IMF Survey: Private Sector Gains Ground in Africa
March 4, 2010
- Stronger fundamentals allowed Africa to withstand the crisis
- Expanded role for the private sector
- Progress on IMF-Africa relationship in financing, loan conditions, debt limits
The growing role of the private sector in Africa has been credited by a top IMF official for sustaining foreign investment during the recent global slump.
Antoinette Sayeh interview
In an interview with IMF Survey online, the head of the IMF’s African department, Antoinette Sayeh, said Africa had demonstrated a new openness to the private sector in recent years. This, together with a more attractive climate for investors had helped to maintain investment from abroad.
“Africa has seen a significant increase in foreign investment that predates the crisis, and during the course of the crisis, those investments also fared reasonably well,” she said.
During a wide-ranging interview, ahead of a three-country trip to Africa by the Fund’s Managing Director, Dominique Strauss-Kahn, Sayeh said Africa had demonstrated considerable resilience during the recession, and she was now hopeful about the future prospects for the continent.
IMF Survey online: It seems that most of the countries of sub-Saharan Africa were better prepared to handle the effects of this latest global economic crisis than previous crises. What’s made Africa more resilient this time around?
Sayeh: One key factor has been the considerable progress made by African countries beginning in the late 1990s and in the first decade of this century, in addressing their fiscal problems and reducing their fiscal deficits. So that when the crisis hit, despite the fact that many countries suffered from lower revenues as a result of the reduced demand for African exports, countries were able to sustain spending on key priorities. Some of them made space for additional expenditure, in some cases to protect the poor from the impact of the crisis. That was possible because previous efforts at reform had borne fruit in more sustainable fiscal positions.
Another factor was that inflation had come under control so they were also able to use interest rate policy and reduce interest rates as another means of mitigating the impact of the crisis. Where exchange rates were flexible, countries let them adjust and this helped them deal with the shocks. I would say finally that African countries did not begin to put up barriers and look inwards. Instead they continued to pursue policies broadly encouraging foreign investment and trade.
All those factors, taken together, meant this time around Africa was able to better withstand the impact of the crisis. That gives us optimism that as the global economy recovers, the recovery in Africa will keep pace.
IMF Survey online: Related to your last point, Africa has been described as staying open for business during this latest crisis. Is that a view you would share?
Sayeh: Africa has made significant progress in charting the respective roles of the government and the private sector in African economies. Beginning in the late 1990s and through the past decade, African governments have increasingly withdrawn from the economic sphere and left that space for the private sector.
This, together with efforts to reign in fiscal deficits, stabilize African economies, and the introduction of policies more supportive of foreign investment has really helped. It’s been a very encouraging feature of African economies, this new openness to the private sector and this more level playing field for foreign direct investment as well.
IMF Survey online: South Africa is in its first recession since 1992. Is this mainly a cyclical rather than a structural downturn in Africa’s biggest economy?
Sayeh: Well, it is indeed cyclical. The recession in South Africa is, by and large, a reflection of the reduced demand for South African exports as the global crisis deepened.
South Africa is now starting to recover in line with the global recovery. It is beginning to grow again. But the impact of the crisis has been devastating for many South Africans, and significant structural challenges remain.
South Africa lost almost a million jobs in the course of this very deep recession, many of those jobs in low wage manufacturing. It’s not clear that workers who lost those jobs will be able to find jobs in that sector which has been on a long term structural decline. So there are big challenges around job creation and job growth in South Africa that are structural in nature. But the recession itself had its origins in the global crisis.
IMF Survey online: What has been the impact of the global financial crisis on Kenya?
Sayeh: Kenya had been emerging from a deep political crisis when the global recession hit. In addition to the impact of the recession and the impact on demand for Kenya’s exports, Kenya was also faced with a drought that has meant significantly reduced availability of food, with some ten million people facing the prospect of hunger. And so Kenya was hit by several shocks all at once: having to adjust to both the global crisis and the impact of the drought, at the same time dealing with significant political challenges.
IMF Survey online: What then remains as Kenya’s main policy challenges?
Sayeh: The main challenge is to accelerate and deepen economic growth as a basis for reducing poverty in Kenya. And around that are a number of issues that would be elements of a comprehensive reform program. These include more transparent management of budgetary resources, increased mobilization of domestic revenues, improved spending priorities—protecting higher priority spending and addressing emerging issues in the financial sector.
The Fund was able, as the crisis hit Kenya, to provide financing through the rapid access portion of the Exogenous Shocks Facility. The Fund stands ready to continue to provide support to Kenya’s efforts at reform with technical assistance, policy advice, and should the government be interested to consider the provision of financing as well. And so we’re looking forward to continued, deep dialogue with Kenya as it seeks to address what are formidable challenges in the months ahead.
IMF Survey Online: One year ago, the IMF co-hosted a major conference in Tanzania and that called for a decisive change in the relationship between the IMF and Africa. How would you assess the record one year later?
Sayeh: Well, I think the Tanzania Conference was a critical turning point in the relationship between the Fund and its African member countries, one that underscored the crucial importance of the IMF as a partner in Africa’s development. It acknowledged the strong partnership that has been built between Africa and the Fund. The issues that need to be addressed to deepen this partnership were discussed in a very frank and open fashion, with a view to helping African countries safeguard macroeconomic stability as a basis for robust, sustained growth.
The conference underscored the need to increase IMF concessional resources for Africa, and encouraged others to provide the needed financing for Africa to deal with the crisis. It welcomed the overhaul of the Fund’s lending architecture for low-income countries, the streamlining of conditionality, and the introduction of a new approach to debt limits in Fund-supported programs. It also stressed the need for Africa to have more influence in the governance of the IMF.
I think a year since the conference we can say that good progress has been made on many of the key issues outlined in the concluding statement, the Dar es Salaam Declaration, as we call it.
On the financing issue, in 2009, the Fund was able to provide financing of $5 billion to sub-Saharan Africa. That is, five times the amount we were able to provide a year earlier. Those resources were provided with streamlined conditionality. The Managing Director was able to bring to the G-20 discussions the voice of African countries, as he had been asked to do at the conference. This made possible significant commitments at the April G-20 meeting, including more than a doubling of concessional resources for Africa.
So, significant progress, I think, across the board from provision of financing, reform of conditionality, and our approach to debt limits in Fund-supported programs. There is, however, still some work to be done in terms of the membership’s confirmation of the reforms introduced in 2008 on increasing the voice and participation of African countries in the Fund.
But all-in-all, a lot of progress over the past year.
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