In the past, when the global economy weakened, sub-Saharan Africa fared very badly. Not so in recent years. While the global economy spluttered last year, the region notched up 5 per cent growth, with some low-income countries growing even faster. Even in the depths of the global economic recession in 2009, most countries in the region carried on growing.
So, what is different now? And what are the chances that the region’s solid growth performance will continue even if the world economy runs into further problems – for example, if euro zone financial problems intensify or oil prices surge again? My assessment is that, despite these global risks, the outlook for sub-Saharan Africa remains positive.
Consider first what has happened since the eruption of the global financial crisis nearly four years ago. While output in many advanced economies has yet to return to pre-crisis levels, growth in sub-Saharan Africa has stayed within sight of the boom period of 2004-08, when low income countries’ growth averaged 6 percent. However, some middle income countries in the region – including South Africa - have been more severely affected by global problems, reflecting their closer integration into the world economy. Since the global crisis began, only emerging Asia has outpaced the growth of sub-Saharan Africa among the world’s major regions—and the IMF expects a broadly similar outcome in 2012, with sub-Saharan Africa growing by about 5 ½ percent.
The Rwandan economy, for one, has been expanding at a brisk pace, with growth averaging 7 percent over the past three years and inflation remaining in the single digits. The government was able to undertake an expansionary fiscal policy in the aftermath of the 2008-09 global financial crisis, which helped the economy to recover quickly. Importantly, the results from the latest household survey show that this growth had been inclusive, as the fraction of Rwandans living below the poverty line declined, and productivity in agriculture--the sector that employs the most Rwandans—increased.
This is a very welcome change from sub-Saharan Africa’s low growth and economic crises in the 1980s and 1990s. Clearly, many factors lie behind this increased resilience. The region is, by and large, more stable politically; commodity prices have moved in favor of many of its exporters; and, crucially, most governments have pursued prudent economic policies and growth-supporting reforms.
In particular, economic policies in the last decade have been directed firmly toward economic stability and market liberalization. Inflation has been generally tamed, foreign reserves have risen, and debt burdens have been reduced - thanks, in part, to debt relief. As a result, investment levels have risen steadily, banking systems are playing an expanded role in attracting savings and providing loans, and the adoption of new technologies is boosting labor productivity.
Robust economic policies also served sub-Saharan Africa well when the global crisis hit. Because inflation was low, and government fiscal positions were generally sound, countries were able to take measures to offset the sudden drop in demand for their exports. Strong domestic deposit bases largely insulated African banking systems from global financial stresses. And the quick response by international partners, including the IMF, which committed about US$ 5 billion to sub-Saharan Africa in 2009, helped the region weather the storm.
Not that everything is rosy. Although faster economic growth has helped reduce the region’s poverty levels, they remain unacceptably high. Poor social conditions still plague many countries in the region. This underscores the challenge of ensuring that growth is truly inclusive.
Key risks to the global outlook include a re-intensification of financial stresses in the euro zone – an important brake on the global economy in 2011 – or another surge in oil prices stemming from geopolitical uncertainties. Inevitably, adverse developments along either of these lines would have negative consequences for sub-Saharan Africa: growth would be reduced, unemployment would rise, and, in many countries, fiscal accounts would be strained.
Nonetheless, my view is that such developments, unless they are extreme, would slow rather than derail Africa’s economic expansion. Many governments, helped by low debt levels and modest fiscal deficits, would have space to accommodate an economic downturn by borrowing more without having to resort to large expenditure cuts.
While some countries in eastern Africa are still dealing with the effects of a surge in consumer prices last year, inflation remains generally well-contained.
A final thought. As long as growth remains robust, governments should focus on improving their fiscal positions and build up sufficient cushions to be able to respond in the event of further global shocks. This will help Sub-Saharan Africa stay the course: maintaining high growth and reducing poverty, both of which are crucial for higher living standards for everybody.
The author is the Director of the African Department, IMF