Global Economic Crisis demands investment in Africa

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Assessing Africa’s Pulse: This is the Time to Invest, Says World Bank Africa Chief Economist



WB Chief Economist for Africa Shanta Devarajan discusses Africa and the MDGs.
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Africa Can End Poverty
New data on Africa shows impact of the triple food, fuel and financial crises
Reform and sound economic policies can propel the continent toward increased growth rates Challenges, including high unemployment, continue to impede progress toward the MDGs


WASHINGTON, April 23, 2010—Africa’s steady recovery from the triple (food, fuel and financial) crisis fuelled by a relentless pursuit of the right mix of reforms and economic policies will boost poverty reduction, the World Bank said Thursday.

“Although Africa was the hardest hit by the crisis, its recovery has been so remarkable that we could be at the beginning of what history will describe as Africa’s decade,” the Bank’s Chief Economist for the Africa Region, Shanta Devarajan, told reporters at the launch of Africa’s Pulse, a new publication highlighting economic trends and the latest data on the continent.

“This is the time to invest in Africa,” Shanta said, crediting the region’s economic rebound to the pursuit by African governments of the difficult but extremely rewarding reforms that had propelled Africa’s average annual growth rates to between five to six percent during the decade ending 2008.

Over that period, 22 non-oil producing African countries were growing at an average four percent. Inflation rates were cut in half across the region. Only two African countries posted inflation rates of above 15 percent in 2005, compared to 13 countries in 1995. Foreign development assistance had increased significantly. Private capital flows had peaked at US$53 billion and remittances had reached US$20 billion.

“Growth during that decade was not only broadly shared, but it was contributing heavily to an annual poverty reduction rate of one percentage point; meaning Africa’s rate of cutting poverty was falling faster than India’s,” Shanta explained.

Impact of the Crisis

The global financial crisis halted this steady pick-up in growth. The continent’s GDP growth fell four percentage points from 5.7 percent to 1.7 percent last year. An estimated seven million to 10 million more Africans were driven into poverty and an estimated 30,000 to 50,000 children died before their first birthday due to the crisis. Remittances and revenue from tourism nose-dived, hurting countries like Lesotho (dependent on remittances for 20 percent of its GDP) and The Gambia (reliant on tourism for 30 percent of its GDP).

It could have been worse, Shanta remarked, applauding African leaders for not letting the political momentum for reforms slip just because the pay-off in growth, jobs and poverty reduction had dried up.

Africa’s Pulse finds that governments across the region combined a series of policies to mitigate the crisis. In countries like Ghana, which had a pre-crisis budget deficit worth 14 percent of its GDP, the country remarkably adopted policies to curb the deficit even as the crisis raged. Nigeria, for instance, turned the crisis into an opportunity to accelerate reforms—reducing subsidies to the gasoline sector and reforming other aspects of its petroleum sector.

In countries like Tanzania and Zambia, which had the fiscal space created by the boom of the preceding years, modest stimulus packages and support to stressed banks were implemented. Showing a stronger commitment to the fiscal discipline, Tanzania’s bailout of banks imposed a strict cut-off date of two years for repayment, contrary to the more lavish programs implemented in many Western countries, including the United States and the United Kingdom.

While Africa has become an excellent destination for business, with one of its countries (Rwanda) emerging as the world’s top reformer last year, all is not rosy, Africa’s Pulse finds.

Challenges to Meeting Africa’s Development Goals

The continent will likely miss most of the Millennium Development Goals (MDGs) by their 2015 deadline. The remarkable progress made–in a country like Ghana on poverty reduction; in Niger and Guinea on access to universal primary education; in Rwanda for shrinking child and maternal mortality—is small compared to the continent’s wider needs.

Three other challenges face Africa, and need to be tackled if the continent is to continue to make progress.

First, Africa must ensure that rising growth rates translate into higher employment levels. Key to this has to be labor intensive jobs to help tackle the seven to 10 million youngsters who join the ranks of the unemployed each year. Agriculture, on which about 70 percent of Africans rely for their livelihoods, could spread prosperity to desperately poor parts of rural Africa.

Thirteen countries on the continent have seen their agricultural productivity increase by three percent every year for the last five years, suggesting that this is, indeed, within reach of most countries. Mali, for example, has expanded its mango exports six-fold thanks to improved seeds, better research, extension worker support, out-grower arrangements and irrigation, among others.

Second, and in line with many recent studies, Africa’s Pulse underscores the huge funding gap in infrastructure (energy, roads, rail, ports, etc.). An estimated US$93 billion is needed every year, of which US$45 billion is mobilized by African governments. Of the US$48 billion left, the World Bank estimates that US$17 billion could come from gains in efficiencies in existing infrastructure.

Third, the continent needs to make investments more efficient in other key areas, notably in human development. Bonuses for doctors and teachers in Rwanda, for example, have led to immense improvements in education, the number of pregnant women attended to; the hours worked by hospital staff, and have helped to reduce child and maternal mortality by a third.

By contrast, however, studies have found that in some cases only one percent of funding for rural medical centers did actually reach a rural clinic in a country like Chad and that rates of absenteeism among teachers in Tanzania was, in some cases, as high as 20 percent.

Notwithstanding the many challenges still facing the continent, Devarajan insists: “I am optimistic that Africa can meet the MDGs, if not by 2015, then very shortly thereafter”