Typical street scene in Santa Ana, El Salvador. (Photo: iStock)

Typical street scene in Santa Ana, El Salvador. (Photo: iStock)

IMF Survey: Africa Faces Twin Challenges After Global Crisis

March 4, 2010

  • IMF chief visits Kenya, South Africa, and Zambia
  • Strauss-Kahn to deepen dialogue on opportunities for Africa
  • Major challenges facing continent include climate change

With world recovery under way, Africa faces the twin challenges of reviving strong growth and reinforcing resilience to the economic shocks that regularly batter the continent, IMF officials say as Managing Director Dominique Strauss-Kahn embarks on a three-country visit to the region.

Africa Faces Twin Challenges After Global Crisis

A salesman markets cellular phones from a van in Kenya, where the economy is recovering from a series of shocks (Photo: Andreas Gebert/dpa)

Transforming Africa

Strauss-Kahn, who arrives in Kenya on March 6, will also visit South Africa and Zambia to reinforce the IMF’s improved relations with the continent, talk with political and business leaders, and promote the continued transformation of Africa.

“As I’ve said many times in the past, African countries were largely innocent victims of the crisis. Thankfully, the tide seems to have turned and all across the continent, we can see signs of a rebound—in trade, export earnings, bank credit, and commercial activity.” Strauss-Kahn told reporters before leaving.

Stronger policies

Stronger monetary and budget policies, together with structural reforms in many countries, helped Africa come through the global financial crisis better than in the past, IMF First Deputy Managing Director John Lipsky said last month during a trip to Ghana and Liberia.

Although growth across sub-Saharan Africa plummeted during the global crisis to an average of 2 percent in 2009 from 5.6 percent the previous year, the IMF projects that it will bounce back to 4½ percent this year and 5½ percent in 2011.

Antoinette Sayeh, head of the IMF’s African Department, points to several important factors that helped African economies weather the crisis.

• Improved policies. Many African countries, from the late 1990s onward, ran better policies than in the past, which helped mitigate the impact of the downturn—with strengthened fiscal positions, reduced debt burdens, lower inflation, and better cushions of foreign exchange reserves.

• Fiscal space. Because fiscal deficits and debt positions had improved dramatically, many countries were able to use fiscal policy to counteract the crisis, rather than making it worse. They strived to preserve—and sometimes even increase—public spending, at a time when revenue was falling rapidly. Fiscal policy was countercyclical in two-thirds of sub-Saharan African countries in 2009.

• Room for interest rate cuts. Because inflation had come under control, they were also able to use interest rate policy and reduce interest rates as another means of mitigating the impact of the crisis, and where exchange rates were flexible, countries let them adjust and help them deal with the shocks, contributing to their resilience.

• Countries generally protected social spending during the crisis, using a variety of strategies. In particular, countries maintained health and education expenditures at pre-crisis levels, with most countries increasing expenditures. A growing number of countries have also put in place conditional cash transfers and an increasing number are focusing on a more developmental approach to social protection, including public works programs and food security initiatives.

• Protectionism avoided. African countries did not begin to put up barriers and look inwards and instead continued to pursue policies broadly encouraging foreign investment and trade..

In an interview with IMF Survey magazine, Sayeh said that Africa’s attempts to open up their economies to private sector investment had paid off. “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.”

Stronger partnership

The IMF stepped up its help to Africa to combat fallout from the global economic crisis by boosting lending, expanding technical assistance, and offering policy advice on how to counter the crisis and protect the most vulnerable. Total IMF assistance to Africa jumped to $5.0 billion last year, including concessional lending of $3.6 billion, compared with a total of $1.7 billion in 2008.

Strauss-Kahn’s visit to Kenya, South Africa, and Zambia, takes place one year after the IMF chief met with African leaders at a conference in Tanzania. The African ministers and central bank governors, convened in the Tanzanian city of Dar es Salaam March 10–11, 2009, called for a stronger partnership between the IMF and Africa.

Since then, the IMF unveiled a new framework for loans to the world’s poorest nations, including increased resources, a doubling of borrowing limits, zero interest rates until the end of 2011, and more flexible terms.

The IMF has also stepped up its technical assistance to Africa to help to strengthen institutions and build capacity. The IMF has established three regional technical assistance centers on the continent—in Tanzania, Mali, and Gabon—and two more are coming later this year, in Ghana and Mauritius.

High-level panel

During his visit, Strauss-Kahn will take part in a high-level panel discussion in on “Africa’s Economic Transformation: The Road Ahead,” at the University of Nairobi. Panelists will include Kenya’s Prime Minister Raila Odinga, Finance Minister Uhuru Kenyatta, environmental activist and Nobel Prize winner Wangari Maathai, rock star and political activist Bob Geldof, and Transparency International’s Akere Muna.

Strauss-Kahn will also meet with nongovernmental organizations, leaders of civil society, and trade unionists, and give a speech and hold a town hall meeting with students at the University of Witwatersrand in South Africa.

Another issue that will come up during the Managing Director’s trip to Africa is expected to be the challenge of climate change.

Africa has contributed little to the carbon emissions that endanger the planet, but Africa is already paying the price in terms of drought, flooding, food shortages, disease, and population displacement.

Strauss-Kahn has said previously the world must adopt a low-carbon model for growth as it rebuilds from the global economic crisis.

The IMF staff is working on a set of proposals to help finance this shift in the global economy. During a panel discussion on the future of the world economy, Strauss-Kahn said in Davos in January it was obvious that developing countries don’t have the cash to finance the measures needed to tackle climate change while developed countries were saddled with enormous debts from combating the global economic crisis.

Comments on this article should be sent to imfsurvey@imf.org