African economies are improving but they, and the rest of the world, must keep their eye on the target, African Development Bank president Omar Kabbaj tells James Eedes.

Omar Kabbaj, the African Development Bank president is quick to highlight Africa’s tentative economic progress but is equally insistent that if the continent does not sustain the momentum, the gains will amount to nothing.

Africa’s GDP grew at an average rate of 3.6% in 2003, significantly faster than the 2.8% recorded the previous year and the average of 3.1% for the previous five years. “[The number of] countries that registered a growth rate of above 5% increased to 17 from 11 in 2002, whereas countries experiencing negative growth rates remained at seven. The remaining countries recorded GDP growth in the range of 1%-5%,” says Mr Kabbaj. As in the recent past, there was considerable variation in the performance of individual economies, as well as sub-regions, he adds.

Sub-regional progress

Among the different sub-regions, north and central Africa experienced significant rebounds. In north Africa, this was explained by good rains and improved export performance. In central Africa better prospects for peace in the Great Lakes region, as well as higher and steady prices for oil were the principal explanatory factors. In west Africa, growth rates improved marginally although continued conflicts in the sub-region have affected its economy negatively.

In east Africa, economic performance was held back by the drought that affected some countries, although others continued to enjoy robust growth rates. And in southern Africa, growth rates remained sluggish, in part explained by the strengthening of the rand and, in part, by continued difficulties faced by some of the larger economies of the sub-region.

Lower fiscal deficits

“The improved performance of the African economy last year was explained by both internal and external factors. Domestically, most governments continued to follow prudent macroeconomic policies,” says Mr Kabbaj. “This is evidenced by a lower average fiscal deficit of 3% in 2003 compared with 3.4% in 2002. Further, tighter monetary policies contributed to the achievement of an average inflation rate of 11%, with some 40 countries recording single digit rates.

“The sustained improvements in the management of economies, together with structural reforms, are helping to create the required conditions for the emergence of a more robust private sector. Indeed, both private savings and investment rates, after an extended period of stagnation, are beginning to pick up.”

Africa’s improved economic performance is also in part explained by the resolution of some of the long-standing conflicts that had beleaguered some countries and sub-regions. “It was heartening to see the progress that has been made in bringing to an end conflictsin Angola, Burundi, Congo, the Democratic Republic of Congo and, more recently, Liberia,” says Mr Kabbaj.

Externally, the demand for Africa’s exports increased in 2003, coupled with improvements in the prices of major primary commodities. An increasing number of countries also began to take advantage of the opportunities offered by new trade initiatives such as the United States’ Africa Growth and Opportunity Act (AGOA). This combination of factors led to a substantial increase in both the volume and value of African exports, contributing to the higher GDP growth rate achieved. Africa’s exports in value terms increased by 17%, well above the average of the past five years. This, in turn, led to substantial improvements in the region’s trade and current account balances.

Still falling short

“While we welcome the increase in Africa’s overall GDP growth rate – and in particular the high growth rates reached by a number of countries – we must, however, note that the rate achieved in 2003 still falls considerably short of that required to make substantial progress towards the attainment of the Millennium Development Goals [MDGs]. African countries must continue to accelerate their growth rates to increase incomes and reduce poverty. And in such efforts the assistance of the international community remains critical,” says Mr Kabbaj.

He highlights three areas of support that are particularly important: increased official development assistance (ODA); reducing the debt of African countries to sustainable levels; and bringing about reforms to the world trading system, as envisaged in the Doha Development Round of the World Trade Organization (WTO) negotiations.

“Recent figures released by the OECD development assistance committee on official development assistance to Africa indicate a substantial rise in the volume of assistance in 2002 – the latest year for which such figures are available. ODA to Africa stood at $21.2bn in 2002 as compared to $15.7bn in 2001. This represents a reversal of the downward trend that had been observed for more than a decade. The increase will help recoup some of the lost ground in recent years,” says Mr Kabbaj.

More help is needed

“As welcome as this increase is, it should be placed in the perspective of Africa’s ODA requirements and the resources that the region needs to enable it to make substantial progress towards meeting the MDGs. More generally, recent studies have indicated that current levels of ODA will need to be at least doubled to enable poor, developing countries – most of them in Africa – to make the desired progress. We hope that the recently observed increase in ODA to African countries will be sustained in the future and that the donor countries, despite their budget constraints, would indeed achieve the short and long-term targets that they have announced in various international fora, such as Monterrey.”

Support from the international donor community is also required in reducing Africa’s external debt to sustainable levels. In this regard, much has been achieved in the recent past through the Heavily Indebted Poor Countries [HIPC] Initiative – in which the African Development Bank is an active participant. Indeed, Africa’s debt, as a ratio to its GDP, has declined to 48% from a high of 74% in 1994. And the ratio of debt service to exports has also been halved to 15% from a high of 30% in 1991.

“Again, while welcoming these developments, we should not lose sight of the continued fragility of African economies and the ease with which external shocks can easily destabilise them. It is essential, therefore, that the external debt of African countries be kept under continuous review and the appropriate actions taken to ensure that it is indeed reduced to sustainable levels,” says Mr Kabbaj.

The third area in which African countries require external support is in the area of trade. The developing countries, including those in Africa, had hoped that progress on the WTO Doha Development Agenda would be achieved at last year’s Cancún talks. But this progress did not materialise.

“We were deeply disappointed by the failure of the talks and it is our ardent hope that these negotiations will resume shortly,” says Mr Kabbaj. “It is now generally agreed that agricultural subsidies by the developed countries distort global trade – particularly in key commodities such as sugar, cotton and rice – and that these hold back growth in the export revenues of developing countries. Similarly, non-tariff barriers and the escalation of tariffs tend to discourage exports of processed and manufactured goods. We therefore call on industrial countries to liberalise their trade regimes further to improve access for Africa’s exports.”

Call for reforms

Although Mr Kabbaj is looking to the international community to assist Africa, he does not skirt the issue of the continent’s own responsibility to get its house in order. “We are urging our regional member countries to sustain the progress they have made in the management of their economies and to deepen related structural reforms. In particular, improving the investment climate through further governance reforms continues to be a major priority. And the HIV/Aids pandemic requires greater commitment and resources to halt and reverse its devastating economic and social impact,” he says.

African countries are also being pushed to redouble their efforts at regional integration. “The New Partnership for African Development initiative provides an important means through which such efforts could be scaled-up. Promising starts, in such areas as regional infrastructure – in which the African Development Bank is actively involved – have been made and we encourage our countries to maintain this momentum,” saysMr Kabbaj.

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