In previous global downturns, sub-Saharan Africa has usually been badly affected—but not this time around.
The world economy has experienced much dislocation since the onset of the global financial crisis in 2008. In many advanced economies, growth still remains weak and unemployment levels have surged. Emerging market economies have accounted for the lion’s share of global growth since the 2009 Great Recession, but their dependence on conditions in the advanced economies remains quite high.
But in contrast to past global downturns, Sub-Saharan Africa proved quite resilient this time around, experiencing both a smaller dip in growth and a faster recovery.
The bank system in Congo, © Nicolas Guyot
Some better than others
So what explains the resilience against the backdrop of such a weak global economy? And can we expect this solid growth performance to continue?
Economic performance and prospects in sub-Saharan Africa have undergone a fundamental change since the mid-1990s. Compared with negative per capita growth between 1980 and 1995, Sub-Saharan Africa has recorded an average increase in per capita GDP of close to 3 percent since 1995. And the good news is that this change has been most remarkable in the region’s 26 low-income and fragile economies, which have seen stronger growth and more rapid poverty alleviation. While the MDGs are still out of reach for some, most countries have made significant strides in the right direction.
Several factors explain this turnaround. On the political front, the wave of democratization has been accompanied by better economic policies, leading to more market-oriented economies, lower inflation, and more budget discipline. Together with the extensive debt relief provided to most many African countries, this has also resulted in significantly lower debt burdens.
As a result, Africa has been quite resilient to the impact of the Great Recession in 2008-09. High commodity prices and fewer financial sector linkages certainly helped. But the main reason for Africa’s resilience was that African policymakers were able to rely on the buffers built up since 1995, and ease monetary and fiscal policies to support economic activity instead of being forced to cut spending because of severe borrowing constraints as occurred in past downturns. The reorientation of Africa’s trade and investment patterns also made it less dependent on traditional partner economies, relying more on the less-affected emerging market economies.
In 2012, we estimate thay economic growth in sub-Saharan Africa could reach 5 ½ percent, a touch higher even than in 2011, buoyed by one-off surges in natural resource production and recovery from drought in western Africa. Looking beyond 2012, there is every reason to believe that growth rates at this pace can be sustained.
A worker in Congo, © Nicolas Guyot
But there are risks. The global economy remains unusually vulnerable, with downside risks coming from renewed stress in the euro zone, which could throttle the already hesitant global recovery and, among other things, depress commodity prices. But equally disruptive to world growth would be another surge in oil prices because of rising political tensions. There would inevitably be adverse consequences for sub-Saharan Africa if either of these shocks were to materialize.
African countries can take steps to mitigate the impact of those risks. Many, if not most, countries still have the fiscal space to maintain existing public spending plans, even if revenues are reduced by slower growth. Special fiscal measures—such as cash grants to poor families or assistance to school children—could help alleviate the impact on the most vulnerable in the event of sharply rising fuel prices. Monetary and exchange rate policies can also be supportive in countries with independent monetary autonomy—although in some countries, central banks will need to remain focused on reining in too-high inflation. And the IMF would be standing by with financial support to support member countries experiencing severe stresses, just as we did in 2008-09.
Meanwhile, ahead of any storm, it is important that countries where growth is still strong take every opportunity to build up their policy buffers now through prudent fiscal policies.
Lastly, but crucially, what about the more distant future? How does sub-Saharan Africa keep up or even improve on its good economic performance? First, by staying the policy course and maintaining prudent economic policies and improving the business climate further. It also requires broadening the revenue base and modernizing public financial management so that essential spending—including on infrastructure and public services—can be financed. An essential objective is to raise both the quantity and the quality of public investment and prepare to reduce still-high aid dependency. It is also vital that we keep a focus on the young and on inclusive growth. Because better education, robust health, and realistic job opportunities are, in the long run, the only secure foundations to sustained prosperity.
Deputy Director of the IMF's African Department