as a whole will face an unemployment problem, but Africa will face unemployment of its most important asset – its youth. This is more than a social, political or economic problem. It is at the heart of the future Africa we want and we should build.

Lessons learned

If I have painted an image of a resurgent Africa, it is by no means an attempt to underestimate the obstacles that need to be overcome. It is only to put that in context. And that context is that African economies, in their majority today, are managed by “mature reformers” who know what to do.

Lessons that were learned in the 80’s and early 90’s are proving to be lasting. Just look at macroeconomic indicators, the commitment to the orthodoxy and compare that with the rest of the world.

But you will be right to ask me: How does this fit in with the desolate pictures – such as the ones late last year, in the Horn of Africa, the Somali mayhem, and the economic desolation in parts of the continent, and you would be right! You will be right; and I will be the first to acknowledge a rather curious phenomenon: African leadership has become much smarter at dealing with “economic deficits” but less so in managing “the democratic deficit”: Limited voice and accountability Democratic practices devoid of democratic substance Election related violence Leaders overstaying their mandate Manipulation of state constitutions. I could go on.

I am persuaded that it is not possible at least, in the long-term to manage political and economic space in hermetically sealed compartments. Economic and democratic deficits are two sides of the same coin. We fail in one, we fail in both. I am not by any means suggesting that addressing the democratic deficit will be enough. It is a necessary but not sufficient condition.

At the dawn of this new year, a time when the world is at a turning point, it needs, above all, three things: leadership, legitimate institutions and efficient solutions.

There are high expectations that the G20 process will provide the much needed leadership. Expectations are high, however, that more can be done, ensuring that commitments are seen through, however tough. There are expectations that, above all, issues like trade, climate change and returning the global economy to growth will be addressed.

There is also the issue of legitimacy. How else can we imagine a solution without Africa? A strongly growing Africa is not only part of the solution to the global problem. It is the low hanging fruit. We need leadership, we need legitimacy but we also need effective institutions.

As a continent, we have had a remarkable decade, a surprising resilience, a staying power, a shock absorbing capacity. The North African revolutions usher in hope and promise, but also short-term difficulties. The international community has a role and an obligation. This is the hour and the price is not too high to pay. There is frustration that the international community has not always quickly fully followed up on its promises. It is in our interest to respond with speed and flexibility.

The African Development Bank remains as ever alert at its obligation to be at the forefront of that endeavour. We know what it takes; we have our feet on the ground and eyes on the horizon. We know our priorities of the day: economic integration, the private sector, infrastructure, governance, energy, high level skills: all things which, every day, make a continent attractive for investment.

There are dark clouds on the horizon but together we must be determined to prevail. We can be proud of our achievements – and those are common achievements.

By Donald Kaberuka

President, African Development Bank Group (Excerpted).

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