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Friday, 15 July 2011 14:18

Economic challenges in African countries

By Ekaterina Kudashkina

MOSCOW, July 15, 2011 (VOR) - Interview with Dr. Adam Elhiraika, Professor of Economics and Chief of the Macroeconomic Analysis Section with the United Nations Economic Commission for Africa.


The economic report on Africa is an annual report that consists of two parts. Part one of the report every year looks at recent economic and social trends in Africa and outlook for the medium term. Part two every year focuses on a thematic issue that is of critical importance to most African countries for their medium and long term development.


The 2011 report on Africa which focuses on governing development, the role of the state in economic transformation, we believe is different from most of the reports we produced recently, because we want to refocus the debate on the role of the state once again. After two or even three decades of experiences with free market strategies and liberalization, most African countries are not able to take off.


We believe that the reforms that have been undertaken by many African countries over the last few years have been very useful, and indeed we support the reforms that improve the business environment, macroeconomic management, and they have been helpful in accelerating growth in Africa, but they are not sufficient.


So what we are calling for is not the role of the state as against the role of the market, we want the state to be vigilant and to support the free market institutions and to understand that markets do not always bring the benefits we want, and to make sure that market’s failures are addressed.


The main argument is that the state has to play a proactive role in order to ensure accelerated growth, economic transformation, equity and poverty reduction, and this cannot be done by the market alone.


Q: Now as far as I understand, the general perception around the world when we start talking about Africa is that Africa is chronically struggling with economic problems, but from what we know, there has been a lot of positive African experiences, is my understanding correct?

A: Yes, that is true, actually, very true. While we have immense economic challenges and difficulties in many African countries, especially in relation to economic governance, growth, equity, poverty reduction etc, there is a lot of progress being made in Africa. Over the last 10 years Africa in general sustained a rate of growth of over 5%. This is high by historical standards, and also compared to average growth rates in other developing regions, only East Asia sustained higher growth rate than Africa over the last 10 years. And as a result we have seen that Africa’s share in global output increased from just around 2.5% 6-7 years ago to about 3.6% today, and we believe that if Africa could address the key challenges it faces, Africa could win the highest growing region of the world over the next 10-20 years. And Africa’s share in global trade, in global output will increase significantly.


We have actually made projections that Africa could achieve higher growth rate than Asia by 2012, but of course we had to adjust our projections downward due to the political events in North Africa and in some other, Sub-Saharan African countries. Nevertheless we believe that if Africa could address the key challenges of infrastructure, weak economic governance, institutions and human capital development, Africa has the potential to grow faster and to reduce poverty.


Q: But still you say that most African countries during the past decades, like you said, were not able to take off. What were the reasons for that?

A: Some of the North African countries, especially Egypt, and Tunisia, and Morocco were praised in many reports by the UN, by other international organizations, for achieving relatively high growth rates, but these growth rates were not sufficient enough, and the nature of growth was not broad enough in order to reduce unemployment significantly.


So the events we are seeing in North Africa are due to two factors: although most North African countries experienced higher growth rates compared to Africa’s average, they were not able to reduce unemployment, especially among the youth. Second, political question was the most important one, was the most important factor behind the political turmoil in North Africa. Average citizens now are more and more aware of the need for representation, the need to fight corruption and government and the need for democracy and voice.


So they took to the streets in almost all North African countries in order to change the political regime, and we believe that these countries will go through what we call a J curve, by it we are expecting in the near future economic growth to, of course, slow down, or contract, but this will all help, eventually, we believe, will help in preparing the ground for these countries to grow faster in the future. And telling by the history of political transformation in Latin America and in some East Asian countries we believe that countries like Egypt and Tunisia could follow suit and achieve more sustained and broad-based growth rates in the future.


Q: But do I get it right that political factor was also the main negative factor, hindering growth in the rest of Africa, not only in North Africa. Is my understanding correct?

A: That is true, actually we believe that although governments have improved in Africa in general, the improvement in governance is still minimal, and more needs to be done, and we believe that governance is the key factor behind the relatively slow rate of economic growth and social development in most African countries, so yes, you are right, absolutely right, this is a major factor.


Q: So is there anything the international community could do to perhaps help the African continent to establish more stability political-wise, or would the African countries rather prefer to solve the issue by themselves?

A: This is a very good question. Since 2001 the African Union Commission, African heads of states and governments has endorsed the new partnership for Africa’s development, and it’s African peer-review mechanism program as a mechanism for Africa to address its key development challenges including governance – economic governance, social governance, political governance – as a means to achieve faster economic and social development. This is a pure African initiative that involves African leaders and African stakeholders from different layers, including civil society, organizations, trade unions, and business associations. I think progress has been made, although insufficient, and more needs to be done.


And I think that the African Union and Regional Economic Communities in Africa are making progress in many fronts, especially in terms of promoting political stability in Africa in general and in promoting a better governance and economic and political transformation. However the solutions that Africans have endorsed in many cases and have proposed need support by the international community, and I think that the role of the international community should really concentrate on supporting African solutions to African problems, so Africans have outlined various solutions and strategies to address their political and economic problems, and the international community should support these African own solutions.


Q: And my final question – do I get it right that despite all the turmoil and challenges Africa still presents a huge interest for international investors?

A: Africa is a major source of raw materials, so a lot of investors from all over the world look to Africa as a source of raw materials. But not only that. We believe that Africa could also be a destination for market seeking investments, given the availability of raw materials and the availability of labor, as well as the improvement in the business environment and infrastructure in general, should be attractive to market seeking investments.


And so we believe that with this recent economic and financial crisis that resulted from imbalances in global savings and growth and the huge financial surpluses in developing and emerging economies should provide source for African countries to attract such investments, and this will be one of the factors, projects for Africa to achieve higher growth rates in the near future and to take off ultimately. (END)



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