6 November 2012

Africa: 'Restoring Trust in African Markets?


The swelling level of capital flight in Africa was the subject of concern during last week's African economic Conference that was held in Kigali.

According to this year's African Economic Outlook, Africa lost $700 billion due to capital flight, largely- a reflection of Africa's weakening ability to build investor confidence.

The phenomenon reduces resources that could have been invested in wealth creation in the country of origin even as the Continent is in dire need of raising more resources to finance development.

One of the factors contributing to loss of investor confidence on the continent is the prevailing high political risk.

Africa's average growth slid to 3.4 per cent last year from 5 per cent a year before, mainly due to the political uprisings in North Africa- whose growth rate was only 0.5 per cent in 2011.

Yet, economists suggest that North Africa's future development depends on the ability of the new governments to guarantee political stability and improve economic and social conditions.

Several African countries including Sudan and South Sudan, among others, share tense borders and should urgently resolve their regional tensions.

But political risk is not the only factor hurting the continent's fortunes. Macroeconomic instability is one of them.

Whilst most projections indicate that the continent's economic growth will rebound to 4.5 per cent this year, improving macroeconomic stability remains a daily challenge for various African countries.

The uncertainties in the global economy characterised by volatile commodity prices, deeper euro zone crisis and shrinking inflows in development assistance among other factors pose serious challenges to Africa's economic development.

This calls for improved management of monetary and macroeconomic policy.

Africa has improved in many aspects. Its largest source of external financing-Foreign Direct Investments (FDI)-hit $54.4 billion last year. This is in sharp contrast to the $10.9 billion recorded in 2000. Remittance flows and external tax revenues rose steadily in the last decade.

However, economists say that if flight capital had been reinvested in Africa with the same level of productivity as that of actual investment, the rate of poverty reduction could have increased 4 to 6 percentage points a year, on average, over the period from 2000 to 2008

As a result African countries as group could have reached the Millennium Development Goal of halving poverty by 2015, an objective they will not achieve on the current rate of poverty reduction.

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