17 February 2009
Africa's gross domestic product (GDP) growth is expected to hold up well even as global growth deteriorates, as the structural reforms that many African countries have been implementing over the past few years continue to pay off, a new study finds.
And while investment in the continent is moderating visibly as the global economic crisis hits home, it is expected to recover in the medium term, according to a research paper by South Africa's Industrial Development Corporation (IDC).
Released last week, the paper - entitled "Africa and the global economic crisis: opportunities and challenges" - predicted that African GDP would grow at 3.4% in 2009, compared to 5.2% in 2008 and 6.2% in 2007.
This compares favourably with global and emerging market GDP growth forecasts of 0.5% and 3.3% in 2008 and 2009 respectively.
Widespread economic reforms
"Domestic reforms have fostered Africa's robust growth since early in the new millennium," the research report states. "Widespread economic reforms and notable improvements in overall governance have borne fruit and attracted foreign investment, while several long-standing conflicts have come to an end, enabling reconstruction in those countries to begin.
"This has contributed to vastly improved macro-economic management, rising incomes and spending, increased investment in physical and social infrastructure and foreign investment activity in productive sectors."
According to the report, foreign direct investment (FDI) flows into Africa grew strongly in recent years as low interest rates globally encouraged financiers to support the investment plans of those seeking access to natural resources during the commodity "super-cycle".
Investment growth was "substantially supported by the remarkable performances of commodity-rich countries, particularly (but not confined to) the oil producers," the report noted.
Foreign direct investment (FDI) flows to Africa in 2008 were estimated to be US$61.9-billion, representing a 16.8% increase over 2007, and well in excess of the estimated 3.6% growth rate of FDI flows to developed economies.
African exports take a knock
With the global financial turmoil, however, "the pattern of financial flows associated with investment, lending and trading activity has been dramatically altered for the time being," the report states.
"Several African stock markets were caught up in the globalised investor retreat, with positions being liquidated strongly in emerging markets. It has been estimated that portfolio flows to Africa have declined sharply as global liquidity tightened to a mere $5.9-billion in the course of 2008 compared to $15.7-billion in 2007."
Jorge Maia, head of research and information at the IDC, said the impact of the deteriorating global economic environment on Africa's productive sectors was" being transmitted through weaker external demand and lower commodity prices, with serious implications for external trade receipts and investment inflows."
The World Bank estimates that Africa's exports fell by 2% in 2008, with significant drops in certain countries (for example, a 30% decline in Angola).
Furthermore, Africa's reliance on advanced economies for export has badly affected their trade balances. Largely reflecting such unfavourable terms of trade movements and net portfolio ouflows, the majority of African currencies depreciated by 10% to 28% against the US dollar in 2008.
"Normally, major crises bring to the fore not only comparative weaknesses but also comparative strengths," Maia said. "Thus, economies that successfully weather the downturns are those that exploit their comparative strengths instead of focusing on their weaknesses.
"Africa is richly endowed with commodities that are likely to derive long-run benefits given their finite nature and the anticipated resumption in demand as the world's population grows and economic performances recover."
Therefore, Maia predicted, global growth would resume in the longer term and "support a recovery of commodity prices and renewed investor interest in Africa for its resource wealth."