Confessions of a Dismal Scientist—Africa's Resilience

IMF Blog, May 3, 2011

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Sub-Saharan Africa experienced its best period of economic growth since at least the 1970s in the two decades prior to the global financial crisis.
Recovery from the global financial crisis in the region has been more V-shaped than the U- or L-shaped recoveries seen in earlier slowdowns.
Good macroeconomic policies implemented in many countries before the crisis enabled strong counter-cyclical monetary and fiscal responses.
Projection: "output in sub-Saharan Africa looks set to expand by around 5½ this year and 6 percent in 2012."
The crisis nevertheless caused significant dislocation, including "the 1 million or so jobs lost in South Africa" and delays in progress toward the poverty reduction Millennium Development Goal.

A recent sharp increase in food and fuel prices on world markets is the author's primary current concern.
2008 food price spike led to prompt and pronounced increases in local prices in most African countries; the current episode shows a more diverse picture.
- In some countries, strong harvests have limited local food price increases.
- In many other countries, local food prices have started to increase sharply, harming "the urban poor and landless rural households."
The surge in fuel prices poses tests to regional resilience:
- For the region's "37 oil importing countries," higher world fuel prices mean higher oil import costs.
- Delayed pass-through of international to domestic fuel prices can lead to higher fiscal deficits.
- Across the region, higher fuel prices will imply higher inflation.

For pronounced food price increases:
- Consider targeted interventions that provide the poorest families with transfers from the budget.
- Alternatively or additionally, consider subsidizing the specific food items consumed by the poorest households.
For fuel price increases:
- Recommend allowing local fuel prices to adjust in line with international prices.
- Rationale: fuel price subsidies are "highly regressive—the bulk of the benefits go to the richest households—and very costly."

The author, while predisposed to worry, notes that the region's recent handling of the global financial crisis gives cause for optimism.
Confidence rests on the hope that appropriate policies will be adopted in response to current food and fuel shocks, as they were during the global financial crisis.

Abebe Aemro Selassie — May 3, 2011