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FEATURE STORY

Global Economic Prospects: Africa on the Rebound

January 13, 2010


STORY HIGHLIGHTS
  • Economic growth in Sub-Saharan Africa rebounded strongly in 2010 and is projected to remain robust in 2011 and 2012.
  • Africa benefited from the global recovery, a boost in the demand for raw materials, as well as from a rise in foreign direct investment and improved agricultural productivity.
  • High food prices and climate-related hazards threaten to undo the gains generated by economic growth.

WASHINGTON, January 13, 2010—According to Global Economic Prospects, the World Bank’s biannual report on global economic trends, Sub-Saharan Africa is enjoying good short-term economic prospects. The report notes that Africa’s gross domestic product (GDP) jumped 4.7 percent in 2010, a trend that is expected to hold steady in 2011 and 2012, at 5.3 percent and 5.7 percent, respectively.

These trends reflect an overall improvement in the global economy, driven by developing countries, which, as a whole, posted a growth rate of 7 percent in 2010, and are expected to experience a slight decline before holding steady at 6 percent in 2011 and 6.1 percent in 2012.

In Africa, several factors contributed to this rebound. First, there was strong demand for raw materials, in particular, metals, minerals, and oil, owing to the economic recovery seen across the globe. This is the case, for example, in the Republic of Congo, which earns the lion’s share of its revenues from oil production. Its estimated growth rate of 10.3 percent was the highest in Africa in 2010. Likewise Ghana, a new member of the club of oil-producing countries, is poised to upstage the Republic of Congo in 2011, with a growth rate of 13.4 percent. It grew by 6.6 percent in 2010, and forecasts indicate a growth rate of 10 percent in 2012.

South Africa, the continent’s largest economy, posted a relatively modest growth rate of 2.7 percent in 2010, while Nigeria—with a 7.6 percent increase in its GDP— reaffirms the upward trend and should stay the course in 2011 and 2012.

Africa as a prized investment destination

Foreign direct investments in Sub-Saharan Africa grew by 17 percent in 2010 after a 12.3 percent decline in 2009. This trend confirms Africa’s position as a preferred destination for foreign capital, although only three countries (South Africa, Angola, and Nigeria) account for 40 percent of these capital flows.

Increased Agricultural Productivity

Africa also benefited from an increase in agricultural productivity. In Ethiopia, for example, the estimated growth rate of 9 percent in 2010 was essentially spurred by the agricultural sector. This sector benefited from investments in the road network and in the power sector, which helped the emergence of small farmers.

In another example, higher corn yields, combined with increased uranium exports, enabled Malawi to register a growth rate of 6.8 percent in 2010 despite a slowdown in tobacco production – the country’s main export commodity.

Similarly, Kenya’s recovery in 2010 (5 percent increase in GDP) was attributable to tea exports, which grew by 50 percent over the previous year owing to favorable climatic conditions. Horticulture, another key economic sector in Kenya, was hard hit by the adverse shocks in Europe, particularly the volcanic eruption that led to the cancelation of several flights. To counter this loss in revenue, the country had to turn to the industrial sector.

High food prices, climate pose real risk

The good news of a return to economic growth in Africa is clouded by uncertainty over high food prices, which pose a real risk to the well-being of populations across the continent. For low-income households that spend a substantial share of income on food, an increase of 10 to 20 percent in the price of food items could wipe out the gains brought about by the strong growth.

The risk is further exacerbated by climate-related hazards, such as the floods that recently ravaged several West African countries, including Benin. Such hazards continue to cause worry in the agricultural sector. Perceiving these threats, World Bank President Robert Zoellick recently penned an op-ed in which he sounded the alarm over the issue and proposed practical solutions aimed at guaranteeing food security and protecting the purchasing power of poor households.

In addition, there are other equally important risks, such as those linked to a possible slowdown in the global economy, as well as the imponderables related to the political environment, given that elections are scheduled to be held in some 20 countries this year. Caution must therefore be exercised.

 


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