Global financial volatility to affect Sub-Sahara African countries

BY GEOFFREY NANGAI

GROWTH has remained strong in the Sub-Saharan Africa Region in recent years, and most low-income countries in Africa weathered the global economic slowdown well, International Monetary Fund Outlook has indicated.

The October 2011 Regional Economic Outlook for Sub-Saharan Africa released yesterday however projects that growth in Sub-Saharan African (SSA) economies will remain on average above 5 percent in 2011.

“The growth rate is expected to increase in 2012 to nearly 6 percent, because of one-off boosts to production in a number of countries. Beneath these good overall trends for SSA, however, there is considerable diversity,” the report said.

According to Antoinette Monsio Sayeh, Director of IMF's African Department most low income countries (LICs) have been doing very well adding that one third of LICs are expected to grow by more than 6 percent in 2011.

But poor households have been hit hard by rising food and fuel prices, and famine is devastating the Horn of Africa. Some middle income countries were severely affected by the global crisis.

Sayeh said Global financial volatility and a sharp slowdown in growth in advanced countries would affect SSA by subduing export demand and private financing flows, restricting growth particularly in the region’s more integrated economies.

“Volatility in commodity markets could cause further disruptions in macroeconomic balances, with both winners and losers within the region.Inflation rates have begun to rise again, driven in the first instance by rising food and fuel prices.

Consumer prices rose on average by 10 percent in the year to June 2011, up from 7½ percent a year earlier. And some countries have seen much sharper increases in inflation, extending beyond the immediate impact of higher food and fuel prices," she added.

Sayeh argued that policies need to tread a fine line between addressing the challenges posed by strong growth and preparing to ward off the potentially adverse effects of another global downturn.

“Sub-Saharan Africa needs to continue to invest in growth and employment, which are critical for sustained poverty reduction. New evidence from household surveys shows that the average living standards of relatively poor households in some fast-growing economies rose strongly in the early 2000s. “

Commenting on Sub-Saharan Africa’s engagement with emerging partners, Sayeh observed that a fast-paced reorientation in SSA toward new markets is under way, with nontraditional partners now accounting for about 50 percent of the region’s exports and almost 60 percent of its imports.

“While the region’s exports are still heavily concentrated in oil, gas, and minerals, particularly in the case of its largest emerging partners—China, India, and Brazil—many emerging markets purchase a wider range of products. FDI into the region is also diversified, including infrastructure, agriculture, and telecommunications.

“This reorientation brings the usual benefits of greater international trade, but should also boost long-term growth by reducing volatility in exports and output. The emergence of new partners provides the region with both significant opportunities - lower cost of inputs and consumption goods, transfer of technology, and economies of scale,” she said.