African growth remains buoyant

Over the past three years, Africa's growth has hovered impressively around the 5% mark and per capita income is also rising. The need now is to sustain the growth over the next five years if real change in the standard of living is to be achieved. Report by Neil Ford.

Average economic growth of 5.1% in Africa in 2004 was widely heralded as a breakthrough for the continent. The 5% barrier is regarded as the line above which real improvements in the standard of living can be made in developing countries, given that the population of many states is still growing by 2-3% a year. Growth in 2005 was almost as high at 4.9% and even higher growth is predicted for the following years, so could Africa finally be entering a period of sustained growth and development?

The economic figures for 2005 were published by a joint report by the African Development Bank (AfDB) and the Organisation for Economic Cooperation and Development (OECD).

The African Economic Outlook (AEO) report estimated that the 4.9% growth in continental GDP resulted in an average 3% rise in per capita incomes as a result of average population growth of 1.9%. It also revealed that the 5.1% growth figure for 2004 has now been upgraded to 5.3%. The OECD predicts even higher average growth in Africa of 5.8% and 5.5% for 2006 and 2007 respectively, so continental growth is certainly higher now than during the 1980s and 1990s.

The report stated: "Two thirds of the 30 countries surveyed in the Africa Economic Outlook report showed a net growth in investment that was by far the best in seven years. If the good weather of 2005 holds up, along with world commodity prices, the improvement could continue into 2006 and 2007. But if oil prices stay high, the threat to the continent's oil importing countries should not be underestimated."

At this stage, there does not seem to be any likelihood of a repeat of the Asian economic miracle. During the 1980s and 1990s, many Asian countries routinely registered GDP growth of about 10% a year, which can revolutionise living standards and investment prospects if sustained for a decade or more. It is widely quoted that Nigeria and Malaysia enjoyed the same income per head of population at independence but their very different histories are borne out by the massive difference in income today. Even taking into account the recent oil boom, Nigerian GDP per head stands at $390 a year, whereas the Southeast Asian country now records $4,650 per head.

Africa as a whole is a long way from such levels of growth, although some countries, such as Equatorial Guinea because of its oil boom and Mozambique because of its low starting point and strong economic policy, have recorded double digit growth in recent years. However, even growth of 5-6% a year could propel the African economy at the same rate as many South American states have developed. The key will be sustaining or even building on this level of growth.

High oil prices underpin growth

The 2005 figure is certainly based on high oil prices, at least in part, as growth was stronger in oil producing states than elsewhere. The oil producers recorded average growth of 5.5% in 2005, in comparison with 4.4% for the net importers.

Referring to the latter countries, the AEO states: "The African Economic Outlook puts their average trade deficit at more than 5.6% of GDP. Continuing high oil prices - which seem increasingly likely - are a major medium term risk for the continent's oil importers and seriously endanger their macroeconomic stability efforts through the key problem of the funding and sustainability of trade deficits. It also makes poverty reduction even harder by reducing the government's financial room for manoeuvre and threatening a spread of poverty."

However, the IMF is convinced that net oil importers are dealing with the high oil price more effectively than in the past, despite the fact that fuel prices far exceed those experienced at any time in the 1980s and 1990s.

The assistant director of the IMF's Africa department, Sanjeev Gupta, commented: "We have had no requests for additional finance to cope with the oil increases. Overall, we are seeing a greater resilience from African economies."

In addition, there are more oil producers now than in the past, while the IMF believes that high commodity prices for many minerals have helped countries such as Zambia and Ghana to finance their higher oil import bills. In addition, fuel subsidies have been reduced or lifted in many countries, so that consumers pay closer to the market rate for diesel and petrol.The conclusion of a number of conflicts has also helped to attract foreign direct investment (FDI) and enabled national reconstruction. Democratic Republic of Congo (DR Congo), Sudan, Somalia and Côte d'Ivoire all suffer from poor security situations but the likes of Angola, Mozambique and Sierra Leone are already benefiting from a post-war dividend, while Liberia could be about to join them.

Less conflict overall has boosted the continent's levels of growth but the IMF also appears to be becoming increasingly confident about the standard of governance and fiscal policy in many countries. The current process of debt cancellation and rescheduling could provide another boost to national economies and help to sustain the recovery. Increased investment could also result from pledges of increased aid over the past year.