Africa News blog

Can Africa sustain its economic growth momentum?

Forget the days when the image of Africa in the developed world was one of rolling vistas of unspoilt safari parks, natural disasters and war.

In the last 10 years, western firms and investors have been showing much greater interest, ploughing increasing investment flows into the continent of 1 billion people.

In its World Economic Outlook, the IMF predicts sub-Saharan Africa will grow by an average of 4.7 percent this year, a rate that is second only to Asia.

Africa offers a higher rate of return on investment than any other region in the world, Razia Khan, regional head of research for Africa at Standard Chartered Bank in London, told a Thomson Reuters Newsmaker event this week.

Foreign direct investment has shown strong growth over the last few years, with more than half coming friom Asia in the second quarter of this year alone.

But some investors wonder whether the continent can sustain this kind of growth rate, especially since crises elsewhere in the world, such as the sovereign debt crisis in the euro zone, have prompted a flight of capital to safe havens.

Lack of affordable sources of long-term funds for businesses and corruption can also compound the problems.

Where should Africa turn for funds?

A few days back, I had the pleasure to moderate a lively debate on investment prospects in Africa involving private sector panellists and representatives of the World Bank and International Monetary Fund.   The tone was upbeat, but discussion turned heated when it came to debt restructuring in Ivory Coast.   While it might sound obscure (and I won’t go into all the details) it raised broader questions about the role of the international financial institutions in Africa and how that may be reinforced by the global financial crisis.   The concern of some in the private sector was that foreign investors with exposure to local debt in Ivory Coast looked set to suffer the same restructuring terms that holders of foreign debt would have to bear – with the approval of the IMF. Their argument was that this would discourage foreign investors from buying local bonds in Africa.   The IMF came back robustly, saying it was only playing by the rules in Ivory Coast and suggesting that investors make closer checks before putting in their money.   But private sector participants were unclear where this might leave them in future, particularly at a time many African states are eyeing bond markets again.   Some voiced broader concern over how the international financial institutions see the private sector’s role.   Before the credit crisis, a number of African countries had begun turning to international capital markets. But Eurobond plans were put on hold when global markets seized up and the institutions stepped back in to provide emergency help to hard-hit countries. Amounts have been substantial even compared to the $10 billion in concessional financing promised by China over three years. The IMF board approved a $1.4 billion standby loan arrangement for Angola this week.    The question now is how this may change the longer term balance in sources of finance for African states.   Is the private sector overly wary of institutions that are simply doing their best to give emergency help now and fend off future debt crises? Or are those institutions muscling back in to impose their dominance in telling African states how they should go about managing their debts and getting the finance they need? How will Chinese money affect the balance?

Pictures: A money dealer counts the Nigerian naira on a machine in his office in the commercial capital of Lagos, January 13, 2009. REUTERS/Akintunde Akinleye; Dominique Strauss-Kahn, managing director, International Monetary Fund (IMF), is introduced at the International Economic Forum of the Americas conference in Montreal, June 8, 2009. REUTERS/Christinne Muschi

G20. How did Africa do?

Before the G20 meeting, there was a lot of talk inside and outside Africa about making sure the continent did not get left out while the world’s richest and most powerful set out plans to save their own economies.******So how did Africa fare?******On the face of things, perhaps not too badly.******“Our global plan for recovery must have at its heart the needs and jobs of hard-working families, not just in developed countries but in emerging markets and the poorest countries of the world too,” the communique says in paragraph 3.******In concrete terms:******• Resources available to the IMF will be trebled to $750 billion.***•  There will be support for a new allocation of Special Drawing Rights of $250 billion – something that could help poor countries***• There will be support for $100 billion more lending by Multilateral Development Banks (those include the World Bank Group and the African Development Bank)***• There will be $250 billion support for trade finance.***• Use will be made of resources from IMF gold sales “for concessional finance for the poorest countries”.***• Global financial institutions will be strengthened and reformed, ensuring that emerging and developing economies, including the poorest, must have greater voice and representation.”******The point on the gold sales was something for which Africa, represented at the summit by Ethiopian Prime Minister Meles Zenawi, had made a particular push.******But not all appeared so impressed. In East Africa based Business Daily, Allan Odhiambo’s piece was headlined “Africa thrown to back burner at G20 meeting.”******According to Nigeria’s ThisDay newspaper, President Umaru Yar’Adua’s main lament was the fact that Africa’s most populous country was not there (South Africa, with the continent’s biggest economy, was represented).******South Africa’s President Kgalema Motlanthe was quoted as saying he was “quite pleased” with the results of the summit.******How well do you think the G20 did for Africa? Will Africa really have a bigger say over the global financial system in future? Will that help?

Is Africa a good bet?

For those looking to invest in Africa, the best prospects are in Nigeria and Ethiopia according to a new index of potential investment destinations published this week.

But should anybody want to put money into Africa at a time the global financial crisis and falling prices for export commodities, on which the continent is so reliant, have discouraged investors who had begun to see some African countries as promising frontier markets?

“Africa is going to overtake the Middle East to become the second fastest growing region in the world after emerging Asia. It will be affected by the global financial crisis but it is much less exposed than many places,” Katharine Pulvermacher, chief executive of business consultancy African Rainbow said this week on the launch of its Star of Africa index.

The index’s creators told my colleague Peter Apps that potential growth in energy, water and communications consumption could amply reward investors taking the risk in Africa. South Africa, Mauritius and Tanzania took third, fourth and fifth place respectively on the index. Somalia, Chad and Eritrea were the least appealing countries for investors.

The International Monetary Fund’s most recent forecast of economic growth for Africa this year was 3.3 percent – much slower than the 5-6 percent of recent years but good by the standards of Western countries in recession. A senior IMF official noted recently, however, that African growth could be sharply lower than its forecasts.

“Remittances, tourism revenue and even aid, we feel could fall further,” said the IMF’s Africa Department Director Antoinette Sayeh.

The African markets that had attracted most foreign investment in recent years – not only developed South Africa but also countries such as Nigeria and Kenya – are among those that have so far been hardest hit, while smaller economies that may not have had so far to fall have been less touched.

Forgiveness in paradise?

If you lived on an archipelago that defined paradise with palm-fringed white sand beaches and emerald green waters, you would expect a relaxed, lazy pace of life.

Lazy would be a generous description of the Seychellois soldier’s wave at the entrance to State House as I arrived with my local colleague George Thande – who is admittedly a regular visitor here.

The Seychelles were ruled by the French before the British and State House in the capital Victoria is every bit the luxurious colonial mansion: a lush garden exploding with tropical colours; an oil painting of Britain’s Queen Victoria hangs in the wood-panelled reception room close to a portrait of Castor, a runaway slave from the 19th century with a fearsome reputation; a Daimler and Rolls Royce are parked on the forecourt.

But President James Alix Michel, cannot afford to be relaxed. This is an exotic destination at the sharp end of the global financial crisis.

The Indian Ocean archipelago may lie thousands of miles from the financial hubs of the world, but the bankers on Wall Street and in the City of London, not to mention the celebrity visitors, help keep the Seychelles’ tourism-dependent economy afloat.

On Friday, however, Michel told Reuters he thought visitor numbers might drop by as much as 25 percent, a painful blow for a heavily indebted economy –  its $800 million debt is somewhat more than 2007 gross domestic product according to World Bank figures. The country, with only 85,000 people, is in desperate need of foreign currency to replenish severely depleted reserves.

When the Seychelles failed to service an interest payment on a $230 million bond late last year, it called in the International Monetary Fund, which pledged a 2-year $26 million rescue package. Now negotiations are underway with creditors over how to re-structure the debts.

How quickly can Zimbabweans expect economic change?

For Zimbabwe’s long-suffering people, the true meaning of the signing of a power-sharing agreement between President Robert Mugabe’s ZANU-PF and the opposition MDC would be how quickly it leads to an improvement in their daily lives. An economic crisis that began in 1998 has turned the once prosperous Southern African country into a basket case economy with the world’s highest inflation at over 11 million percent. Millions of Zimbabwean’s who have fled across the borders to escape unemployment and severe shortages are waiting to see if the political deal will result in economic rebound paving the way for their return.

The agreement negotiated by South African President Thabo Mbeki provides for the sharing of power between veteran President Robert Mugabe and Morgan Tsvangirai, leader of the main opposition Movement for Democratic Change (MDC). Tsvangirai takes on the new role of Prime Minister with extensive powers, with Mugabe’s 28-year hold on power significantly eroded.

But will Tsvangirai wield sufficient powers to place the new coalition government on a new policy track needed for rapid economic reform? Will the international community be confident enough to unlock the needed economic rescue package to help accelerate economic change? How quickly can the collapsed commercial farming sector start to turn around? How will business raect to the new deal? Most important, how quickly will ordinary Zimbabweans begin to feel the impact of the power-sharing deal? Read the following insights from two leading analysts and have your say.

Marian L. Tupy, The Cato Institute

“The government should trust the ingenuity of the Zimbabwean people and allow their creative energies to rebuild teh country with minimum bureaucratic hindrance.” (Read full analysis)

John Makumbe, University of Zimbabwe

“The major political party, the MDC, has devised a very promising economic recovery and rehabilitation programme for the transitional period. It is my considered view that if that programme is effectively implemented, the Zimbabwean economy could recover within as short a period as two to three years.” (Read full analysis)

Trust the ingenuity of the Zimbabwean people

Marian L. Tupy, The Cato Institute 

All economies, no matter how decrepit, can be revived through good institutions and economic freedom. That said, it is impossible to predict how quickly the people of Zimbabwe will be able to enjoy a notable improvement in their standard of living.

Zimbabwe today is one of the least politically and economically free countries in the world. The speed of Zimbabwe’s social and economic recovery will depend on the speed and extent of reforms.

Of immediate concern to the economic revival is hyperinflation, which will have to be stopped through dollarization or the establishment of a currency board. Taxes will have to be made simpler and lower to encourage productivity, and minimize tax evasion. Trade will have to be liberalized to allow influx of cheap imports to relieve the suffering of the Zimbabwean population. The business environment will have to be made friendly to private entrepreneurs through far-reaching deregulation.

Much will depend on the government’s success in ending political violence in Zimbabwe and restoring property rights or offering compensation to those whose land was expropriated by Mugabe. Respect for the sanctity of people and property will be an important part of a larger, long-term, goal of restoring the rule of law to Zimbabwe. Of course, the above is not an exhaustive list of reforms that the government will have to undertake, but it is a start.

The new government must realize that the future prosperity of Zimbabwe will not be achieved through dollops of foreign aid or micro-management by the World Bank and the IMF. The government should trust the ingenuity of the Zimbabwean people and allow their creative energies to rebuild the country with minimum bureaucratic hindrance.  

How much longer for Museveni?

Covering Uganda’s President Yoweri Museveni for four years as the Reuters correspondent in Kampala was seldom dull.

When he was in a good mood, the former rebel would banter with journalists long after his aides wanted him to leave. In a bad mood, he would scowl and growl back answers in return.

He was often charismatic and regularly very funny.

At one meeting with then International Monetary Fund boss Rodrigo Rato in August 2004, he had participants in stitches as he described a panel of portly finance ministry officials as “not typical Ugandans”.

“These ones are eating for others,” Museveni joked as the civil servants squirmed.

The cattle herd boy turned guerrilla commander portrays himself as a tough but humble man with simple tastes.

Reporters in the scenic capital Kampala soon learned that one way to cheer him up was to ask about his extensive cattle herds, or better still, anything to do with the armed forces.

Does Africa need aid?

Rich countries look set to fall roughly $40 billion short of the amount they had pledged to give to Africa by 2010. So says a report released on Monday by the panel set up to monitor commitments made amid much fanfare at the Group of Eight summit in 2005.

The panel said G8 countries were not keeping their promises at the very moment rising food prices threaten to increase hunger and child mortality. The report also calls for a rethink of trade policies to help African countries and urges rich nations to spend more on renewable energy sources there.

But how important is aid for Africa?

Africa’s economies have been growing at their fastest in decades — the International Monetary Fund estimates African growth at well over 6 percent in 2007 and expects similar this year.

Not so long ago, net private capital flows to Africa were negligible or even negative.

But investment has soared, with China leading a rush to develop sources of raw materials. Globally, investors have been looking at Africa more seriously in the hope of potentially higher returns than in more developed markets that now face uncertainty.