Africa in 2012: A foresight

the aftershocks in the global economy and the impact on what has been called “innocent bystanders.” For Africa, a Gordian knot, how to maintain growth momentum (built since a decade) at a time when the room for manoeuvre, the shock absorbing capacity, is lower than it was, at the height of the financial crisis. Add to this the famine and mayhem in the Horn of Africa, the birth of Africa’s newest nation South Sudan and the post-election violence in the Ivory Coast.
The long-term trajectory of some of these events cannot be fully fathomed at this time, and obviously, “history is still in the making.”
The African economy in 2012
Let me begin with North Africa. As one would expect, North African economies, are going through a delicate phase. They are dealing with the combined effect of revolutionary changes and the turbulence in the Eurozone, and this at a time when social expectations are high, fiscal positions weak, the risk profile higher and investors, still very much with a “wait and see” attitude.
Much will depend on the policy clarity of the newly elected governments in creating space for wealth creation, in fighting crony capitalism and corruption, and in creating level playing field. Above all, a lot will depend on the governments demonstrating that they are able to reconcile social demands, fiscal discipline, and an open society.
The people of North Africa have high expectations. They have paid a high price. No doubt, there will be temptation for populist tendency for easy solutions. But there will also be reasonable expectations for better opportunities and more equitable, open society. And they deserve it. But that takes time. On the other hand, most of sub-Sahara African economies continue to perform quite strongly, 5,6 percent in 2011 and probably 6 percent in 2012, on average. There are, of course, regional and country differences but the broad picture is an encouraging one.
Commodity demand has played a major role. However we need to bear in mind the role played by domestic demand, buoyed by a growing urban consumer class. Thanks to the sustained robust performance of the emerging economies, whose trade with Africa has almost doubled, from 20 percent in 2000 to 40 percent in the last decade, demand for African commodities has remained strong. Going forward, much will depend on what happens in the BRIC economies in 2012. Analysts seem divided. Some believe there could be a hard landing while others see a manageable slowdown. Either way, it is a cause for concern.
Whichever way the BRIC economies move in 2012, the turbulence in the Eurozone cannot but be a major cause for concern, not only for North Africa, with a large market share but also for other emerging markets like South Africa, Mauritius and Namibia, with strong links through exports, tourism, investment and financial flows.
But Africa is not immune
At this stage, with exception made for North Africa, the impact of the Eurozone turbulence is still muted for the time being. However, AfDB economists estimate that a one percent drop in GDP growth in the OECD countries translates into a 10 percent fall in demand for our exports. African economies have shown strong staying power, but immunity from the crisis in the global economy is not possible.
Information available at this point indicates that already some of the smaller countries are beginning to experience problematic access to trade finance, and several frontier markets have postponed the launch of sovereign bonds.
To sum up: North Africa remains very much on the descending part of the “J” curve. Recovery will be slow and could take time. Sub-Saharan African economies, on the other hand, have shown remarkable resilience and, with other things remaining the same, as economists are fond of saying, they can expect to perform reasonably well in 2012.
The big question now is: will other things remain the same? We cannot be sure. There are heavy, dark clouds on the horizon – the lagged effects of slowdown in Europe, the uncertainty about how the BRICs will fare in 2012 and what that means for investment flows and demand for our exports. That remains to be seen.
Jobs and inequality
I referred earlier, to the reduced room for manoeuvre in dealing with external shocks. In 2008, when the financial crisis was at its apex, Africa was in a much stronger position. This time around, the resilience is not as robust, and the shock absorbers and fiscal space are weaker. In some countries, double digit inflation is back. In others reigning in subsidies and counter cyclical spending is proving to be politically challenging. The task is heavier this time around.
However, as if this were not complex enough, let me refer to another hill to climb: the veritable “Damocles Sword”: inability to translate the strong headline growth into jobs, lower poverty headcount, create opportunities for the young and make visible improvements in people’s lives. Statistics show that over the past 30 years, inequality has worsened especially in resource rich countries.
This is not difficult to understand. In such economies growth is an enclave in nature; it is concentrated and capital-intensive, and inevitable to the infamous “resource curse.” Broad sections of the population are excluded from the benefits, and the result is massive poverty amidst plenty, feeding sometimes into the hands of extremists, who take advantage in order to advance their agendas. Oftentimes, governments have attempted to go around this conundrum by providing subsidies, on such products as petroleum, or major food products. The untargeted welfarism has not only undermined public finances but has also bred corruption, capture by the elites and not benefited the poor.
A broad consensus exists, therefore, which maintains that managing our finite natural resources, avoiding the resource curse, ensuring broad based benefits, building forward and backward linkages is the sure way to translate inherited wealth into real wealth. The management models are known. It is the political will that has to be galvanised.
The crisis will not go away
I consider myself to have been privileged to be a first-hand witness of changes taking place in North Africa. The legitimate expectations of the young for voice, accountability, a decent education and jobs is a cry that will not go away. With more than two-thirds of its population aged under 25, Africa is the youngest region of the world.
This youth bulge will continue to accelerate and so will the social and political temperature. The world as a whole will face an unemployment problem, but Africa will face unemployment of its most important asset – its youth.
Lessons learned
If I have painted an image of a resurgent Africa, it is by no means an attempt to underestimate the obstacles that need to be overcome. It is only to put that in context. And that context is that African economies, in their majority today, are managed by “mature reformers” who know what to do. – African Executive.
l Donald Kaberuka is the President, African Development Bank Group.