The Resilience that African Economies Have Built Over the Past 15 Years is Real

Donald Kaberuka, president, African Development Bank

At the dawn of 2015, the question being asked frequently is: Are the good times over for much of Africa? Can the decade-long momentum be sustained, given the Ebola epidemic; the chronic crises in Central African Republic; South Sudan; the sharp fall in commodity prices; and a slowdown in the emerging markets, etc?

In a sense it is déjà vu. The same question was asked in the aftermath of the global financial crisis. In fact, the received wisdom at the time was that Africa would be the most affected continent.

The resilience that many of the African economies have built over the past decade and a half is real and will enable much of the continent to stay the course.

The current issue of the Economist spells out why commodity dependence in Africa may no longer be as critical as it was in the past.

One has, of course, to nuance this statement, as we are 54 countries with different endowments and conditions.

So, while the story is broadly positive, nothing is pre-ordained. It will depend on the policy stance of the countries. I would even go further to say that the outlook would even be better if faster progress were made in two key areas: Economic integration, especially the removal of non-tariff barriers; and how we fund infrastructure development.

The year 2014 that has just gone by presented many challenges, old and new: the headwinds in the global economy; slowdown in the large emerging markets; and sharp declines in commodity prices.

Yet much of Africa maintained its dynamism, at 5.5 per cent growth. Indeed, some countries, including Côte d’Ivoire, have registered even higher rates. However, we know that given our demographics, 5 per cent growth is strong but not stellar. It is 7 per cent we must target.

And the elephant in the room is infrastructure and non-tariff barriers. Those parts of the Continent making faster progress on both areas are able to see higher growth, even when commodity prices are weakening.

It is important to emphasise the fact that some of the fastest-growing countries in Africa are not commodity dependent.

Their growth is less volatile compared with that of those that are highly commodity dependent. In most countries, in 2014, the three key drivers of growth were: Investment, domestic consumer demand and regional trade.

The year 2014, however, also exposed the complexities of managing the vortex of demographic dynamics, rapid urbanization, jihadism, and the natural resource curse.

In the Sahel, in the Central African Republic, in South Sudan, we continue to see clear evidence of the link between development, security and the environment. So, in short, while growth remains strong, it is still below what is needed, given high population growth.

Meanwhile, inequalities are increasing, with a Gini coefficient as high as 0.7 in some regions.

If infrastructure and NTBs are elephants in the room, the lack of jobs, inclusion, effective safety nets are the giants holding back Africa’s full potential.

Predictability of what happens tomorrow is crucial. At a time when many countries are going into elections, it should not be a period of anguish, anxiety and apprehension. Regular elections are a sign of maturing democracies. In any case, the act of elections is only part of the democratic culture we must build.

It requires fair play, tolerance and always ensuring there are no groups who feel they will be permanent losers. Lee Kuan Yew was once asked, “How do you build a peaceful, prosperous society in an imperfect young democracy?” and he said: “Fair institutions that provide a level playing field to all”.

We may not be able to reach perfect democracies in one step, but this is a good place to begin. As I look at the experience of South Sudan and CAR conflicts, I cannot but contemplate these sage words by LKY. Rent-seeking leadership has imposed a very high price on the peoples of those countries. Beyond this, Africa’s priorities remain the same.

First: How to secure growth that is strong, inclusive and sustainable; growth that creates jobs, that benefits the broad categories of the population and not simply the few elites.

Second: Growth that is transformational, that creates opportunities in the higher ladders of the global value chains, that generates jobs for the fast-growing population.

Third: Institutions that anchor the rule of law, fairness, policy predictability, and national cohesion. Tactically, in the short term, in 2015, each country’s challenge may be different: For some it will be: Rebuilding shock absorbers in the light of global uncertainties, such as commodity price volatility and altered conditions in the capital markets, and addressing energy shortages and outages.

For countries going into elections, it will be about retaining, or at least not undermining investor confidence by ensuring that elections are times of political combat, not one of shedding blood or generating instability.

At this time there is a lot of attention on what the crash in the oil markets mean for African countries. We have to look at it from several perspectives: That of net exporters; of net importers; of regional economic engines; that of its impact on exploration for the new producers.

First, net oil exporting countries will have to revise their budgets, to look for new sources of revenues. It is an opportunity to revisit the implications of long term dependence.

Second, net oil importers will see benefits all the way, from reduced pressures on budgets, balance of payments and inflation and increased purchasing power.
It is an opportunity for them to strengthen macroeconomic buffers, put in place viable safety nets, increase investments in infrastructure.

Third, the neighbourhood effects. We need to factor in the impact of lower economic activity in some of the regional economic engines.

For example, lower revenues will impact negatively on growth in Nigeria, and indirectly the neighbouring countries. In the same vein, lower oil prices provide a relief for countries such as South Africa and Kenya and indirectly impact positively on the neighbourhood, thus boosting trade and domestic demand.

The international development agenda in 2015 is a crucial one. We need to work together to ensure success on the post-2015 Sustainable Development Goals, as the MDGs expire this year; on the Conference of Parties on climate change, to ensure that at long last a binding climate deal can be reached; on the Addis Ababa Conference on Financing for Development; figuring out how to fund development in a new landscape.

We pray that 2015 will be a year of peace and stability, a year in which we are able to make key decisions that humanity awaits on key issues such as climate change and sustainable development goals, to meet the many global challenges we face today.

Source: The East African (