The World Bank's vice-president for Africa says states should enhance inter-continental trade to fight off the impact of the eurozone crisis.
African countries can prepare for the impact of the eurozone crisis that threatens to derail economic growth on the continent by improving trade between their countries and fighting inflation, a top World Bank economist said on Sunday.
World Bank’s vice-president for Africa, Obiageli Ezekwesili said the traditional partners of Africa in Europe were likely to be affected by the fallout of the European debt crisis, which would squeeze remittances and curb trade and tourism.
Ezekwesili said Africa’s economic growth forecast for this year stood at 5.3% and 5.6% for 2013, but a recession would likely lead to a 1.7% contraction in 2012.
“When you talk about Greece, Portugal, Ireland and the other countries, you then look at African countries particularly linked to them. We keep our eyes on countries like Cape Verde, Guinea, Nigeria, Sierra Leone,” Ezekwesili told Reuters on the sidelines of an African Union summit in Addis Ababa.
She said the Ethiopia summit would discuss boosting intra-regional trade in Africa to ease the impact of the recession.
“In Cape Verde, remittances constitute a very important part of its balance of payment, its current account. Its linkage with Portugal has a huge implication for remittances,” she said.
“Tourists receipts [from Europe] can have a serious impact, as will the FDI [foreign direct investment]. The export of merchandise to Europe will be affected.”
Remittances—money sent home by workers abroad—are a key source of foreign exchange in Africa after revenue from traditional sources such as tourism, agricultural products and minerals.
Downturn in earnings
Ezekwesili forecast a downturn of at least about 30% in some African countries, which she did not specify, by virtue of trade links with their key European trading partners.
She said some of the countries in Africa sent 60% of their exports to a particular country in Europe, and were likely to face a downturn in earnings due to the crisis.
Ezekwesili said public expenditure efficiencies were key, and urged diversification of economies and higher farm output.
Europe’s sovereign debt crisis has killed off the economic revival that followed the 2008/2009 global financial crunch, and many eurozone economies likely began shrinking in late 2011 and may enter recession this year.
The International Monetary Fund is pessimistic, forecasting a 0.5% contraction in 2012 that it says could drag the world into recession.
Ezekwesili said African economies also have to strike a balance between pursuing growth, and keeping a lid on inflation.
She said African countries did well during the last financial crisis because policy-makers maintained macro-economic reforms, but they need to be even more vigilant now. Inflation is in double digits in key economies such as Nigeria and Kenya.
“We still see rising inflationary trends in some of the key countries which will need to be managed,” she said.—Reuters