Africa’s potential to be the next global pole of growth has never been in doubt. Despite the ripples of the 2008 global economic crisis which are being felt and as the current Eurozone crisis goes on, Africa has shown resilience and continues to grow.

According to the 2012 Economic Report on Africa was launched last week in the Ethiopian capital Addis Ababa, Africa has the potential to be a pole of global growth, calls for efforts to unleash the continent’s full potential to fully play that role.

Titled ‘Unleashing Africa’s Potential as a Pole of Global Growth’, the report examines recent developments in the world economy and implications for Africa and analyses the economic and social prospects for 2012.

There is evidence among other factors to show that Africa could be a pole of global growth and goes on to propose a clear plan on how to unleash the continent’s development capacity and mobilize resources for its structural transformation.

According to the report, after a strong rebound in 2010, the world economy slowed in 2011 owing to increased risks and uncertainties that are expected to remain in 2012 and beyond.

It takes note of the negative effects of the triple crisis of 2007–2009 – food, energy and finance – which still linger, and the euro area sovereign debt crisis, it says, has aggravated the structural imbalances in the world economy and cast doubt on the prospects for sustained growth and a quick recovery.

The shift of “toxic assets” from private sector to government balance sheets in major developed economies did not relieve the global financial system as expected, “but instead worsened government fiscal positions, paced by new global financial turmoil with the onset of the euro area crisis,” it says.

Noting that the depth and complexity of the global crisis has so far defied the many policy responses applied by the major developed countries, which kept interest rates low and pursued fiscal austerity measures to restore fiscal credibility, the report posits that, despite these measures, however, long-run structural problems, such as increased income inequality, dysfunctional labour markets and global imbalances, have intensified.

African economies, the report said, rebounded quickly from the 2008 financial crisis as commodity prices rose and export revenues returned to pre-crisis levels, enabling them to finance the necessary investments.

But with the political turmoil in North Africa, coupled with the euro area crisis, growth slowed in 2011. Still, some African countries continued to post double-digit growth, reflecting increased commodity prices and strong domestic demand, the report said.

Although Africa is not immune to the global crisis, the researchers believe the continent in a much better position to deal with external shocks. The expected global economic slowdown may well cut demand for its commodity exports, reduce prices and thus hurt its export revenues, but increased output alongside its gradual moves to diversify its exports—as well as recently improved intraregional trade—can help the continent to better weather adverse global developments.

ODA shortfalls, it noted, could threaten many aid-dependent African countries’ social development programmes, but could also encourage the continent to mobilize more domestic resources and reduce over-dependence on foreign financial assistance.

In view of these risks and challenges, the report calls on African governments to implement growth-supportive macroeconomic policies in the short run, while adopting long-term development perspectives.

“To be more specific, they should increase their investments in programmes such as education, health and infrastructure that can enhance their economies’  long-term growth potential in the bounds of their fiscal space. Monetary policy needs to be accommodative to support growth, but must be combined with income policies to provide a minimum social security cushion for the weakest groups in society, so as to consolidate the achievements in reducing poverty over the last decade,” it says.

In the long term governments need to pursue economic diversification and structural transformation vigorously in order to reduce vulnerability to external shocks, such as the euro debt crisis or volatility in commodity prices. Moreover, African countries must continue to diversify their export destinations and expand economic partnerships, including those with new development partners, while deepening intra-African trade and investment.

The report believes that, crucially, African countries can grow faster by unleashing their productive potential—by aggressively investing in infrastructure and human capital, and by promoting good governance.

“This will require strong political leadership and a firm institutional framework to fulfil the broad, transformative long-term agenda,” it says.

The report is a joint publication of the Economic Commission for Africa (ECA) and the Economic Commission for Africa (AU).

 

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