AfDB projects a fall in GDP due to sociopolitical crises

AfDB president Donald Kaberuka spells out the positive message underpinning the bank's first aid effectiveness review. Photograph: Francisco Leong/AFP/Getty Images

Africa’s recovery from the global economic and financial crisis began in 2010 and has been driven by higher domestic demand, stronger export revenues, and increased inflows of foreign direct investment, remittances, and official development assistance, says the African Development Bank, AfDB 2010 Report.

The Annual Report highlighted that real Gross Domestic Product, GDP growth rose to 4.9 percent in 2010, from 3.1 percent a year in 2009, at the peak of the global financial crisis.

However, 2011 has witnessed a wave of political turmoil across the continent, and for this reason, the AfDB projected that growth in real GDP (the total value of goods and services that a country produces in a year) of African countries is expected to scale down.

“Growth is expected to fall back to 3.7 percent in 2011 as a result of the sociopolitical unrest in some African countries, before recovering to 5.8 percent in 2012,” the AfDB projected.

Promoting inclusiveness

On this ground, Donald Kaberuka, President of the African Development Bank Group said: “Looking ahead, I see the Bank’s key challenge as not only to foster strong, sustained growth but also to promote inclusiveness.”

“The tremors and tectonic shifts in the political landscape of North Africa are a clear signal that economic growth that is not inclusive, that does not expand human opportunities and horizons, cannot be sustained.”

“Our ability to consolidate our achievements in a rapidly evolving and often uncertain external environment must begin by anchoring the financial soundness of the institution, whose robustness was demonstrated during the financial crisis,” added Kaberuka, who is also Chairman of the Boards of Directors.

The report noted the inflation declined from 10.0 percent in 2009 to an estimated 7.7 percent in 2010, as aggregate demand remained subdued. However, the short-term forecast is that it will increase marginally to 8.4 percent in 2011 before improving to 7.4 percent in 2012.

Nonetheless, the AfDB argued this positive outlook may be at some risk, provided that the increases in global commodity prices experienced during the second half of 2010 continue into 2011.

“The continent’s fiscal deficit narrowed from 5.2 percent of GDP in 2009 to 3.3 percent in 2010. However, owing to the recent sociopolitical unrest in some African countries and the repercussions in other neighboring countries, the forecast is for a fiscal deficit of 3.9 percent in 2011, but narrowing to 3.2 percent in 2012,” the Report reiterated.

With the current account balance of the continent improved from a deficit of 1.6 percent of GDP in 2009 to a surplus of 0.4 percent in 2010. The projection is that the surplus will turn to a deficit of 0.2 percent in 2011 before reverting to surplus of 0.2 percent in 2012.

But there are major variations that exist between Regional Member Countries (RMCs) in terms of economic performance.

Best performers

Both the fiscal and current account balances of oil-exporting countries strengthened considerably, while oil importers continued to post fiscal and current account deficits well above pre-crisis levels. All the African sub-regions posted positive GDP growth rates in 2010.

Of the five sub-regions, East and West Africa were the best performers in 2010, with GDP growth of 6.2 and 6.7 percent respectively. This reflected a similar growth pattern to 2009, when East Africa’s growth was 5.7 percent and that of West Africa was 5.6 percent.

The AfDB adds: “For most African economies, growth is yet to return to pre-crisis levels and this subdued trend is set to continue in the short term. Those African countries that are primarily commodity exporters, which had experienced a marked slowdown in 2009, benefited from revived commodity prices and trade in 2010.”

“The rebound in several low-income countries and fragile states was more muted.

Overall, more than half the African economies grew at a lower rate in 2010 than during the period 2001–2008.”

Bank Group activities

During 2010, the Bank Group continued to implement its Medium-Term Strategy (MTS 2008–2012) by focusing on the operational priority areas of infrastructure development, private sector development, governance, higher education, technology and vocational training, while pursuing selectivity in its operations.

Between 2008 and 2010, the Bank’s total investment in the core priority areas of infrastructure, private sector development, governance, and higher education, technology, and vocational training amounted to 88.4 percent of the Bank’s commitments.

Of the total investments in the core areas, sovereign infrastructure operations during this period accounted for 51.3 percent; private sector, 25.0 percent; and governance, about 22.0 percent.

This is broadly in line with the thrust of the MTS. However, AfDB revealed that operations approved for Higher education, science and technology (HEST) were less than 2.0 percent of the total lending, and stresses that “this needs to be addressed”.