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BY: Emma Featherstone | Thu Jan 6, 2011

Africa in 2011: Will the continent continue to gain strength?
In 2009, Africa was the third largest contributor to world economic growth. Has this trend continued in 2010 and will it do so into 2011? How has the continent been affected by the global economic crisis?

ABR discussed Africa?s economic prospects for 2011 with a co-author of the African Economic Report, Jean Philippe Stijns, Economist on the Europe, Middle Eastern and Africa desk at the Organisation for Economic Co-operation and Development (OECD).

The OECD Development Centre works with policy makers in OECD and partner countries, finding ways to improve the global needs of development and the alleviation of poverty. The OECD is one of the partners that work on the African Economic Outlook report, which produced its tenth edition this year and its second online edition through AfricanEconomicOutlook.org.

Stijns says although Africa?s growth declined in 2009, it is expected to rebound close to pre-crisis levels for 2010 and 2011. ?This growth pick-up relied mainly on a revival of African exports and investments induced by a stronger than expected performance of the world economy,? he states.

Crisis recovery
Conversely, African countries are, in some ways, better adapted to recovery from the crisis than western countries. Stijns says: ?African banks were barely affected by global banking crisis and, by extension, African governments have not had to bail out their banks.?

The most striking factor in Africa?s ability to recover is the emerging trade partnerships with other developing nations. Exportation and importation between Africa and developing countries in Asia, South America, and the Middle East is on the increase.

?Therefore,? says Stijns, ?even though Africa?s traditional trading partners are suffering, it is increasingly more in synch with the business cycle of new trading partners, for example Asia, than with somewhere such as Europe.?

Trade partners
A third of Africa?s trade is now with emerging countries. ?Since emerging countries are leading the way in terms of pulling out of this crisis, this is obviously putting Africa in a much better situation to grow out of this crisis than it would ever have been before,? Stijns explains.

Africa is rich in natural resources, which are a strong attraction for emerging trade partners and, in theory, a lucrative export for African countries. ?Africa is also a consumption market for relatively cheap, or affordable consumer goods from emerging partners,? says Stijns.

This consumption may be summed up in the image of a middle-class African family watching a relatively large, LCD screen television purchased from the Chinese market. China can provide such goods at affordable prices, prices not offered by traditional trade partners.

Moreover, Africa entered into the crisis with a much lower rate of inflation than it had ever seen before.

Budget deficit
Consequently, there has been room for African countries to let their budget deficit grow, which has allowed governments to oversee developments, for example, the large infrastructure project in South Africa in preparation for the World Cup. Improvements such as these stimulate a country?s economy.

?Many African countries are at risk of falling far off track to achieving the Millennium Development Goal of halving extreme poverty and hunger by 2015,? the AfricanEconomicOutlook.org states. As such, in order to lessen the negative effects of the global crisis, African countries will need to look inward for resources and court their emerging trade partners.

Looking inwards involves the effective collection and utilisation of taxes. However, African tax administrations are often weak and underinvested. In addition, many citizens do not believe that their tax money is being spent fairly by the government and so see that as a reason to evade taxes.

Tax
?African nations need to turn a vicious circle into a virtuous circle,? Stijns points out. ?If governments use taxes in an efficient manner then hopefully people will not use so much energy trying to escape them.?
In 2011, however, the African Economic Review will be focusing on Africa?s emerging trade partners.

Countries that provide assistance to Africa are likely to reduce their aid budget as they are trying to stimulate their own economies. Emerging trade partners may offer a much-needed financial solution for tackling poverty.

According to Stijns, it is too early to make a firm statement about Africa?s prospects in 2011. He does though say that the relative recovery of commodity prices in 2010 is going to sustain economic growth.
?In the context of tepid growth in other countries, Africa?s contribution is bound to remain significant. Indeed, Africa?s share of world growth is going to remain elevated,? says Stijns

seems good going forward!