Recent indicators suggest that activity in advanced economies is gaining momentum. This is particularly the case in the United States, where private demand has been robust, prompting the Fed to signal an eventual normalization in financial conditions. In Japan, the government has taken important steps to stimulate growth. And while Europe is slowly emerging from a deep recession, a host of challenges remains to be addressed.
At the same time, emerging market economies are slowing, following several years in which they were the main engine of global growth—and a particularly important engine for Kenya and Africa. In fact, the momentum in emerging market economies was a key factor in softening the impact of the global financial crisis on Sub-Saharan Africa. So any change in emerging market economies’ prospects is bound to be a matter of concern.
As financial conditions in advanced economies normalize, the risk of heightened volatility in financial markets may create new challenges in emerging market economies. There is also the risk of potential spillovers from emerging market economies to countries in Sub-Saharan Africa, particularly those that are more financially integrated with the global economy— such as Kenya.
2. The Outlook for Sub-Saharan Africa
Which brings me to my second point: the outlook for Sub-Saharan Africa. Here the news is encouraging.
In fact, Sub-Saharan Africa remains the second-fastest-growing region in the world—5.6 percent on average over the past decade. Africa is now beginning to take its rightful place at the table of global prosperity. Countries in Eastern Africa, in particular, have experienced strong growth for the last decade.
In many countries, this growth has contributed to higher living standards and poverty reduction. Low inflation, reduced levels of public debt, and adequate reserve levels – have helped to shield much of the region from the crisis.
Overall, we expect Sub-Saharan Africa to enjoy continued robust growth—which our projections in October place at 5 percent in 2013 and close to 6 percent in 2014. But this outlook is not without risks. Policymakers must remain vigilant to threats from slower demand in emerging market economies, unfavorable changes in commodity prices, or higher financing costs.
Looking forward, I would like to reiterate the same message for Sub-Saharan Africa that I just gave to Kenya: there can be no complacency. Immense challenges remain. Africa can—and must—grow faster to address pressing social problems, and provide jobs for its young and growing population. Poverty remains unacceptably high, and progress toward the Millennium Development Goals remains too slow.
Indeed, “Africa Rising” will be the subject of a major conference the IMF is organizing, in partnership with the government of Mozambique, to which all Sub-Saharan Africa countries have been invited—including your Finance Minister and Central Bank Governor. Following the successful conference entitled “Kenya: Ready for Take Off” that Kenya and the IMF organized in Nairobi last September, the conference in Mozambique will take stock of Africa’s economic successes, as well as the challenges ahead.
3. Kenya—The Quest for Middle-Income Status
Let me now turn to my third topic and the main theme of today’s meeting—Kenya’s quest to become a middle-income economy.