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News : Global Economy Last Updated: Jan 13, 2011 - 4:07 PM


Emerging Africa expected to see rise in investment says IMF
By Michael Hennigan, Founder and Editor of Finfacts
Jan 13, 2011 - 4:10 AM

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Figure 1: Per-capita gross domestic product at current prices in 2007, 2008 and 2009 (in EUR)

Figure 2: GDP at current prices, development 2000-2009 (2000=100)

Having demonstrated resilience during the global financial crisis, Africa’s emerging market countries have good prospects for 2011, according to the IMF (International Monetary Fund).

Foreign direct investment, particularly from Africa’s new trading partners in Asia, is expected to strengthen and demand for African bonds is set to increase.

The IMF says such diversification of financing sources for much-needed public investment would be welcome, but would also require a coherent macroeconomic policy and foreign exchange regime to cope with capital flow surges, especially if they have historically been prone to debt problems.

More private capital ahead

The IMF says advanced-industrial-country policy measures, albeit needed to shore up their own growth prospects, have led to historically low yields and, in some cases, significant increases in public debt. These trends, coupled with strong growth prospects in many emerging markets, have led investors to look further afield.

Economic analysts, investors, and the media are increasingly able to single out countries in sub-Saharan Africa with good track records and prospects that inspire investor confidence, such as those globalization researcher Steven Radelet has dubbed “emerging Africa” (see Box 1).

New linkages, new partners

As discussed in the IMF’s Regional Economic Outlook for sub-Saharan Africa in October 2010, African trade is already shifting toward the dynamic emerging markets, notably China. Trade between China and Africa has been expanding rapidly, growing by an average of 30 percent a year over the past decade, and likely exceeded $100bn in 2010.

The IMF says these new partners will continue to show strong demand for goods that Africa can supply, and will be alert for opportunities to invest directly. For Africa, the key priorities will be negotiating fair and durable deals with big multinational firms and making the best use of the revenue windfalls, especially when the resources are nonrenewable (see Box 2 below).

EU27-Africa

The EU's statistics office, Eurostat, and the statistics unit of the African Union (AU) Commission have produced a set of Africa-EU economic indicators.

Box 1: Radelet’s 17 emerging African economies

Countries that posted per capita economic growth of more than 2% for the period 1996–2008:

Botswana
Burkina Faso
Cape Verde
Ethiopia
Ghana
Lesotho
Mali
Mauritius
Mozambique
Namibia
Rwanda
Sao Tome and Principe
Seychelles
South Africa
Tanzania
Uganda
Zambia

■ Many of these countries are considering tapping international capital markets to fund ambitious public spending programs.

Eurostat/AU say that in recent years, African GDP has progressed at a faster pace than in the EU, but this has been offset by a comparatively high increase in consumer prices. Furthermore, the global economic crisis had a considerable impact on GDP and trade in goods in 2009.

Since 2004, the value of extra-EU trade in goods with Africa has risen substantially, with imports (mainly energy products) consistently higher than exports (especially machinery and transport equipment). The economic crisis abruptly ended this trend: in 2009, the value of EU-27 imports from Africa decreased by 33% and EU-27 exports to Africa fell by nearly 10%, resulting in a near trade balance.

The report says that in 2009, Libya was the foremost African exporter of goods to the EU-27, and South Africa was the main destination for EU-27 exports to Africa. The EU-27’s small trade surplus observed in the trade of services in 2007 increased to €3.7bn in 2008.

Between 2000 and 2008, nominal GDP growth in Africa as a whole increased at a faster pace than that of the European Union. In 2008, total GDP in the EU-27 stood 36 index points above its base year value (2000), while that of Africa progressed by 67 index points over the same period. Due to the global economic crisis, GDP in the EU-27 fell by 8 index points in 2009. The corresponding 2009 figure for Africa as a whole is not yet available.

The report says obviously, aggregate data mask large disparities with regard to the ‘weight’ of the individual countries. The largest contributors to Africa’s GDP are South Africa, Nigeria, Egypt, Algeria, Morocco and Libya. However, the picture changes considerably when considering GDP per capita.

GDP in Africa stood 67% higher in 2008 than it did in 2000. The average annual growth rate (AAGR) between 2000 and 2008 amounted to13.0%. The corresponding AAGR (nominal growth) for the EU-27 was 3.9%, with GDP standing 36% higher in 2008 than in 2000.

Risks

The IMF says that notwithstanding the rapid gains of the last decade, poverty, often extreme, remains pervasive in sub-Saharan Africa. In far too many places, more rapid growth has not yet translated into local employment opportunities, a better social safety net, or a higher quality of life. In addition, weak governance, limited administrative capacity, or political instability (and even outright conflict) have suppressed or reversed per-capita-GDP gains.

Box 2: Make the most of windfalls

Revenue authorities and finance officials of 18 African countries gathered in Kampala, Uganda in mid-2010 for an in-depth, two-day conference on oil revenue management, cosponsored by Norway’s Oil for Development program. At the conference, the IMF Fiscal Affairs Department (FAD) launched The Taxation of Petroleum and Minerals: Principles, Problems and Practice, a handbook that provides analysts and decision-makers the essential foundations of resource taxation.

FAD’s Fiscal Analysis of Resource Industries (FARI) Initiative has a unique collection of natural resource laws and agreements from around the world, covering a wide variety of commodities. FARI experts use this knowledge to construct output/price/cost scenarios, alternative tax or financial arrangements, and revenue outcomes, so that African authorities can negotiate fair, durable and competitive agreements.

In recognition of the growing number of new natural resource projects in Africa, the IMF Institute, in cooperation with the Bank of Algeria, organized a High Level Seminar on Natural Resources that brought together academics, civil society representatives, and veteran officials from natural resource producers for a frank discussion of experience, good and bad, of natural resource revenue management. The IMF Institute will distill this into a book and has already launched a new course on the Macroeconomics of Natural Resource Management for member country officials.

With support from development partners, the IMF will this year substantially step up its technical assistance in tax policy and administration and in managing natural resource wealth by launching two new trust funds.

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