Emerging markets a force to reckon with

October 25, 2010

, NAIROBI, Kenya, Oct 25 – Can the developing and emerging markets save the world from sliding back into another global economic recession? This was the question raised during the launch of the regional economic outlook for Sub-Saharan Africa report in Nairobi on Monday.

According to the report by the International Monetary Fund (IMF), the weight of the developing and emerging countries in the world economy is growing and will continue to grow compared to that of the advanced countries – which have been recording a weak recovery and are likely to pull the global economy back to where it was before the recession in 2008.

“What we are projecting for 2011 is a much stronger recovery in those countries that are growing faster than seven percent per year such as China, India but there are also a fair number of African countries that we project will grow at or above five percent,” said IMF Senior Advisor for African Department Roger Nord.

Although it is hard for the global economy to grow without the contribution of the US, Europe and Japan which carry a lot of weight with them, it would take some time before these economies are able to rebuild their foundation for growth, the report further indicated.

However, the growth in other region’s including sub Saharan Africa would minimise the risk of falling back into another economic downturn, it further argued.

Compared to other regions, Africa’s recovery was quick buoyed by its minimal linkages to the developed world and the implementation of sound macro economies policies that enabled it to weather and dampen the multiple shocks brought about by the slump.

Forecast in the Sub-Saharan Africa region shows that economic activity in the region will expand by five percent in 2010 and 5.5 percent next year.

“Should this prevail, economic growth in most countries in the region would have effectively bounced back to close to the high levels registered in the mid-2000s,” the report said.

Mr Nord further underscored the importance of low inflation, sustainable fiscal policies, rising foreign exchange reserves and declining government debt which he said would impact positively on capital flows into the region.

“Today, we are already seeing an increase in capital flows and there is certainly a potential for more capital flows to developing and emerging economies. This can have positive ramifications including boosting the available savings for investment but it can also pose some risks on how to manage the flows,” he cautioned.

The Fund’s Regional Studies Division Chief Abebe Selassie said the decision by many African countries to continue investing in development programs such as health and education sectors and in infrastructure spending have helped propped up their positive outcome.

But even as the region celebrates its resilience, the economists warned that challenges such as reduced consumption of Africa’s exports and reduced aid particularly to those countries that are donor dependent might pose possible risks to the continent’s growth.

However, this they pointed out, calls to attention the need for such economies to look for alternative sources of funding.

To mitigate some of these trends, many African nations have tended to look East particularly to China, a move that the experts said would only provide limited relief.

“There’s been a lot of talk about whether this shift towards China is going to be a boom for the region. I would say to a degree yes and that’s because for most of the African countries, growth is not going to be export-led,” Mr Selassie argued.

What needs to be done in the long term, they said would be to ensure strong macro-economic policies, private investments and consumption which they said would remain the fundamental drivers of growth.

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