Africa's Growth and Resilience in a Volatile World

Field: Economics, Econometrics and Finance (Social Sciences)

Until 2008, thanks to domestic policy reforms, external assistance and high commodity prices, most of the economies of sub-Saharan Africa experienced sustained and accelerating growth for over a decade. Poverty was declining, health and education indicators were improving--albeit from a low base--and there were signs that Africa's HIV/AIDS prevalence rate had begun to decline. Then, in 2008, the continent was subjected to three major global shocks: a 50 percent increase in food prices, a surge in world oil prices that reached $140 a barrel and the financial meltdown and worldwide recession that is still running its course. The initial impact of these shocks was devastating, but African policymakers and the international community responded quickly and effectively, preventing a far worse outcome. Using external assistance, they scaled up existing safety net programs to cushion the poor from the food price shock, and for the most part avoided unproductive but politically compelling policies, such as price controls and export bans. Leaders of the affected countries also increased the share of high food prices accruing to Africa's farmers. Similarly, many oil-importing countries passed on higher fuel prices to consumers, avoiding the temptation to increase poorly targeted and often regressive subsidies. Finally, when the price of oil plummeted, Africa's largest oil exporters were able to withstand the shock because they had been using a conservative reference price per barrel in their budgets and saving the rest. As the global recession worsens, the coming months or years will be extremely difficult for Africa. However, the combination of domestic policy reforms and prudent foreign assistance that enabled Africa to experience economic growth over the past decade and manage the food, fuel and financial shocks thus far, can, if replicated, enable the continent to minimize the impact on its poor and return to a path of self-sustaining growth. After posting an average growth rate of 5.5 percent from 1995 to 2005, sub-Saharan Africa's growth accelerated to 5.7 percent in 2006, 6.1 percent in 2007 and was forecast to reach 6.4 percent in 2008. (1) This growth was accompanied by a reduction in the poverty rate. Since 1995, the percentage of Africans living on less than $1.25 a day fell from 57 percent to 50 percent. There were rapid increases in primary school enrollment around the continent. Benin, Guinea, Madagascar, Mozambique, Rwanda and Niger were among the global leaders in universal completion of primary education, expanding achievement levels by over 10 percent a year from 2000 to 2005. While child mortality continued to increase in countries such as Botswana, Zimbabwe, Swaziland and Lesotho, there were successes in mass vaccination of children for measles. Between 2000 and 2006, measles-related deaths in the region were reduced by 91 percent. (2) Finally, HIV/AIDS, which had become a major development, global health and security challenge in many African countries, appeared to be slowing its spread as the prevalence rate declined for the first time in some countries. (3) Most observers attribute this turnaround in Africa's growth and certain human development indicators to three factors. First, there is no question that, as a result of sometimes painful reforms, macroeconomic policies improved throughout the continent. One indicator is the fact that the median inflation rate in 2005 was about half the rate of the mid-1990s. In the early 1990s, there were twenty-six African countries with inflation greater than 20 percent; by 2007 there was only one: Zimbabwe. Another indicator is the World Bank's Country Policy and Institutional Assessment, which showed that African countries had increased their performance from an average score of 3.1 in 2001 to almost 3.25 in the mid-2000s. Second, the rise in commodity prices in the early- to mid-2000s contributed to rapid economic growth, especially among Africa's major commodity exporters. …