Economic Outlook: African economies start drawing intensified investor interest

A few years ago, nobody would have been interested in Africa to the extent of placing money there.

Except for a few venturers from previous occupying countries or Lebanese immigrants, investment in Africa was scarce and limited to mining, mainly for gold and diamonds.

The American administration of President George W. Bush raised interest in the continent, not only by pledging billions of dollars of aid, but by encouraging business and trade exchange with its countries.

The recent Economic Outlook report by the International Monetary Fund, released this month, draws a flourishing picture of the short-term prospects for the continent.

According to the report, African incomes per head are set to rise by nearly six per cent in 2004-05, decisively reversing the long-term downward trend seen between 1970 and 2000. Indeed, almost all economic indicators are looking up over the next 18 months.

As well as predicting real Gross Domestic Product (GDP) growth of 5.7 per cent in 2005 – almost double the three per cent annual average between 1997 and 2001 – the IMF expects inflation to slow to 9.9 per cent from an average of 14.7 per cent a year between 1997 and 2001, while the current account deficit for Sub-Saharan Africa (SSA) as a whole will fall to two per cent of GDP in 2004, half the average for the previous five years.

As always, such forecasts are hedged with warnings of potential political and economic risks. Higher oil prices could give rise to a $1.6 billion (Dh 5.76 billion) financing gap.

Offsetting these possible downsides, prospects for increased foreign aid are good, while decisive progress in the Doha round of multinational trade talks could give Africa's exports, especially of agricultural products, a significant boost.

The report forecasts that two groups of countries will grow most rapidly during the 2004-05 period. Most, but not all, are oil exporters and post-conflict states.

Energy-driven expansion accounts for the sparkling performances of Chad, Equatorial Guinea, Angola and Congo Brazzaville, while post-conflict countries include the Democratic Republic of Congo and Sierra Leone.

Among the other best performers, Mozambique, the Gambia and Tanzania are benefiting from the ongoing impact of sustained policy improvements. This does not give a particularly balanced picture, since it focuses on the very short term, and thus overlooks the achievements of long-standing good performers such as Botswana, Mauritius and Uganda.

However, the 2004-05 projections do show how one-time development favourites including Zimbabwe, Kenya and Côte d'Ivoire, as well as oil exporter Gabon, have lost their way.

Prospects for the region's two largest economies, South Africa and Nigeria, together accounting for 48 per cent of regional GDP, are promising. Although South Africa is forecast to grow at just under three per cent a year, this is still well above its 1997-2001 average of 2.3 per cent, while growth of more than 5 per cent in Nigeria is near double the 1997-2001 average of 2.7 per cent annually.

Meanwhile, 2004-05 growth figures in North Africa are expected to vary between 3.5 per cent annually in Morocco and 5.3 per cent in Tunisia, with Algeria expanding at around 4.5 per cent.

IMF report describes the outlook for all three countries as "relatively favourable", adding, however, that Algeria needs to de-link government expenditure from oil revenues to avoid public sector overspending, while Morocco and Tunisia must take steps to reduce public debt, accelerate growth and cut unemployment.

The bottom line in the IMF forecasts is that more rapid expansion is currently being driven by booming exports, of oil in particular, and by buoyant domestic demand in a number of states, but that such growth will not be sustained beyond 2005 without further policy reform and institutional improvements.

It warns that, without such moves, income per head is likely to slip back to no more than two per cent annually, far short of what is needed to meet the Millennium Development Goal of halving poverty by 2015.

In 1995-97, the IMF believed that the stage had been set for sustained economic growth in the continent, but it soon became apparent that what it had hailed as a trend was no more than a blip.

This time, improvements in the continent's overall growth performance have lasted long enough (since 2002) to justify hopes that Africa is finally starting to catch up with other developing regions.

However, such optimism is tempered by the awareness that Sub-Saharan growth remains heavily reliant on buoyant commodity prices and increased foreign aid.

Dr Ahmad Mustafa is an Arab writer based in London.