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Experts: Stability, Good Governance Should Contribute to Africa's Economic Growth in 2004 - 2004-02-11

Many economists predict this year will be a good one for African business. They say peace and good governance are just two of the factors that will contribute, not only to economic growth rates, but also improvements in standards of living.

Mozambique is expected to be one of the leading African economies, with a projected growth rate of eight percent this year. Others expected to grow include Ghana, Tanzania, Botswana, Cape Verde, Rwanda and Mauritius.

The reasons for their success vary. Mozambique is benefiting from an end to decades of civil war. Others, like Ghana and Uganda, are attracting investors by lowering trade barriers and enacting other free market strategies.

Pat Thacker, the regional director for sub-Saharan Africa at the Economist Intelligence Unit in London says much depends on stability and good governance.

"I think countries undergoing political crises are always vulnerable," she said. "In West Africa, that would be Cote d'Ivoire and Liberia. Some of these countries that have been suffering from internal conflicts will continue to suffer from poor growth and haphazard economic policies. Farther south, there will be some kind of pick up in South Africa, after elections in April. The Africa National Congress is expected to win, [which] will ensure [economic] policy continues on a sound track. [In addition, South Africa should benefit from] an anticipated pick up of the global economy. Also, Tanzania, Mozambique, Uganda, and even Kenya, should make further progress. Most of these economies have strong donor support and have been making great progress. There is very little reason they would not make great progress, unless there is [an act of] terrorism."

Oil is another growth factor. African petroleum exporters are expected to benefit from continuing high prices for the commodity. Thanks to oil, economists say, Africa will figure prominently, and perhaps disproportionately, among the world's fastest growing economies.

"There is phenomenal growth in some of Africa's oil producers," says Patrick Smith, the editor of the London-based newsletter, Africa Confidential. Each year, another African oil producer becomes the world's fastest growing economy. This year it is Chad at 58 percent - it's the result of it shipping it out through a pipeline to Cameroon. The other new oil producer is Equatorial Guinea. The production rate there is going up fast - it will be almost half-a-million-barrels a day from less than 100,000 three years ago. Sudan hopes to get up to a million barrels a day in a year or so; that's a source of revenue that did not exist in that country five years ago. It also puts Africa on the map as a resource center for the United States and Europe."

The continent is expected to increase its petroleum exports by 14 percent this year, with Nigeria and Angola in the lead. But increases in oil production, and the economic boom it brings, do not necessarily mean standards of living will improve this year.

"The dependency on one commodity and the misuse of the revenues generated from one commodity is the largest challenge for 2004," explains Alex Vines, the head of the Africa Program at the Royal Institute of International Affairs in London. "The issue is, how is the revenue generated from oil and gas used by a particular government? Here, we have a dreadful record of very low expenditures on social spending in countries that are in dollar terms increasing their assets at a dramatic pace. Countries like Equatorial Guinea or a potential emerging oil producer like Sao Tome and Principe have an opportunity here to diversify the use of their money to improve the education and welfare of their populations. We have seen in countries like Cameroon and Gabon where this did not happen and there remains abject poverty and a growing social crisis, because oil revenues were badly squandered."

Africa watchers, like Patrick Smith of the Africa Confidential newsletter, also wonder how much Angola will benefit by a boost in petroleum production despite an end to years of civil war.

"Angola is heading toward a peak in oil revenues in 2005," he says. "It will go up very sharply when a couple of new oil fields come on line. The concern is that Angola has inherited an unequal distribution of resources from the war years. Most of the resources have been spent in a couple of towns - and there has been little investment in the hinterlands and those areas where the old rebel movement used to draw its support.

"There is [supposed] to be a major conference this year, hosted by the government that will ask [the international community] to try to bring in more money. But [success] depends on the government's commitment to economic reform, particularly demonstrating they are going to make the whole financing system far more accountable. There is real concern billions of dollars have been diverted from the official treasury into private pockets and the pockets of weapons procurement companies."

Some economists see a potential problem for African countries whose export revenues are paid for in U.S. dollars. The currency has lost value over the past year to the Euro.

Pat Thacker of the Economist Intelligence Unit in London says the devalued dollar could make the cost of European imports more expensive for African consumers.

"The impact this would have on the region would vary from country to country," she said. "Most exports from Africa to the U.S. are commodities with transactions denominated mainly in U.S. dollars. For those receiving export receipts in U.S. dollars, such as the oil exporters that import mostly in euro-denominated goods, either the volume of imports would have to fall or the trade balance would deteriorate. So, let's [take for example] Cameroon - it exports oil but imports most of it from Europe - which is in euro denominated goods. So it costs them more to import, and hence the trade balance will come under some kind of pressure.

"But Francophone countries in Africa whose exports and imports are mainly euro-denominated will see a minimum impact on their trade balances. This is likely to be a problem for countries who also have high U.S. dollar-denominated debt service. The fall of the dollar will make debt servicing easier, but the weakening dollar could have a greater effect on economic growth in Europe and, therefore, on demand for inputs from and supply to sub-Saharan Africa."

Some economists do not expect African trade to figure much in international economic forums this year. For example, Alex Vines of the Royal Institute of International Affairs says he doubts there will be much progress in 2004 in implementing the so-called Action Plan for Africa, a project backed by the G8 gathering of industrialized nations.

Among the plan's provisions is a commitment to improve global market access for African exports by tackling trade and farm barriers by 2005. It also intends to foster economic and social development through a mix of public and private investment schemes involving local institutions.

Mr. Vines is more optimistic about 2005. He says, by then, the United States will have had new presidential elections, and the government will be able to focus more attention on Africa. Also, Britain is scheduled next year to assume the leadership of the G8, and London has already announced plans to make Africa a priority.