Africa and the Great Recession: Changing Times

IMF Blog, May 14, 2012

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Authors: civil strife (such as Cote d’Ivoire, now Mali), by drought have also fared less well than other economies in the region.
Published: May 14, 2012

In previous global downturns, sub-Saharan Africa has usually been badly affected—but not this time around.
The region has been growing consistently strongly for over a decade, as shown in the IMF Regional Economic Outlook for Sub-Saharan Africa.
Growth has remained reasonably strong (around 5 percent) for the region as a whole, except for 2009 – where the decline in world output and associated shrinking of world trade pushed Africa’s growth down to below 3 percent.
In 2011, output growth in sub-Saharan Africa averaged 5 percent.
In 2012, we project that it could be a touch higher, buoyed by one-off surges in natural resource production and recovery from conflict and drought in western Africa.

Sub-Saharan Africa is a diverse region; not all economies have fared equally well.
More advanced economies in the region (notably South Africa) with close links to advanced-economy export markets experienced a sharper slowdown and weaker recovery than the bulk of the region’s low-income economies.
Countries affected by civil strife (such as Cote d’Ivoire, and now Mali) and by drought have fared less well.
Critical to recent success has been the steady progress and economic resilience of the region’s 26 low-income and fragile economies.
Average per capita incomes in these countries is still well under $2 per day, but total output has grown by more than 5 percent in every year since 2004.
The share of investment in this output has risen steadily - from 18 percent in 2004 to 23 percent now.

Commodity prices for African natural resources have remained relatively high to date, sustained by the continued strong growth of major emerging market economies, most notably China.
African banking systems have not experienced the severe financial stresses recorded in the advance economies, in good part because they are not heavily dependent on external funding, relying instead on strong domestic deposit bases.
African policymakers were able to ease budgetary policies to support economic activity during this crisis, instead of being forced to cut outlays because of severe borrowing constraints as occurred in past downturns.
The solid growth record has been supported by:
- significantly less civil conflict,
- generally favorable commodity price developments benefiting Africa’s natural resource exporters,
- extensive debt relief provided to most highly-indebted poor countries,
- sound policy choices by African governments, including pursuing appropriate macroeconomic policies and important reform measures.

Major external risks include a more sustained deleveraging in the euro area, which could throttle the already hesitant global recovery and depress commodity prices, and another surge in oil prices because of rising political tensions.
A resumed global downturn would hit African exports, investment, tourism, remittances, and aid flows to varying degree—slowing the pace of regional growth for a period but not derailing it over the medium term.
Impacts of adverse shocks would include slower growth, higher unemployment, and, in some cases, strained fiscal accounts.
Possible mitigating actions:
- Many countries have the fiscal space to maintain existing government spending plans even if revenues are reduced by slower growth.
- Special fiscal measures—such as cash grants to poor families or direct food assistance to school children—could help the most vulnerable in the event of sharply rising fuel prices.
- Monetary and exchange rate policies can be supportive in countries with independent monetary autonomy; in some countries, central banks will need to remain focused on reining in elevated inflation rates.
- The IMF would be standing by with financial support to support member countries experiencing severe stresses.
Ahead of any storm, countries where growth is still strong should build up policy buffers now through prudent fiscal policies.

To keep up the good growth performance, countries should stay the policy course by:
- maintaining prudent macroeconomic policies,
- improving the business climate further,
- broadening the revenue base,
- modernizing public financial management so essential spending—including on infrastructure and public services—can be financed.
It is vital to focus on the young and on inclusive growth through better education, robust health, and realistic job opportunities as the secure foundations to sustained prosperity.

IMF blog post: "Africa and the Great Recession: Changing Times", May 14, 2012.