Africa slowdown dismissed as global markets tumble
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Emerging Markets

Africa slowdown dismissed as global markets tumble

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African economies should be strong enough to withstand rising global uncertainties, leading experts insist

A darkening global economic landscape is unlikely to derail Africa’s upward trajectory, leading experts have said as international markets plunged on heightened growth fears.

Stock markets in the US, Asia and Europe fell sharply on Wednesday following comments by US Federal Reserve Chairman Ben Bernanke effectively ruling out another round of quantitative easing, in the wake of disappointing housing and jobs data.

But African nations’ much improved policy stance and growing links with fast-growing emerging markets particularly in Asia serve as a fresh buffer for the region relative to the past, experts insisted.

“The strength of the African economies is a great success story, particularly given how they weathered the global financial crisis,” Scott Morris, US deputy assistant Treasury secretary for development policy and debt, told Emerging Markets.

“Because of timely support from the AfDB and the other institutions along with policy environments that support growth in these countries, the numbers look quite good.”

Shanta Devarajan, chief Africa economist at the World Bank, said: ““African governments are much more prepared than they used to be and the foundations of growth are stronger, so I’m cautiously optimistic.”

“There’s not much Africa can do to control the global economy, but African governments should have sufficient fiscal space and policy flexibility.”

Africa’s relatively underdeveloped capital markets, bar South Africa, also mean that the region would be less affected by a sudden reversal in capital flows as investors increasingly retreat from risk assets.

“[The region] hasn’t seen as strong a wave of capital inflows as more developed emerging markets have, frontier Africa has been largely spared that, so the capital outflow risk to the region is less pronounced,” said Razia Khan, regional head of research for Africa at Standard Chartered.

Statistics released last week showed a stalling US recovery, prompting a sell-off in global equities as investors scrambled to reassess risk.

African Development Bank (AfDB) chief economist Mthuli Ncube in Lisbon this week unveiled positive growth forecasts for sub-Saharan Africa, predicting 6%-plus growth in 2011for east and west Africa and 4.5% growth in southern Africa.

But while sub-Saharan African growth could survive a US downturn or an escalation of the eurozone debt crisis, experts acknowledged the region would be less well-equipped to manage a Chinese slowdown that would undercut commodities demand.

“We know that Africa is not immune to what’s going on in the global economy and that there’s very little sense of decoupling, and we also know from the past that given Africa’s dependence on commodity exports, whenever the global economy experiences a downturn, we tend to see a pronounced downturn in Africa,” Khan said.

“A slowdown in demand for commodities from Asia would have an immediate transmission and impact,” said Stuart Culverhouse, chief economist at Exotix.

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