Reuben Olita
6 November 2007
analysis
Nairobi — UGANDA along with several other low income African countries are expected to grow their economies by approximately 7% in 2007, a trend fuelled by the ongoing commodities and construction booms, a senior American researcher has predicted.
Professor Michael Unger made the prediction during the third biennial African Editors Conference that started in Nairobi on Monday.
Other countries
Other countries ranked with Uganda are Ethiopia, Ghana, Kenya, Madagascar, Malawi, Mozambique, Niger, Rwanda, Senegal, Tanzania and Zambia.
Unger said oil exporting countries should see growth accelerate to 7.5% in 2007.
This group is led by Angola and Equatorial Guinea, whose new oil fields have begun to come online.
While Nigeria was still experiencing disruptions, this was partially being offset by new off-shore production, Unger said.
Middle-income countries, he stated, should grow by 4.75%, driven by South Africa, where the public and private investment is beginning to increase.
Other nations in this category are Botswana, Lesotho Namibia, Swaziland and Cape Verde.
Fragile countries are expected to grow by 5%, a little faster than 2006. Sierra Leone, Liberia and the DR Congo are benefiting from a buoyant agricultural output and rising exports.
However, weak policies and institutions, political instability and the risks of conflict remain a perennial problem.
Unger said China's massive investments in Africa in the recent past were geared towards securing natural resources critical for future industrialisation.
China announced it was investing $8.5b in Congo's mineral assets.
Last year, China signed an agreement with Angola to develop the country's oil fields.
During the same period, China's Offshore Oil Corporation invested $3.2b in the Government of Nigeria's oil and gas sector.
Last week, the Industrial and Commercial Bank of China announced an investment of $5.5b in South Africa's Standard Bank-Africa's biggest bank by assets.
The China Development Bank spent $3.1b to buy into Barclays Bank last July.
For the first half of 2007, Unger said, the global economy grew by about 5 %.
However, due to the slowdown in the US economy, global growth is expected to slow to approximately 4.8% in 2008.
This represents a decline from a robust period of growth during 2006 of 5.4%.
During this same period, China grew by 11.5%, providing the greatest contribution to overall growth. India grew by more than 9% and Russia by 8%.
In total, these three countries accounted for over half of total economic growth over the past year.
During this period, the pace of economic growth in the US slowed considerably to 2.75%, and is expected to fall even further in 2008 to 1.9%, Unger disclosed, adding that Japan and the Euro area slowed as well.
In the Euro area, growth is expected to fall to 2.1% in 2008, nearly a half of a percent point below 2007.
This is because of the rising value of the Euro and the decline in exports to the US.
Japan's economy dipped slightly in 2007, but is expected to rebound in 2008. Eastern European countries have declined slightly due to the turbulent financial markets and rising food prices. Unger said the US economy slowed considerably from 2.75% to 1.9% owing to the housing market and the ensuing turmoil in the financial markets.
The growth of the domestic economy and low interest rates led to an accelerated demand for housing.
Emerging market economies, he noted, have been impacted by these developments as well, as interest rates have risen, stock market prices declined, and capital inflows slowed.
Other factors contributing to the slowdown are the soaring prices for oil, whose demand is greater than anticipated and a drop in production, which pushed oil prices above $93 a barrel last week.
The global economy has over the past five years been able to absorb the run-up in oil prices.
In spite of new investments in oil producing countries, the supply response has been sluggish, Unger noted.
"The dollar continues to fall against the euro and other industrial country currencies, the U S current account deficit is beginning decline--5.5% of GDP.
However, China's current account surplus is expected to reach historic high levels of 12% of GDP in 2008,' he said.
He added that the continuing US deficit and China's huge surplus had created concern for orderly adjustments in global financial markets.
In past years, because of its mature and secure capital markets, the US has benefited from large capital inflows from China.
This inflow has held rates down, resulting in lower returns on financial assets than in recent years.
"We are beginning to see the flow of funds from surplus countries shift to opportunities providing higher returns and consequently higher risk."
The rising price of oil and gas, participants were told, had caused Middle Eastern countries to look for new ways to invest their rising accumulated reserves.
Russia too has excess reserves from soaring energy prices, while China, and Singapore have boosted their income from huge trade surpluses.
Governments are beginning to think through the implications of this volume of funds moving through an essentially unregulated and less than transparent system.
The top five funds accounting for 70% of total assets are Abu Dhabi ($625b), Norway ($322b), Singapore ($215b), Kuwait ($213b) and China ($212b).
Unger said the positive rates of global growth had been good news for Africa.
Sub-Saharan Africa's growth has outpaced overall global growth.
Over the past several years, Unger asserted, the global economy and that of sub-Saharan Africa had been doing well.
For 2007, economic growth for sub-Saharan Africa is expected at 6%, a full percentage point above that for the world. For 2008, growth is expected to accelerate even further, reaching 6.75% from 5.5% in 2006.
These figures represent the strongest growth coupled with the lowest rates of inflation (Zimbabwe excluded) since independence.
Much of this growth had been fuelled by increased oil exports from Angola (up 26%) and Nigeria (up 8 %).
"But not just this alone, most sub-Saharan African countries over the past decade have undertaken successful macroeconomic stabilisation programmes and other policy reform initiatives that have resulted in broad-based growth across a wide array of countries."
"The challenge to Africa is, can the growth be sustained? We have seen improvements in non-traditional exports, increases in domestic and foreign direct investment, structural reform, policy improvements, but is this enough? Sustaining the current expansion ultimately rests on each country's ability to use its higher income to accelerate social and economic development.
This, in turn will require continued structural and institutional reforms to increase productivity, and create conditions that will attract private investment to non commodity sectors," he explained.
According to the recent Global Compositeness Report (June 2007), out of 128 countries, South Africa was 46th, Botswana 83rd, Kenya 97th, Nigeria 102nd, Tanzania 108th, Uganda 116th, Ethiopia 123rd and Angola 128th.
"Competitiveness depends upon productivity and productivity depends upon profitable firms. "To build a competitive economy is not simply to fix weaknesses, but to build on a country's strengths," Unger added on Monday.
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