An Assessment of the Current Economic Conditions of Africa - Essay Example

Business 14 October An Assessment of the Current Economic Conditions of Africa The year 2004 was a difficult year for Africa. This was as a result of the humanitarian crisis in Darfur, a region in Sudan, warfare in Cote d’Ivore and the struggle in Zimbabwe (“Africa’s economy: Aid and growth” oecdobserver.org). However, the continent managed to present a 5% rise in economic activity. This was as a result of greater metal and oil prices, significant boost in formal development aid and enhanced economic stability. In 2011, the economic growth of Africa fell. The current economy of Africa seems to be recovering from a ‘devastating’ situation, following the economic performance decline in 2011. The African region has been shaken by the natural phenomenon as well as critical civil wars within countries, among other human activated activities. When all this is combined, it will always impact into a region’s economy either in a positive, or a negative manner. In a span of one decade, we have seen the continent’s economy fall and with no time able to recover again. Africa’s economy was not at its worst in 2011 as many would think; holding 3.4% GDP growth from 5% in 2010. Tracing back to 2009, the economy was even lower with 3%; a percentage lower than in 2011 before shooting to 5%, which means that the continent has the capability to put itself back to a better position, which would contribute to an increase in the total world economic growth. This is the reason to disagree with the position that the decline was devastating; instead it is better to term the decline as average though the impact was deeply felt by the population of the continent. Africa is a continent with about 54 countries, and over one billion people living at different levels of life. This prompts the need for development in the countries that have loopholes in governance among other necessities, to fasten the growth. In one way or the other, all the countries new and existing need to co-operate and focus on one mission of strengthening the economy. Africa’s economic situation in the 1st phase of 2012 shows a forecast of recovering process by end of 2012. “With the gradual recovery of North African economies, Africa’s average growth is expected to rebound to 4.5% in 2012 and 4.8% in 2013” (“African economic outlook 2012: Macroeconomic” 15). North African economy had been compressed following the political problems, social tension and civil wars experienced. These are countries with credible sources of oil depositories where the pressure within was felt in the whole of Africa. In South Africa, the 2010 GDP growth was at 2.9%, with an estimated increase to 3.1% in 2011(“South Africa” africaeconomicoutlook.org). However, due to basic local weaknesses and the weak global economic recovery, there was an expected slowdown in growth in 2012. In 2013, the GDP growth of South Africa was estimated to rise to 3.6% (“South Africa” africaeconomicoutlook.org). In 2011, the rate of consumption and investment grew by 3.5% and 5.2% respectively(“South Africa” africaeconomicoutlook.org). Africa was the largest beneficiary of the IDA (International Development Association), World Bank’s fund in 2011, with a $ 7.0 billion financial commitment to improve the economy and population’s living condition to eradicate poverty (“The World Bank Annual Report 2011” 3). Much remains to be achieved in the continent despite the huge borrowing and aids received in the region. Even after the debt relief in 2005 that was a ‘salvation’ of the African countries, debt seems to be on the rise though the act the suppressed rate of borrowing. Today more than ever, the continent has changed the rate and pattern of borrowing. African countries are keen on the interests and conditions involved when taking development funds, this has resulted to China being preferred over the World Bank on financial lending in Africa. However, Africa still remains fragile where the total expenditure in most countries outweigh the total income; hence the need to borrow which heightens the debt and in general pulls down the African economy. Forty seven nations in Sub-Saharan Africa out of the fifty four countries in Africa are eligible to borrow from the World Bank. Despite difficulties in the economy, Africa recorded a 3% growth in the economy 2011(“Countries” worldbank.org). However, some countries that have introduced solid reform agendas recorded 4% growth(“Countries” worldbank.org).In Rwanda, implementation of reform agendas began in the early 2000s (“Rwanda: fostering prosperity” doingbusiness.org). Many business regulation reforms were put in place, consequently transforming life in the private sector and making business easier. Today, the country has gained a lot of success. The sub-Saharan region in Africa that had a good economic boost in Africa as of 2011 is a region that had most of its countries having huge debts weighing on their economy, but this was eliminated by the relief. The real GDP growth change of Sub-Saharan Africa from the year 2008 to the one predicted for 2013 indicates an improvement comparing with other better stable economies of Africa. Health care and security have had a big share of the economic resources while in Eastern Africa, infrastructure, technology and education seems the priority. However, general fuel and food security was the cause of damage in east African economy. Struggles seem to continue with the increased tension in the region as the member countries fight hard to wipe out terrorism and internal civil wars. The economic performance of Africa has in the past been affected by the wider global economic environment changes. In mid 2008, the global economic crisis spread across the borders causing high inflation in most countries. The borrowing incentives by most organizations had been altered causing changes in previous borrowing processes. In East Africa, food deficit was one problem that the population had to cope with. Since the world richest countries had suffered an economic shock, supply of food was kept on hold making importation expensive where available. With most countries like Uganda, Rwanda and Burundi been landlocked countries, the rise in fuel prices hit their economy hard to slow down the aggressive development (Murgasova, Gorbanyov, Saenz, and Sobolev 6). The reduced purchasing power by the U.S and European nation caused the imbalance between the import and export in the region. In South Africa, the economy was shaken by loss of jobs created in the manufacturing and mining industry. Nigeria oil revenue dropped following lower demand by the emerging global markets where oil was sold at much lower prices while in South Africa, the growth rate decline left part of the population jobless. Beginning January 2008, there was rapid increase in the prices of food and fuel worldwide. In the United States, motorists paid over $4 for a gallon of gasoline while at the same time food and energy consumption in households were very high (Azikiwe, workers.org). In April and May the same year, people in Europe, Africa and the Caribbean engaged in mass demonstrations and strikes protesting hiking costs of food and fuel (Azikiwe, workers.org). In Africa and the Caribbean, which are developing regions, political tensions grew as a result of rising food and fuel prices. In Somalia, Burkina Faso and Senegal, currencies were in decline. In fact, Somalia’s local currency became worthless and citizens found themselves unable to buy food and other necessities (Azikiwe, workers.org). In general, for developing countries in Africa, there was pressure on trade cycle and remittance per migrant decline due to the overall economic downturn. Foreign investment and the commercial lending in Africa were also not spared. According to Anyanwu, “The decrease in global economic growth resulted in a reduction in demand for sub-Saharan African exports, which in turn drove commodity prices and export revenue down. Sub-Saharan African countries are heavily dependent on exports and export revenue. ……The United Nations Conference on Trade and Development (UNCTAD) reports that FDI inflows to the sub-Saharan African region had declined by 67 percent in 2009” (58). This decline came after an aggressive growth in the regions economy contributing to the experienced GDP decline in Africa as a whole. The real GDP growth from African economic outlook 2012 stands as follows: 5.0% in 2010, 3.4% in 2011, 4.5% in 2012 and 4.8% in 2013. (See fig. 1). Fig. 1. African Economic Outlook 2012. AfDB, OECD,UNDP, UNECA, n.d. Web. 14 October. 2012. Consumer prices (inflation in % from 2010 to 2013 respectively) stands at 7.4%, 8.5%, 8.4% and 7.3% , overall fiscal balance including grants (% GDP) reflects -3.5%, -3.6%, -2.9% and -3.0% while external current account including grants ( % GDP) stands at -0.6%, -0.6%, -0.4% and 0.0% (“African economic outlook 2012: Macroeconomic” 35). The above is demonstrated below. Global economic environment effect on Africa: Since the introduction of the new policy lending in the World Bank, Africa has been forced to take ownership and commitment of their borrowing. It has been a start of full involvement in the matters concerning stock hold investment and organization contractual agreements. This has facilitated control of financial crisis in most countries preventing them from entering into a ‘fat’ debt situation again. The cost sharing policy would see most of African countries increase performance to accumulate enough revenue so that they finance most of their development programs. It is a positive step towards increasing accountability for the continent and the region in general. Each borrowing country will have to finance their projects over 10 % higher before the World Bank and other foreign financial organizations agree to be committed in the project funding. The tax and duty policy changes are expected to put Africa in a long term paying platform with the payment period being long enough but low compound interest rates or shorter period with high rates depending on the complexity of the expenditure. On the contrary, as African economy develops, the governments will take full responsibility and preparation in time and cost estimation of their projects before entering into any legal agreement. The OECD member states have closely been working with the African countries through the trade cycles, investments and sponsorship. Due to their strength in economic power, they import most of their raw materials and other products from Africa. So, when the powerful nations feel pressure in their economies, the same is passed on in Africa and vice versa. China’s annual percentage real GDP shows a tremendous position of its economy. A pace of 10.4%, 9.2%, 8.2% and 9.3% respectively from 2010 to forecasted 2013 implies a flourishing power (Angel and Padoan 3). The Chinese government had opened doors for foreign investment which managed the currency market and as a result, attracted consumers in the industrialized world. The desire for the Chinese companies to increase investment abroad has advertised its global investment policy without ignoring Africa in its strategy. Today most African countries have entered into a contract with Chinese companies and government to foster development programs. European Unions, U.S and Japanese are neither new to this strategy as intense work on infrastructure has been handled by the Chinese in Africa. In addition to the active trading exchanges from China, they have offered Africa huge incentives while they fly back home with huge amounts of profits from their investment. Growth in Chinese economy have encouraged economic growth in low income countries of sub-Saharan region by 0.3% and even higher for middle income countries like South Africa. This gives us a clear indication that the world economy is not sustained by the G8 economies but many of the emerging economies like China and Brazil who influence better economic growth in Africa. South Africa saw the growth of 2.9% in 2010, 3.1% in 2011 and 3.3% in 2012 (Angel and Padoan 3). The economic trading environment between the OECD and Africa demonstrates a close relation in their economic changes; such that, when OECD experiences slow growth, there is reduction in Africa’s exports leading to depreciated performance in the economy as most of the countries rely on exports for their sustenance. In 2009 Africa’s trade had contracted by about 20% with a severe effect exerted on exports than on imports depending on market access and its diversification. Even in the future if African countries have not learned to control their investment in foreign banks or rather allowing huge investment from the developed nations, they will still be doomed to suffer for the tight liquidity when economies of the investors goes down. This was the situation with the US and European investment in Africa in the 2008 global recession. The integration of their financial systems through banks and insurances leave African economies vulnerable at any crisis in future. As a measure to prevent a recurrence of the situation African countries have resulted in fiscal consolidation policy within. Below Angel and Padoan represent both OECD and non OECD dependence in global economic growth where non members of OECD are involved; emerging economies and developing economy of Africa among others. (See fig. 2) OECD and non OECD Contribution to annualized quarterly global real GDP growth, percentage points Fig. 2. Angel, Gurria. Padoan, Pier.C. “World growth will continue to be sustained by the emerging economies.” Economic Outlook No. 91. 22 May 2012. Web. 13 May 2012. Effects of current African economy on labour service industry: Following African economic recovery, countries like South Africa have resolved to youth employment strategy to recover its damaged economy from the thousands of jobs lost after global economy decline. Many people who had been laid off can now get employed again while the opening of closed businesses is in progress. The government is working on opening new industries to assimilate the numerous educated young individuals that lie idle after school. The unemployed youth have more qualified education than the old employed group probing African leadership on labour markets to come up with ways to utilise this knowledge. The whole of Africa has embraced the need for youth empowerment as a social economic development strategy. Individual countries are taking their own initiatives to support youth groups financially for those who prove to have valid and feasible business plan at low interest rates. There is a shift in work formula in most urban centres of Africa. People have changed into a 24 hour working system as they try to better their lives. The high living standards caused by the economy of Africa and individual countries’ have caused the need for more working hours to meet the needs of citizens and countries. Family and non-government businesses have to be diversified to accommodate more employment. To limit crime, youth have been absorbed in both physical and traditional jobs. The transport industry has and is increasingly employing the youth in road constructions; a project Africa has heavily invested in. NEMA organisation has worked with the youth in cleaning African environment through trash recycling projects; in East Africa such projects are called ‘Juakali’ that involve working with used or scrap metals (“Kenya; Solid Waste Management” entrepreneurstoolkit.org). The labour unions of Africa have been forced to make negotiations with the government and other employing institutions for a higher pay and allowances for their workers. In the last 3 months, between March and September of 2012, many workers unions in Africa have put their working tools down claiming for more pay. South Africa mining workers and Kenyan teachers and doctors are an example following the individual countries’ and African economic push agendas. The labour unions and foreign affairs ministries have also been able to organise for more employment opportunities abroad to facilitate more income flows in their economies such as America, Europe and Middle East, who are the major beneficiaries of this plan. Currently many countries are running active labour market programs (ALMPs) with government involved to avoid resources wastage on youth employment empowerment (“Government action to promoting youth” africaneconomicoutlook.org). “Strategies of structural transformation are particularly concerned with increasing labour productivity, through rising capital accumulation, an acceleration of technological innovation, introduction of new economic activities, increasing economic linkages, development of markets, division of labour, and an increasing formalisation of the economic activity” (“Sustainable structural transformation” 30). With such driving forces, Africa needs to take deliberate measures to implement this plan without relying more on external aid. In conclusion, Africa has vast deposits of resources ranging from mining, oil and other agricultural products that support their economy. All they need is to diversify their source of wealth across their nations so that they have a back up plan in cases of Global hard times. It will involve a lot of sacrifices in some sectors of the region while cutting down the expense of some ministries to support other works. Every country, nation or state has a responsibility to the entire global economy meaning control starts right from an inward look, by each nation. References African Economic Outlook 2012. AfDB, OECD, UNDP, UNECA, n.d. Web. 14 October. 2012. < http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Nigeria%20Full%20PDF%20Country%20Note_01.pdf>. African Economic Outlook 2012: Promoting Youth Employment. OECD, 2012. OECD iLibrary. 2012. Web. 14 October. 2012. < http://www.keepeek.com/Digital-Asset-Management/oecd/development/african-economic-outlook-2012/macroeconomic-prospects_aeo-2012-3-en>. “Africa’s economy: Aid and growth.” oecdobserver.org. 2012. Web. 9 November 2012. . Angel, G., and Padoan, P.C. “World Growth will continue to be sustained by the Emerging Economies.” Economic Outlook No. 91. 22 May 2012. Web. 13 May 2012. . Anyanwu, O.J. “The Impact of the Global Financial Crisis on Sub-Saharan Africa.” Pepperdine Policy Review-Spring 2011. 55-63. 2011. Web. 6 November 2012. . Azikiwe, Abayomi. “Food, Fuel and the Escalating Crisis in Capitalist Globalization.” workers.org. 8 June 2008. Web. 9 November 2012. . “Countries.” worldbank.org. 2011. Web. 9 November 2012. . “Government Action Promoting Youth Employment has a Poor Track Record.”African Economic Outlook. 1 June 2012. Web. 14 October 2012. . “Kenya; Solid Waste Management.” Entrepreneur’s Toolkit. 23 July 2011. Web. 6 November 2012. . Murgasova, Z., Gorbanyov, M., Saenz, M., and Yuri Sobolev. “Uganda and Rwanda: Selected Issues.” IMF Country Report No. 09/36.December 15, 2008. Web. 6 November 2012. . “Rwanda: Fostering Prosperity by Promoting Entrepreneurship.” doingbusiness.org. n.d. Web. 9 November 2012. . “South Africa.” africaneconomicoutlook.org. 22 June 2012. Web. 9 November 2012. . “Sustainable Structural Transformation as a Development Strategy.” Economic Development in Africa Report 2012. 2012. Web.13 May 2012. < http://unctad.org/en/PublicationsLibrary/aldcafrica2012_embargo_en.pdf>. World Bank Annual Report 2011. The World Bank. 2011. Web. 6 November 2012. . Read More