Zimbabwe emerged as an African laggard last year, its collapsing economy serving to drag continental growth down to 3,2% for 2002, from 4,3% the year before.
This emerges from the Economic Report on Africa 2003 published this week by the Addis Ababa-based Economic Commission for Africa (ECA), a United Nations sub-agency.
The report says that Zimbabwe — once the region’s bread-basket — and Liberia raise the spectre of “possible contagious effects in the western and southern sub-regions”.
The weather and disease also dragged down growth, with droughts in Southern Africa and in the Horn, as well as flooding in North Africa, taking a toll.
HIV/Aids is reversing economic gains made in the early 1990s as the disease reaches its killing phase, while tuberculosis and malaria remain maladies that drive down the continent’s gross domestic product (GDP) every year.
“The slowdown in regional growth is also due to slower growth in four of the five largest economies in the region: Algeria, Egypt, Morocco and Nigeria,” says the report.
Conversely, three of Zimbabwe’s neighbours — Botswana, Namibia and South Africa — ranked with Mauritius and Tunisia as Africa’s star performers, both in terms of their economic management and for putting in place pro-poor policies.
The ECA’s economic policy stance index, which ranks each of the 53 countries on the continent, is a method of peer review that will be used by the panelists who next month begin the New Partnership for Africa’s Development survey of political and economic governance.
Countries are ranked on factors including public budgets, an independent central bank and commercial justice system, a national development plan and a medium-term budget. The ECA also adds points for factors like privatisation and for market liberalisation.
The peer review system sets up a holistic system of measurement. If growth was the sole indicator, the honours would go to Mozambique, which grew 12% in the year under measurement. Ethiopia, Rwanda and Uganda all grew at more than 6%, but off very low bases.
Too many countries are still wild spenders, with budget deficits exceeding 5% of GDP, though the authors say some deficit targets, like those of Mauritius, are being breached for social spending. Countries with double-digit inflation dropped from 30 in 1995 to 11 last year. Zimbabwe’s inflation rate of 137,2% was the continent’s, and possibly the world’s, highest.
What is clear from the annual report, the fourth to be published, is that Africa must increasingly chart its own path and reduce its dependence on aid.
The figures are staggering. Mozambique, though the fastest grower, funds 70% of its fiscus from aid; Uganda is 50% aid-dependent, while Rwanda is 60% dependent. “There is mounting evidence that aid in large quantities is a double-edged sword, initially helping but eventually weakening a country’s economic performance,” the report observes.
It adds that only wealthier economies — about one third of the continent — will be able to wean themselves from assistance through a series of economic and social policy measures.
Aid crowds out private investment, a necessary factor for securing the 7% growth rate needed for decent levels of development, according to the report. Foreign direct investment (FDI) also fell by $6-billion between 2001 and the end of 2002 because of a global economic slow-down, but also because of stuttering privatisation. Secondary factors inhibiting investment include the high costs of corruption and weak institutions, which prompt investor concerns that contracts will not be enforced.
While FDI has suffered, the continent has been less buffeted by the September 11 2001 storm and the Iraqi war than anticipated. Rising commodity prices — including those of gold and oil — have given a fillip to producer economies, while tourists have found safe (and cheap) havens on the beaches of Mauritius and in South Africa’s game parks.
The report observes that Africa does not sufficiently market the fact that investment on the continent yields the “highest rate of return on investment in the world — four times more than in the G7 countries, twice more than in Asia, and two-thirds more than in Latin America”.
Why the fixation with privatisation? The report’s authors says that unless non-essential industries are privatised, there is little to invest in on the continent.
Two other policy prescriptions hold the key: boosting intra-African trade and raising the continent’s percentage of the global tourism market. Unrecorded, and therefore untaxed, cross-border trade accounts for about 30% of Uganda’s exports, while almost a quarter of trade in the Economic Community of West African States (Ecowas), is unrecorded. The challenge is to get this trade onto national accounts.
Electricity sales in the rest of Africa hold huge potential for the Ugandan and South African economies, says the ECA. “Between 1990 and 2000, tourism in Africa grew at an annual rate of 6,2%, well above the world average of 4,3%.”
Peace must come before prosperity, says the ECA. But this is an elusive commodity — by the time the report was in print, its conflict risk-analysis was already outdated.
While it punts relative calm in West Africa as part of a string of successful conflict resolutions, Liberia has subsequently been engulfed in bloody civil strife. The Democratic Republic of Congo, potentially an economic powerhouse, is still in the grip of internecine regional conflict.
The new conflicts may force the authors to revise their growth predictions for 2003. They suggest growth of 4,2% is achievable.
More countries are expected to benefit from the debt relief programme of the World Bank, the Highly Indebted Poor Countries (HIPC) Initiative, freeing up funds for social spending.
In addition, enhanced debt relief should staunch crippling capital flight, which is currently equivalent to sub-Saharan Africa’s GDP.
Information on 30 countries computed over the 27 years ending in 1996 shows that capital flight amounted to $187-billion, ballooning to $274-billion if interest is taken into account.
As a global economic slump bottoms out and ticks up, Africa will also benefit.
And while the aim is still to wean the continent off its post-colonial dependence on donors, for the very poorest countries the promise of increased assistance — amounting to about $12-billion this year — will enhance their contribution to the continent’s economy.
Better still, says the ECA, would be the dismantling of trade-distorting subsidies by the wealthy coun- tries of the Organisation for Eco- nomic Cooperation and Development. “Abolishing OECD agricultural subsidies would provide developing countries with three times their current overseas development assistance [aid] receipts. The elimination of all tariff and non-tariff barriers could result in static gains for developing countries of around $182-billion in services; $162-billion in manufactured goods and $32-billion in agriculture,” it comments.