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Tuesday, 24 October 2017

African mosaic

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  • African Mosaic

Africa’s diversity has limited the IMF’s ability to take credit for the continent’s improving health, which owes much to the scramble to export abundant natural resources.

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A key challenge facing agencies such as the IMF seeking to tailor their work to the needs of Africa is that there are no “one-size-fits-all” policy prescriptions for the continent.

While African economic activity overall is shrugging off difficult global conditions, performance varies widely as countries grapple with local problems that preclude the search for truly “African” solutions, making it all but impossible to second-guess the downside risks posed by global uncertainty. Indeed, the picture of activity that emerges is as multicoloured and fragmented as a mosaic mural by the great Yoruba artist Jimoh Buraimoh.

It is this sheer diversity that has shaped the IMF’s role in Africa since 1990 – when Namibia became the last of the continent’s then 52 countries to come under the Fund’s wing – and qualifies any notion that its macroeconomic prescriptions alone can explain the turnround.

There is no doubt that Africa has enjoyed the benefit of improving policies over the past two decades to record rates of growth which, in some countries, match those of the Asian tigers.

Africa’s best performers, Mozambique, Uganda and Tanzania, notched up 8% growth per year between 1995 and the late 2000s, while the average growth rate in Sub-Saharan Africa was close to 6%, also the likely overall figure for growth in 2012.

However, the IMF’s latest outlook for Sub-Saharan Africa provides ample evidence of a diverse landscape that defies standard policymaking narratives.

Western Africa is only sluggishly emerging from drought; in Central Africa the risk of a slowdown stemming from the euro crisis makes recovery on the back of oil exports fragile; in eastern Africa inflation driven by higher global food and energy prices has been on the rise; and in South Africa exports have weakened largely because of Europe’s woes.

Huge variation is also evident across export sectors, with the big oil producers staying ahead of the pack but middle-income countries such as Botswana and Mauritius facing a slowdown because of their ties with global markets.

Bending with the wind

Given this mosaic, the Fund’s macroeconomic advice in Africa has at times bent with the wind.

The real test of the new more robust African economy came in 2008, when the continent was lashed by the global recession, the general response to which was to loosen fiscal policy – inconceivable a decade ago. The IMF now believes the continuing growth in 2012 allows for fiscal consolidation in countries where deficits are above debt-stabilising levels and where growth is likely to remain robust, but warns against tightening where growth remains weak, output is below trend and there is a significant reliance on Europe.

In eastern Africa monetary policy has been tightened to confront inflation, seen as a priority in the sub-region, but rising oil prices could potentially hit oil-importers hard and the Fund suggests that targeted fiscal measures will then be needed to protect the poor.

Diversity aside, macroeconomic stability is clearly one factor that helps to explain Africa’s improved performance.

That progress undoubtedly owes much to the role of the IMF whose strategy for Africa has differed only in degree from its approach elsewhere – providing temporary but medium-term financing conditional on both macroeconomic stabilisation and structural reform.

If there has been a distinct IMF approach to the continent, it is probably in the close working relationship forged between Fund officials and African leaders, a style pioneered by Michel Camdessus – the IMF managing director from 1987–2000 who believed, quite simply, that “the future of the world” lay in Africa.

Nonetheless, Camdessus had to brave fierce criticisms of the IMF’s role, some of which persist. Industrial world critics insisted the Fund did not “do” development lending, while many Africans themselves were infuriated that loans came with so many strings attached.

Degree of hostility

While political leaders have toned down their rhetoric, IMF prescriptions can still invoke a degree of hostility that harks back to the vitriol of previous eras. In late 2011, for example, Christine Lagarde visited Nigeria to press for an end to fuel subsidies – a move it took in January bringing it in line with Guinea, Cameroon, Ghana and Chad. Fuel prices soared, provoking vocal criticism of the IMF – and deadly riots.

But, as ever, another piece of the mosaic then came into view when, just five months later, South Africa committed US$2bn to the Fund’s firewall fund in a symbolic vote of support.

Roger Nord, deputy director of the IMF’s African Department, insists the Fund’s image has greatly improved while admitting that its role in Africa has been limited: “The image of the IMF has changed but it has changed particularly in Africa. There is lingering resentment about our role in the Asian crisis. But there is generally the view in Africa that the IMF has been helpful and brought about positive change. The main reason why Africa looks a lot better today than 10 or 20 years ago lies with the Africans themselves.”

Other factors have clearly eased the IMF’s work in the last decade, not least improving debt conditions. Proposals by African sovereigns to raise debt on international markets at commercial terms are now regarded sympathetically and the end to a dependence on concessionary financing is in sight. Nord said: “The average level of public debt in Africa is something like 40% of GDP and for many countries it is below that. Those are not very high levels and for many countries there is scope for commercial borrowing.”

The IMF has given 12 African countries clearance to tap the international markets after examining their capacity to service repayments. It applies differing borrowing caps to take account of its assessment of economic fundamentals.

Growing levels of FDI and stronger institutions have also played key roles in Africa’s resurgence.

But the one factor above all explains why its momentum in 2012 has contradicted the broader global trend, yielding a somewhat misleading picture of improving fundamentals: natural resources.

Primary exports

Primary products are a major contributor to merchandise exports in nearly half of the 45 countries in Sub-Saharan Africa, and the upturn has been driven by new production in several countries - including Angola, Niger, and Sierra Leone –  helped by high commodity prices, increased diversification toward faster-growing Asian markets, and robust demand.

However, export-led growth founded on reliance upon a few key commodities brings with it familiar and daunting challenges, not least growing differentiation between – and within – the countries of the region. The share of resource exports that accrue to national budgets varies widely, boom-bust cycles persist, and countries that obtain higher revenues from natural resources experience higher volatility in revenue and non-resource GDP growth.

At the same time, a considerable amount of lending has been targeted at resource-extraction infrastructure, often subsidising non-African suppliers such as China. Foreign investor interest in Africa’s soil has also grown apace, posing pressing questions about large-scale projects in states that struggle to feed their own people.

Perhaps most problematic in the medium-term is the fact that resource extraction for export is heavily capital intensive, raising important questions about the nature of growth in Africa – and underlining calls by IMF officials for more inclusive models.

Paradox of plenty

Mindful of the issues raised by the significant share of output and export earnings in Sub-Saharan Africa accounted for by raw materials, the IMF convened a major conference in Kinshasa in March, at which Antoinette Sayeh, director of the IMF’s African Department, told delegates: “…such endowments can be a mixed blessing. Whether one talks of the resource curse or the paradox of plenty, the message is the same: there are massive challenges to be faced in ensuring that resource wealth contributes in a sustained and inclusive fashion to growth and higher living standards for all.”

Although democratic procedures have spread, the likely cost of growth that is not inclusive is instability – and examples of this are as abundant as the minerals deposited in Africa’s earth.

Nord says: “Political stability is a prerequisite for economic development. A number of countries have been able to maintain stable political environment for quite a long time, including Mozambique and Uganda and Rwanda … The challenge will be not only to keep political stability, but also to address some of the challenges that go with economic growth: are you providing enough jobs for the youth: how is the growth distributed: do the poor benefit as much as the rich: how inclusive has growth been?”

Unless appropriate prescriptions are found in answer to these questions, it is Africa’s violent hinterland – from electoral bloodshed in Cote d’Ivoire and religious strife in Nigeria to the potential for water wars on the Blue Nile – that will continue to colour the continent’s great mosaic for years to come.

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