Experts Identify Policy Challenges as African Growth Decelerates

By Barry Wood
Washington
25 March 2009

Experts meeting at U.S. Export Import Bank conference on Africa say governments face challenges in holding to pro-market policies.

Consultant Harry Broadman says as growth rates fall by half from previous high levels, policy makers will have a hard time keeping fiscal and trade deficits under control. Many African economies experienced strong growth during the global boom that came to an abrupt halt in 2008. Growth that averaged six percent in 2007 is slowing to an anticipated three percent advance this year.

Broadman says the global crisis is only now hitting Africa, with the impact greatest where capital markets are most developed, South Africa and Nigeria. Foreign direct investment, he said, which had reached $55 billion last year is falling rapidly. Oil and copper prices are down 50 percent while exporters of cotton, coffee and cocoa are facing price declines of 30 percent.

Broadman, a former Africa specialist at the World Bank, said even though China's drive for access to critical industrial commodities has fueled a spectacular increase in Chinese investment, their buying spree in Africa must be put in perspective.

"As a percentage of the overall stock of foreign investment in Sub-Saharan Africa, it [Chinese investment] is very small. Still, about 92 percent of all foreign investment in Africa is accounted for by the United States and European Union," he said.

John Chambers, the head of the Standard and Poor's credit rating agency, said political risk in Africa remains high, deterring investment in regions of war or civil strife. He said question marks concerning leadership succession are another adverse factor.

"Cameroon, Gabon and Burkina Faso have had long-standing leaders. Our base case is that these government systems have sufficient resilience to make a transition without economic dislocation. But the level of uncertainty is higher than in a country that has already been able to make a political transition of power," he said.

Chambers cited South Africa, Nigeria, Benin, Mozambique and Ghana as examples of successful leadership transition.

Acting U.S. Assistant Secretary of State Phillip Carter said the Obama administration is conducting a far-reaching review of U.S.-African policies. He mentioned Sudan and Somalia as areas of concern. He said Washington's assistance levels to Africa will hold steady and not retreat from the three-fold increase that occurred during the previous six years.