Rising food prices and an increasingly volatile global economy pose profound challenge to Africa’s sustained economic outperformance, key policy-makers have warned.
“There is going to be a threat to growth,” said Samura Kamara, governor of the Central bank of Sierra Leone, one of the most vulnerable countries. “We are importing oil, we are a post conflict, fragile country. The threat is big for fragile countries.”
The warning comes as African finance chiefs gather in Maputo for the annual meeting of the African Development Bank. Food inflation - which has already led to a series of riots in half a dozen of countries - combined with the impact of exploding oil prices in the region, threaten to undermine the region’s development push, said Louis Kasekende, chief economist at AfDB. The likelihood of “pushing millions back into poverty” is growing, if the current high food prices persist, Kasekenda said.
The AfdB raised its agriculture loan portfolio by $1 billion to $4.8 billion early this month to help member countries to address the food crisis.
Moreover, the external environment deteriorated, catching out policymakers and analysts. “It appears to be worse,” says the AfdB, and “a sharp fall in the demand of African exports cannot be ruled out.”
But Tanzania’s central bank chief Benno Ndulu takes a more sanguine view. “There is an investment drive, which is partly based on natural resources. Demand will be sustained,” he said.
Tanzania ranks among the best performers among oil importing countries with an average annual growth of 6.7% since 2000 (2000-2007). Uganda is also expected to becoming a net oil exporter from next year, according to Keith Muhakanizi, deputy secretary to the Treasury, and its economic fortunes will be boosted.
The development bank’s assessment for the region remains upbeat: 5.9% growth in 2008 and 2009, up from 5.7% last year, according to a joint report the bank released with the United Nations Economic Commission for Africa (UNECA) and the OECD Development centre.
In addition, Africa’s overall prospects for sustained improvement are brightened by new drivers of growth such as increased economic relations with China and India.
Yet current account balances have already deteriorated in most oil importing countries, which also face rising food inflation, and some economists have warned against a backlash in government policies, as subsidies and other short-term fixes will hurt their fiscal performance.
“The biggest threat is to jeopardize the fiscal performance,” said Samura Kamara, president of the Central bank of Sierra Leone. The West African nation has slashed import duties and granted a 20% subsidy to fuel prices.
“You can’t have a full pass through (of rising market prices). It would be too much for the people, ” said Kamara. But the central banker admitted that these measures might backfire in the longer term.
“You have to shift resources away from development objectives, such as health and education, in order to cushion the immediate impact,” he said.