Current crisis could wash away years of achievements, says new report

Addis Ababa, Ethiopia, 24 June 2009 (ECA) - The 2009 edition of the African Economic Outlook (AEO) was launched at the UNECA Conference Centre in Addis Ababa, Ethiopia this morning with renewed warning that the results of 8 years of economic growth in Africa could be entirely consumed by the current global downturn.

Speaking at the official launch of the 2009 edition of the annual report, Mr Adam El Hiraika, of ECA’s Microeconomic Analysis Section, and one of the authors of the report, said that the key “message of this year’s report is that Africa achieved significant growth in the last 8 years as a result of high commodity prices and macroeconomic reforms.”

But as the report warns, “following half a decade of above 5 per cent economic growth, the continent can expect only 2.8 per cent in 2009, less than half of the 5.7 per cent expected before the crisis.”

It notes that the collapse of commodity prices and plummeting demand from OECD countries will have an adverse effect on Africa’s budget balances, with the regional budget deficit for 2009 predicted to be around 5.5 per cent of GDP, compared to a surplus of 3.4 predicted in the AEO one year ago. Foreign direct investment decreased by about 10 per cent in 2008.

The 2009 report also finds that while official development assistance (ODA) increased in 2008, there are concerns over downward pressure on donor aid budgets due to the ongoing economic crisis.

Mr. El Hiraika stressed the fact that “decades of reform addressed most of the internal factors.” Combined with a favourable external environment, Africa enjoyed half a decade of growth rates above 5%.

“The financial crisis has now become an economic crisis; it has eroded benefits accumulated over the years of reform.  With a projected growth rate of only 2.8%, and a bias on the downside, many people will fall back into poverty. This is a setback beyond the control of Africans and is likely to be protracted. Using an updated methodology, the Outlook reports that only a handful of African countries are on track to meet the target of halving the share of the population living on less than one dollar a day by 2015”, the report explains.

However, the 2009 AEO notes that Africa is better positioned to weather the crisis than it was ten years ago. Many countries have undergone prudent macroeconomic reforms in the past few years, which have strengthened fiscal balances and reduced inflation to single-digit levels. Many have also benefited from substantial debt relief, with the result that debt service/export ratios are low in most countries.

Speaking earlier at the launch, Mr. Abdoulahi Mahamat, OIC of ECA’s Trade and Finance Division (TFED), underlined some of the unique characteristics of the report, saying that it might be “the only annual publication that covers the continent on a country-by-country comparative basis”, and one that “provides a consistent, reliable and timely information on economic, political and social development” in Africa.

Mr. Mahamat who was speaking on behalf of Ms Lalla Ben Barka, Deputy Executive Secretary of ECA, said that the other strength of the report lies in the fact that it “brings together perspectives of experts” from both the ECA, the African Development Bank (AfDB) and from the Organization for Economic Cooperation and Development (OECD).

The Addis Ababa launch was supported by the Italian Embassy in Addis Ababa. The embassy was represented at the event by Mr. Martin LORENZINI, Counsellor and Deputy Head of Mission.

Mr. Lorenzini assured that “as far as Italy is concerned Africa remains a central cooperation priority, as shown by the commitment to earmark no less than 50 per cent of our official development assistance resources for the 2009-2011 period to the continent, to be funneled through bilateral channels.”

Italy, as President of the G8, he said, would be committed to convey a positive, optimistic and hopeful message about Africa.

The 2009 Outlook covers 47 African countries, up from 35, last year. The 2009 AEO has a special focus on innovations in information and communication technologies (ICTs). It concludes that despite low penetration rates for new technologies, innovative applications of ICT have been proliferating to areas such as e-banking, e-payments, e-agriculture, e-trade, e-government and e-education. Many of these new tools are helping to shape an improved business environment by contributing to market development, overcoming traditional infrastructure constraints and reducing business costs.

These enterprising uses of ICT show that African countries can pursue growth based on greater domestic investment and consumption, in turn reducing the impact of exogenous shocks and crises.

The 2009 edition of the African Economic Outlook brings into sharp focus the continent’s shortcomings in the area of data collection and analysis, and underscores the need for greater collaboration among national actors (data-collection agencies) in that critical domain. This would ensure the availability of reliable statistics, which is the basis for efficient planning.

The annual AEO is published jointly by the African Development Bank (AfDB), the OECD Development Centre and the United Nations Economic Commission for Africa, with support from the European Commission. It highlights major differences in the way the various regions of Africa are likely to feel the crunch of the crisis.

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