Improving the economic prospects for Africa in 2014

forecast

The IMF has predicted good economic prospects for 2014. A growth rate of 5.5% has been announced, as opposed to 4.9% last year. Growing investments in infrastructure and improving prospects in oil-exporting countries have fueled this growth. The IMF expects the stabilisation of inflation rate and improvement of budget balance. However, external deficit is expected to deteriorate. As a matter of fact, given that the local industry is not well developed, the import rate from direct foreign investments is rising as well as the investments in infrastructure. Here is a review of the IMF report published in April 2014 on the economic prospects. [1]

The short-term predictions should be maintained in the new global circumstances. They depend on the effects of the economic slowdown of the BRIC countries (Brazil, Russia, India, China) and the tightening of monetary conditions globally which will not deeply impact Sub-saharan African countries. But, how will the sub-continent react to the economic slowdown in developing countries and the improvement of the global monetary policy?

In the past few years, many emerging countries like China have witnessed a higher growth rate. As a consequence, the volume of trade with Subsaharan countries have risen. The growth rate in the continent was fueled by an increasing demand, higher costs of exported goods and higher investment flows. The economic slowdown in China means that the investment would also decrease to the benefit of consumption. Thus, this should impact prices and discourage them from investing in other countries. On the other hand, globally the financial circumstances have been alleviated to resolve the crisis. This has made a lot of capital available and they have massively been invested in developing countries, especially in Sub-saharan African countries. The upturn in global financial conditions will slow down direct foreign investments.

According to the International Monetary Fund, these new global changes will  have a limited impact in most countries. Actually, the improvement of global growth translating into the rise of external demand will create a favorable environment. Nevertheless, the budget and policies of some vulnerable economies might suffer from the adjustement of financial conditions. In order to sustain this growth, the macroeconomic politicies should focus on reinforcing the budget balance that has suffered from the crisis. The current conditions are favorable for these policies: preserved social safety policies, stabilisation of inflation rate and reinforcement of sub-regional integration.

The IMF prospects are focused on the short-term. Sub-saharan countries will have to find ways to provide a structure to develop a sustainable and inclusive growth. Since the past few decades, many countries in the region have achieved a 5 to 6% growth rate. Nevertheless, these countries have undeniable structural problems. Only a small part of the society reap the fruits of this growth. In order to promote an inclusive growth that will benefit to all, the IMF recomends to efficiently use the human capacity and improve financial services.

The political authorities should enhance the human potential by increasing employment opportunities which would be an efficient way to reduce poverty. Family businesses are very well developped in the subcontinent in the fields of agriculture and services. The authorities should create a positive environment to encourage the development of these activities. Thus, the underlying increase in productivity will orient the structural changes in the economy. The authorities should also allow easier access to funding in order to encourage entrepreneurship and set up of businesses. Reforms such as the use of NICTs in financial transactions will definitely help to reach that goal.

A good monetary environment is essential to attain macroeconomic stability. In the past few years, inflation rates in Sub-saharan African countries have risen above 10%. The authorities should take measures to limit risks of macroeconomic instability. They are challenged by the tightening of the international financial framework that results in higher costs and growing risks of outflow of fundings. These reforms are necessary for a better and more efficient monetary policy. They should focus on improving the quality and frequency of data which would allow to supply information accordingly. Moreover, the central banks should monitor the excess liquidity in circulation by improving liquidity management, broaden the range of instruments for the monetary policy and stabilise the financial sector.

In a nutshell, economic prospects in Sub-saharan African countries seem positive. However, they mainly depend on the evolution of the global economy. Although the impact of these adjustments may be limited, some states have very fragile budgets and policies. These countries have witnessed an accelerated growth. This does not imply though that the continent has had an accelerated growth. The authorities should take advantage of the current good economic performance to reach a stable macroeconomic structure through massive economic restructuring in order to achieve sustainable and inclusive growth. Policies should thus focus on using the human capacities available locally and improving the access to credit so as to foster entrepreneurship. For the IMF, monetary authorities should carry out reforms to improve the financial environment.

Translated by Bushra Kadir


[1] http://www.imf.org/external/pubs/ft/reo/2014/afr/eng/sreo0414.pdf

 

 

 

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