20 February 2009

Africa: Sustaining Growth Will Challenge Govts

guest column

The remorseless, 30-year rise in the number of Africans living in poverty has stopped. Poverty is not yet falling, but it has stabilized, according to the World Bank.

Several trends explain this important development. The first is sustained economic growth. Twenty years ago, the continent was growing at an anemic one percent. Over the last ten years, it has grown on average of five to six percent, with some countries doing much better.

Africa, usually the poorest performing region in the world economy, is now likely to be among the best-performing. Moreover, the region has been largely immune from the current banking crisis, although growth has slowed to an estimated 3.5 percent in the global recession. The continent's financial institutions did not venture into derivatives or sub-prime mortgages.

The recent commodity boom, which saw the world paying record prices for Africa's resources, contributed to the region's sustained growth. The fall in commodity prices has hurt, but prices are still at levels above those of the 1990s.

The business climate continues to be worse than in other regions, but it is so much better than a decade ago that the local private sector is now contributing to economic growth.

These trends are underpinned by political reforms implemented in many countries since the end of the Cold War. According to the Ibrahim index on African governance, 32 sub-Saharan African countries held credible elections in 2006. There has also been a sharp reduction in the number of civil wars.

As a result, returns on American foreign direct investment, returns on equity, and estimates from survey data on the return on capital employed all show Africa to be generating the highest rate of return of any region in the world.

Despite these gains, Africa continues to be the poorest region on earth. With 53 nations on the continent, some countries have benefited from globalization and reform more than others. Some have not benefited at all.

The immediate challenge for Africa's leaders and its partners, in light of the global economic recession, is to sustain - let alone accelerate - these vital trends of economic growth, improved governance and poverty reduction.

Accountable African leadership is the most critical factor. The African Union rightly suspended Mauritania and Guinea last year following coups, but has had little impact in helping to resolve Zimbabwe's crisis. There needs to be a consistent commitment to accountability and democratic governance by Africa's leaders and regional organizations.

Improving the competitiveness of Africa's private sector is also a priority. As Tanzania's president, Jakaya Kikwete, contends, there needs to be a heightened focus on reducing the costs of doing business by combating corruption, gearing post-secondary education to private sector demand and providing access to credit and investment capital.

In addition, Africa's partners in the West face a dilemma. In 2005 the G8 countries agreed at their summit in Gleneagles, Scotland, to invest an additional U.S.$50 billion in development assistance by 2010, half of which would go to Africa. According to the One Campaign advocacy group, only 14 percent of these resources have been delivered.

While the global financial meltdown has imposed obvious constraints on all nations, G8 leaders are as accountable for their commitments as leaders from any other region.

China's influence on Africa's prosperity is substantial. Its willingness to build infrastructure in the continent in return for access to natural resources has contributed to economic growth, but without a willingness to train workers and introduce transparency in its commercial dealings, China could become an impediment to the continent's long-term progress.

Finally, there is the Obama factor. Given the crises facing the new American administration, Africa may have received its "Obama dividend" on January 20, in the powerful symbolism of a son of Africa overcoming extraordinary odds to become the 44th president of the United States.

Still, during the campaign, Barack Obama promised to double American development assistance. Once the financial crisis broke, he acknowledged that it may take longer to achieve this goal than initially envisioned—but he did not back away from it.

At the same time, other actions can be taken in support of Africa, such as revitalizing the African Growth and Opportunity Act, working through the Millennium Challenge Corporation to improve governance and using the Overseas Private Investment Corporation to extend credit to small and medium enterprises.

Africa's progress, while significant and widespread, is fragile and reversible.

The surest way to sustain progress in these perilous economic times is for governments on the continent and elsewhere to live up to their commitments, even if time frames have to be revised.

Witney Schneidman is president of Schneidman & Associates International and was an adviser on Africa to the Obama campaign. Paul Collier is professor of economics at Oxford University and author of "The Bottom Billion."

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