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Africa Economic Growth Predicted for 2004 - 2004-02-02

Many economists predict 2004 will be a good year for African business. They say peace and good governance are just two of the factors that will determine not only economic growth rates but also improvements in standards of living.

Mozambique is expected to be one of the leading African economies with a growth rate of 8 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 –attract investors by lowering trade barriers and enacting other free market strategies.

Pat Thacker is the Regional Director for Sub-Saharan Africa at the Economist Intelligence Unit in London. She says much depends on stability and good governance. "I think countries undergoing political crises are always vulnerable," she say. "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. "

Ms. Thacker says farther south, South Africa's economy is likely to pick up 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.

Patrick Smith is the editor of the London-based newsletter, Africa Confidential. He describes the growth of Africa's oil producers as "phenomenal": "Each year," he says, "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 a 100 thousand 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 US and Europe. "

The continent is expected to increase its petroleum exports by 14 percent in 2004 – with Nigeria and Angola in the lead. But increases in oil production – and the economic boom it brings – does not necessarily mean standards of living will improve this year.

Alex Vines is the head of the Africa Program at the Royal Institute of International Affairs in London. He says the dependency on one commodity and the misuse of the revenues generated from one commodity is the largest challenge for 2004. "The issue," he says,"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. He says Angola is heading toward a peak in oil revenues in 2005 when a couple of new oil fields come on line. But he says the concern is that Angola has inherited an unequal distribution of resources from the war years. He says 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 major conference this year," he says, "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 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 US 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. However, she says the impact this would have on the region would vary from country to country. "Most exports from Africa to the US," she says,"are commodities with transactions denominated mainly in U-S dollars. For those receiving export receipts in US 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." She gives Cameroon as an example. It exports oil but imports most of it from Europe – which is in euro denominated goods. She says it therefore costs Cameroon more to import -- an issue that will likely affect the country's trade balance.

Some economists do not expect African trade to figure much in international economic fora 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 G-8 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 a government with a reinvigorated policy toward Africa. Also, Britain is scheduled next year to assume the leadership of the G-8, and London has already announced plans to make Africa a priority.