Africa and the economic crisis

The worst is over, but lessons to be learned

Economic recovery is emerging in Africa, after the global financial crisis. The slowdown during 2009 seems to have been brief, and affecting primarily Southern and Central Africa.

However, some lessons should have been learned from the crisis; More emphasis should be given to structural changes of the economies; Increased focus should be put on employment and Efforts should be strenghtened to broaden tax bases and raise domestic resource mobilisation.These are some of the main messages emerging from four recent economic reports on Africa.

March to May is the period when the large multilateral organizations publish their annual Africa reports. Below are some highlights and links to the reports recently released by the World Bank, IMF, UNECA/AU and   OECD/AfDB:

World Bank: The World Bank released its Africa Development Indicators 2010 on the 15 March. The theme is corruption: ”Silent and Lethal: How Quiet Corruption undermines Africa’s Development Effort”. The report was presented by the chief economist of the Africa department of the World Bank, Shanta Devarajan, at NAI on 18 March. It highlights the forms of corruption that are less talked about where there is no transaction of money involved, such as absenteism by teachers and health staff:   The report as well includes some 1600 economic indicators from 53 African countries.

IMF: The ”IMF Regional Economic Outlook – Sub-Saharan Africa Back to High growth?” (released 23 April) is optimistic in its growth forecasts for Africa. ”The economic slowdown in Africa looks set to be mercifully brief.” Output is projected to expand   by 4,75 percent in 2010, compared to 2 percent in 2009. Provided the global economy continues to improve, growth in the region should accelerat further still to 5,75 percent in 2011, according to this report: It is argued that the mild decline in growth mainly is due to improvements in macroeconomic balances over the last decade.

UNECA, UN Economic Commission on Africa, and AU, African Union: “Economic Report on Africa 2010 – promoting high-level sustainable growth to reduce unemployment in Africa” (launched 18 May in Addis Ababa, Ethiopia) also forecasts growth recovery. The projected growth rate for 2010 is 4,8 percent, up from 2,4 percent in 2009. The report points out the heterogeneity in how different sub-regions were affected by the financial crisis in 2009, with economic growth reaching 5,5 percent in West Africa 4,3 percent in East Africa, while declining with 1,1 percent in Southern Africa:

The report optimistically argues that the crisis offers African countries an opportunity to pursue sustainable, employment intensive, high economic growth. However, this depends on their capacity to undertake structural transformation and to diversify. Further, for most people, gainful employment is the only way out of poverty. This is especially the case for youth and other disadvantaged groups. Unfortunately, unemployment and underemployment rates in Africa are high and continued to rise even during the period of rapid economic growth up to 2008.

Appropriate investment in infrastructure and human capital, renewed and creative efforts at domestic resource mobilization, factor market reforms, incentives to support private-sector employment and efforts to increase productivity and incomes in the informal sector, are needed, the report says.

AfDB, African Development Bank and OECD Development Centre: “Africa Economic Outlook 2010” (launched 24 May in Abidjan, Ivory Coast) focuses on one of UNECA/ AU:s themes – domestic resource mobilization. In particular, the need for African countries to increase tax revenues is highlighted. “The global economic crisis has made it painfully clear that Africa is over-dependent upon external financial flows… Public resource mobilisation, namely taxation, is a precondition to Africa achieving greater economic independence”, the OECD Development Centre writes in a commentary.

The AEO 2010 points to an increase in the average African tax revenue as share of GDP since the early 1990s. However, this has been manily due to taxes on the extraction of natural resources. A shift towards corporate income taxes on other industries, personal income taxes, Value Added Taxes (VAT) and excise taxes is warranted. Broadening the tax base and increasing fiscal legitimacy are major challenges for African governments. Even aid donors may contribute more than hitherto by increasing their support to public sector financial management, including taxation, the report argues.

The launch of the AEO report is done during the board meetings of the African Development Bank 22-28 May.

Mats Hårsmar
Senior Research Associate


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