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ImageThe world economic crisis is giving Africa a unique opportunity to shape its place in the global economy, said ANC Treasurer-General Dr Mathews Phosa during a recent visit to London.

It was the best of times, it was the worst of times;  it was the age of wisdom, it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; it was the season of Light, it was the season of Darkness; it was the spring of hope, it was the winter of despair; we had everything before us, we had nothing before us." – Charles Dickens, A Tale of Two Cities.

These are certainly interesting and challenging times!

But is everything necessarily as gloomy as we are being led to believe? Yes, the repercussions of sub-prime fallout and credit crunch have been felt around the world. All indications are that we are in the midst of a global recession, with the IMF recently forecasting a 1.3% contraction in the world economy this year (the first time since World War II that we will experience such a contraction).

Acknowledging Africa's Progress

But what is the likely impact of the global economic crisis on Africa and risks associated with it?
ImageLet us begin by first acknowledging the substantial progress that has been made in South Africa and elsewhere on the continent over the past decade from both a political and economic perspective – maturing democratic institutions and sound macroeconomic policies have helped drive unprecedented growth in a number of African democracies in this period.

However, there is clearly still a long way to go and even the progress made so far may be in danger as a result of the global economic crisis. Although the financial systems in most African countries emerged relatively unscathed from the initial sub-prime fallout, the impact of the subsequent global economic crisis is likely to negatively impact 3 sources of capital for governments and business, all of which are critical for the continued growth and development of Africa.

Maturing democratic institutions and sound macroeconomic policies have helped drive unprecedented growth in a number of African democracies.

Access to credit for consumers, private and public sector is increasingly difficult and expensive; and lower demand and prices for resources and other commodities will hit export earnings hard;

Largely as a result of these factors, we will no doubt see an economic slowdown in most African economies, and in its latest World Economic Outlook, released 22 April, the IMF predicted that growth in Africa will decline from 5.25% last year to 2% this year.

Guarding Against Knee-Jerk Pessimism

However, as Africans and as people with a keen interest in Africa, it is imperative that we strongly guard against knee-jerk pessimism – in a strange way, the global economic recession may actually provide Africa with a once in a generation opportunity to fundamentally improve our competitive position in the global economy.

This is also not a time for starry-eyed optimism, so let us explore this perhaps surprising assertion a little further.

First, in relative terms, many if not most African economies are actually quite well off, and are at least forecasting growth this year – contrast the IMF’s 2% growth forecast for Africa against its prediction of a 1.3% contraction in the world economy, a declines of 2.8% in the US, 6.2% in Japan, 6% in Russia, 5.6% in Germany and 4.1% in Britain.

Then, consider that, while many governments elsewhere are scrambling defensively to shore up their financial systems and bail out ailing and failing businesses, Africa is not beset by these problems to the same degree (in either relative or absolute terms).

The primary focus of most African governments can therefore be on positive stimulus of our economies.

Furthermore, while most economic policymakers in developed economies are trying to reacquaint themselves with John Maynard Keynes, in South Africa, as one example, Keynesian-style intervention has been part of ANC policy and practice since the 1994 elections. South Africa has effectively had a countercyclical investment programme in place for several years – and in a deteriorating global economic context the emphasis will be on accelerating this programme via, amongst others, increased investment in public works, education, public health and housing.

We therefore believe that, as much as we need to manage with great care the risks associated with the global economic crisis, our primary emphasis should not simply be on survival.

A Time of Great Opportunity for Africa

This may be a time of great opportunity for South Africa and Africa as a whole, particularly if we focus during this period on areas where we have a comparative advantage. Take commodities and resources for example. Although prices are relatively depressed at the moment, these will rise as massive infrastructure investment programmes begin to kick in around the world. The challenge for Africa is to aggressively develop beneficiation capabilities, so that we do not continue to be stuck in the trap of exporting value-add opportunities.

We have to be prepared to think differently and be proactive in helping secure capital flows.

Ultimately though, our ability to stimulate growth and development in Africa will fundamentally depend on our ability in the medium term to access capital via (reasonable) loans and private sector investment. This is clearly a challenge in the current environment, and so we have to be prepared to think differently and be proactive in helping secure capital flows.

In terms of access to capital, the following are ideas from a South African perspective:

    • Our local financial institutions must be strongly encouraged to start lending again – in particular we need to work together to ensure our private sector has access to reasonably priced credit.

  • Prudence is important, but equally, an ultra-conservative mindset will hamper our growth and development prospects.
  • In the South African economy, we should not overlook the potential that black economic empowerment (BEE) partnerships provide to multi-nationals to stimulate focused private sector investment. More specifically, BEE partnerships could be used as a mechanism to direct capital (both intellectual, in the form of skills, and financial resources) from the private sector into specific government programmes as part of our broader investment and stimulus programme.
Opportunity Rather than Disaster

Ultimately though, as government, our primary focus is to instil confidence in consumers, business and foreign investors, creating an environment that is conducive to attracting capital.

We will also ensure that strong institutions, sound governance mechanisms and attractive investment conditions exist to mitigate risks and optimise the flow of that capital to where it will have the most positive economic impact.

In short, my view is that the prevailing circumstances spell opportunity rather than disaster, and that South Africa, the various economic regions and Africa should capitalize on it.

Dr. Mathews Phosa is Treasurer-General of the African National Congress of South Africa.

Photo: Jeffrey Barbee, www.MediaClubSouthAfrica.com

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