Three years ago the discourse was that Africa would be the continent that would suffer most from the global financial crisis. But it emerged much stronger than many other economies because of its internal dynamics.
I don’t think that this is another false dawn. I don’t think it is naïve to acknowledge the economic momentum built over the last decades. We have reason to be optimistic about the momentum.
A combination of factors is driving this momentum. First, the cumulative effects of reforms over two decades: they’re beginning to pay off. Second, there are underlying structural factors in the economy such as urbanization which means demand for all kinds of services including infrastructure and financial services. Third, the internal dynamics of the African market are beginning to show their significance: economic integration is beginning to work. Finally you cannot underestimate the impact the BRICs (Brazil, Russia, India and China) have had on this dynamic.
However, there are two areas of concern. Food prices, when combined with higher energy prices, are a source of major vulnerability. This is what causes this “Molotov cocktail” and riots in the cities. So it’s something we have to watch. The long term solution for us in Africa is to increase agricultural production across the continent as it has great potential and to allow regional markets to function
Second, many of the buffers that were used to offset the impact of the last financial crisis have been reduced; they must now be rebuilt. During the crisis, fiscal space was provided to increase expenditure in a countercyclical way. It’s important to go back to those sound macroeconomic policies which have served us very well in the past. External reserves must also be rebuilt to comfortable levels.
I cannot pretend that there will be some kind of magical decoupling of Africa from the rest of the world but I think the internal dynamics are quite significant. We were able to withstand the last crisis: we were bruised but we came out stronger. Africa is now in a better position to survive external shocks because of these dynamics.
We need to focus on how to pursue strong growth, but growth which is broadly shared and which takes place with accountable institutions. Africans are no longer just looking at headline statistics of strong growth, but growth which reaches the majority of the population and that leaves no regions and people behind. That kind of agenda of broad-based, shared growth is extremely important at this time.
The events in North Africa dictate what should be done. No country is immune unless issues of inclusion, accountability and participation are addressed. It is important that the international commitment to support the transition in North Africa is realized. It is absolutely critical.
All post-revolution countries go through a J-curve, a loss of output for some time before it recovers. The speed of recovery will depend upon the quality of transition and the degree of external support. During that period, when economic output is lost temporarily, there is less revenue and higher expenditure because of social demands. If the quality of transition and the roadmaps which have been put in place are followed, I’m confident that the outlook is quite bright for these countries in the medium term.
The quest for political and economic reform is not limited to North Africa. It is a quest for better governance across the continent and in other parts of the world. People have been questioning the quality of leadership across Africa. The nature of reforms differs from country to country. There are imperfect democracies, there are some risks in particular countries. But many countries of sub-Saharan Africa have been carrying out political and economic reforms.
What we need is a process. Economic and political reform is not a linear process, it is not necessarily as simple as a bang on the table. Tunisia experienced a combination of frustrations, both economic and political over dynasties and a dictatorship. In many African countries those combinations don’t exist in that format. But the quest for political and economic reform is universal, it is everywhere.
What matters is that process of creating strong institutions. Wherever there are institutions that are weak and unaccountable, wherever dynasties have taken root, clearly those places are at risk. Some countries are ahead of the pack in terms of political and economic reforms and that is to be encouraged. For others, reforms are much slower and I think it’s important that the process is accelerated.
But on balance the bigger risk we face right now is discontent because of food prices and fuel prices, which have to be managed by strong institutions, by accountable institutions, and by credible governance.
Donald Kaberuka is president of the African Development Bank. Interview by Taimur Ahmad.