Africa: Lopsided economies and mixed signals on recovery

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Has the world economic crisis reached bottom or is Africa facing continued recession and deepening poverty? “No one can tell with any degree of certainty whether the worst for the global economy is over,” Donald Kaberuka, president of the African Development Bank (ADB), responded at the opening of the Bank’s meeting in Dakar, Senegal, this year. Forecasters agree that global output will decline this year but they disagree about the depth of the recession and when and how strongly growth will return.

In June, the World Bank predicted that the world economy would shrink by 2.9 per cent in 2009, more than double its 1.3 per cent forecast just two months earlier. In May, the ADB also lowered its 2009 estimate of African economic growth to 2.3 per cent from its earlier 2.8 per cent prediction, amidst fears that “the worst may be yet to come.”

That is exactly what worries the United Nations. In May, the world body said it expected African economies to grow less than 1 per cent this year. “For a large number of countries, there are no green shots of recovery,” UN Secretary-General Ban Ki-moon said at the opening of a 24–26 June conference of the General Assembly on the impact of the global crisis on development. “There are only fallow seeds.”

Ironically, Africa’s weak integration into the world economy initially helped shield it from the worst of the international financial crisis, UN Under-Secretary-General and Special Adviser on Africa Cheick Sidi Diarra pointed out during the General Assembly conference. Years of relatively strong growth and policy reforms, he noted, are helping many African countries weather the present economic crisis better than in previous downturns.

And there is more good news. Most analysts agree that economic growth in Africa will pick up next year. The ADB predicts a 4.1 per cent upturn in 2010, and the UN cites forecasts ranging from an optimistic 5.3 per cent to 1.7 per cent. The World Bank sees sub-Saharan Africa growing by 3.7 per cent in 2010, although it warns that the risks are “heavily tilted to the downside.”

“Development emergency”

But the resilience of African economies is limited. “Most African countries have suffered significantly from the second-round effects arising from the decline in investment, tourism receipts, as well as falling export earnings,” Mr. Diarra added. For African and other poor countries, “the crisis constitutes a development emergency.”

Few countries have escaped. South Africa, the continent’s leading economy, went into recession in the first three months of 2009, contracting by 6.4 per cent compared with the same period a year earlier. Over 180,000 South Africans lost their jobs between December and March, pushing the unemployment rate to 23.5 per cent. Standard Bank predicts that the country could lose up to 400,000 jobs this year.

Over 100,000 Egyptian workers were laid off in the six months ending in March, and up to 500,000 could lose their jobs this year. Some 12,000 miners have lost their jobs in Zambia. In Tanzania some 20,000 horticultural workers face redundancy as demand for vegetables and cut flowers in Europe and the US plummets. Nigerian government revenues are down 30 per cent, largely because of the sharp drop in oil prices.

Overall, an additional 12–16 million people will be thrown into poverty in Africa, the UN estimates and per capita income in Africa will shrink for the first time since 1994, the ADB reports. The ADB also says Africa’s export earnings will plunge this year by $250 mn. A similar drop is expected for foreign investment. Tourist numbers are down just about everywhere and countries from Senegal to Kenya are reporting lower receipts from citizens working abroad, forcing many national budgets into deficit.

Signs of recovery?

Nevertheless, the impact of the global economic crisis is hitting unevenly. According to Mr. Kaberuka, 14 African countries grew by more than 5 per cent in the first quarter of 2009, and another 13 growing above the rate of population increase. Significantly, it is Africa’s low-income and fragile states, with their lower exposure to the global economy, that are holding up best, while Africa’s major oil and mineral economies can expect the sharpest declines.

Despite the gloomy numbers, some analysts see signs of an upturn. The sharp depreciation of many African currencies, which raised import costs, has eased. Both the Nigerian and South African stock exchanges registered higher volumes and prices in April and May, although they remain well down on levels a year earlier.

Commodity prices, usually a good sign of recovery in most African countries, have shown signs of reviving. Oil and mineral prices have begun to rise. Cocoa and tea prices have been sharply up, but largely because of production problems in Côte d’Ivoire, Ghana and Kenya. Overall, recovery is still modest, and caution remains the watchword.

Mr. Roy Laishley is a writer for United Nations Africa Renewal magazine.

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