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 five 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%.
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%.
Despite strong adverse shocks in recent years linked to political strife, repeated droughts, and the global crisis, Kenya still fared quite well, recording robust growth rates of 5.8% in 2010 and 4.4 % in 2011.
Moreover, fiscal discipline has been maintained even with strong spending pressures, public debt levels remain sustainable, financial inclusion has made remarkable progress, and recent inflationary pressures are being addressed through a tightening of monetary policy.
These developments testify not only to the resilience of Kenya’s private-sector led economy, but also that economic reforms implemented with the support of the IMF’s Extended Credit Facility have started paying real dividends.
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 favour 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 liberalisation.
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 labour 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.
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.
Gudmundsson is the IMF Resident Representative, Nairobi Kenya
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