North Africa Unrest, High Prices Hamper Continent's Economic Recovery

Although Africa weathered the 2009 global economic crisis, the unrest in North Africa combined with rising fuel and food prices could slow growth this year, a new report from the African Development Bank warns.

Article first published as Unrest, High Prices Hamper Africa's Recovery on Technorati.

 Ghana community farmers (IMAGE – Trees ForTheFuture)

Africa's economies have weathered the global crisis relatively well and rebounded in 2010, according to the African Economic Outlook 2011, launched on 6 June 2011.

But recent political events in North Africa and high food and fuel prices are likely to slow the continent’s growth down to 3.7% in 2011, the report warns.

During this year, sub-Saharan Africa will grow faster than North Africa. The report predicts a rebound to 5.8% in 2012. Economic growth in Africa has averaged 5% in the past decade.

The new report was launched in Lisbon, which later this week will host the African Development Bank’s (AfDB) annual meeting, the first gathering of African finance ministers and other officials to be held in Europe for 10 years.

"Africa is growing but there are risks. Urgent attention is needed to foster inclusive growth, to improve political accountability, and address the youth bulge," said Mthuli Ncube, Chief Economist and Vice-President of the AfDB.

New trade with emerging economies

Co-authored by the African Development Bank (AfDB), the OECD Development Centre, the United Nations Development Programme (UNDP) and the United Nations Economic Commission for Africa (UNECA), the report covers 51 of the continent's 53 countries.

It urges African countries to develop closer cross-border ties in dealing with traditional and emerging partners so they can boost sustainable and inclusive growth.

Despite its large oil and mineral exports, Africa today still accounts for only about 1.5% of global trade. However, Africa is becoming more integrated in the world economy and its partnerships are diversifying, revealing unprecedented economic opportunities.

New routes opened between Africa and emerging countries are promising, the report states. "New partners bring new opportunities for African countries," said Mario Pezzini, Director at the OECD Development Centre.

Emerging economic powers like China and India are seeking to extend their influence in Africa, not only through trade and investment but also through diplomatic alliances.

China's $126 billion annual trade with Africa is worth almost three times that of India's $ 46 billion. But India is moving to shrink that gap, as witnessed at the second India-Africa Forum on 24-25 May 2011 in the Ethiopian capital, Addis Ababa. India's bilateral trade with Africa is forecast to exceed $50 billion this year.

China now Africa's main trading partner

In 2009, China surpassed the US and became Africa’s main trading partner, while the share conducted by Africa with emerging partners has grown from approximately 23% to 39% in the last 10 years.

Africa’s top five emerging trade partners are now China (38%), India (14%), Korea (7.2%), Brazil (7.1%) and Turkey (6.5%).

While traditional partners, as a whole, still account for the largest proportion of Africa’s trade (62%), investment (80%) and Official Development Assistance (90%), the report notes that emerging economies can provide additional know-how, technology and development experiences required to raise the standard of living for millions of people on the continent.

World Bank echoes warning on fuel, food prices

On 12 May 2011 the World Bank also warned that high food and fuel prices could slow Africa's rapid recovery from the global financial crisis. Sub-Saharan Africa's economy was likely to grow by 5.1% in 2011 and 5.4% in 2012, it said. An earlier forecast by the Bank had shown the region growing by 5.3% this year and 5.5% in 2012.

The sub-Saharan African economy grew by 4.7% in 2010, rebounding from 1.7% growth in the previous year, when the world economic crisis hit output.

"Having presented a fairly optimistic picture, I should add that there are some real risks to this growth forecast. Perhaps most importantly is this increase in food and fuel prices that we are seeing right now," Shantayanan Devarajan, World Bank chief economist for Africa, told Reuters in an interview.

"If food prices and particularly fuel prices continue to rise, there is some really serious risk to the growth forecast."

On a positive note, Devarajan said sub-Saharan Africa should also see higher foreign capital flows in 2011 - after rising 6% to $32 billion in 2010 - as perceptions about the continent improve.

Paying the Price of Arab Revolt

Political unrest, growing unemployment and spiralling food prices add up to bad news for Arab economies, the IMF warns.

Article first published as Paying the Price of Arab Revolt on Technorati.

Will “revolution tourism” bring dollars to Egypt? (IMAGE – Tarek)

The continuing unrest in the Middle East and North Africa will lead to higher commodity prices and disruption to economic growth for many countries in the region, the IMF said in its April 2011 Regional Economic Outlook for the Middle East, North Africa, Afghanistan and Pakistan (MENAP), released on 27 April 2011.

While oil exporters will enjoy a windfall, a difficult economic year looms for oil-importing states, the IMF predicts.

The report comes in the wake of a joint call for urgent support for Middle East economies by the World Bank and the IMF, who warn that political upheavals in the region could throw the global economic recovery off track.

Eventual Growth After Initial Disruption?

In the short term, many Middle East and North Africa (MENA) countries face multiple pressures caused by growing unemployment, rising commodity prices and disrupted economic activity.

But in the long run, "the uprisings could give a boost to the economies in the region by setting a more inclusive growth agenda, improving governance, and providing greater and more equal opportunity for its young and growing population," Masood Ahmed, Director of the IMF’s Middle East and Central Asia Department, said at a press conference in Dubai to launch the report.

"The immediate challenge facing oil-importing countries in the Middle East is to maintain social cohesion and macroeconomic stability in the face of multiple pressures," he added.

Oil, Food Prices Major Factors Affecting Growth

"Two major factors are driving the current scenario: the unrest in the region and ensuing uncertainty, and the surge in global fuel and food prices," says the IMF.

The IMF report projects overall growth in the MENAP region at 3.9%.

The economies of the oil-exporting countries - Algeria, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, Sudan, the United Arab Emirates and Yemen - are expected to expand by 4.9%, mostly through higher oil prices and oil production, although those projections exclude Libya.

The combined external current account balance for regional oil exporters is expected to more than double to $380 billion in 2011.

But the region’s oil exporters still need to increase diversification of their economies, create jobs for their populations (in a region where youth unemployment rates are well above 20% in a number of countries), and improve the management of public resources, the IMF says.

For oil importers - Afghanistan, Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Pakistan, Syria, and Tunisia - the outlook is not rosy. With political turmoil hitting both tourism and investment, their projected growth has dropped to only 2.3%.

And worsening terms of trade resulting from higher food and fuel prices are expected to inflate their import bill by about $15 billion, or nearly 3% of GDP on average, according to the IMF. "This will, in turn, translate into either higher inflation or a worsened fiscal balance, depending on the extent of subsidies."

Egypt and Tunisia Worst Hit

On 11 April, the IMF's World Economic Outlook report revised its economic growth projection for the Middle East to 4.1% for 2011, from a 4.6% forecast in January 2011, French news agency AFP reported.

In Egypt, which has the Arab world's biggest population, the IMF predicted economic growth to be only 1% in 2011, down from 5.1% in 2010. However, “disruptions to tourism, capital flows, and financial markets are expected to be temporary," it added.

In Tunisia, which enjoyed 3.7% growth in 2010, the IMF's 2011 prediction was down to 1.3%, from 4.8% in October 2010. If political and social turmoil in the North African country continues, the drop in tourism and foreign direct investment will exacerbate damage to the economy, the IMF warned.

But it raised its economic growth projection for natural gas producer Qatar to 20% in 2011, up from 16.3% in 2010.

The IMF also forecast that Saudi Arabia, the largest Arab economy, would enjoy 7.5% growth in 2011, compared with 4.5% projected in October 2010.

The IMF said that among other Arab oil exporters, the economy of Iraq would grow by 9.6% in 2011, Kuwait by 5.3%, Sudan by 4.7%, Algeria by 3.6%, and the United Arab Emirates by 3.3%.