How Will African Economies Fare in 2013?

African economies
African economies have had a good decade

AFRICANGLOBE – In 2013, African economies are likely to maintain their decade-old pace setting annual average economic growth rate of 5 percent or more, according to estimates from the World Bank, the International Monetary Fund and the Africa Development Bank.

The strong economic growth will likely extend beyond 2013 as African economies benefit from a natural resource boom, strong internal demand by rapidly growing middle class, increased spending on basic infrastructure, robust foreign direct investments and sizeable Diaspora remittances. However, Africa faces major development challenges in 2013, some with game-changing implications. I briefly discuss these challenges.

1. Population-based democracy will remain a foremost challenge. Kenya and Zimbabwe face game-changing 2013 national elections.

Tensions remain high in Kenya as two leading presidential candidates indicted by the International Criminal Court for alleged complicity in the 2007 post election violence remain strong in national opinion polls and as election officials delay decision regarding their eligibility to run.

Stakes are also high in Zimbabwe following two bitterly disputed elections in the last decade, crippling international sanctions and a tenuous unity government of the ruling party and the opposition. Anything short of free and fair elections in Zimbabwe would likely lead to intense and brutal struggle for power between supporters of President Mugabe and Prime Minister Tsvangari.

Instability in Kenya will negatively impact East Africa economy, one of the fastest growing hubs in the continent. Violence in Zimbabwe could har the reputation of the Southern African region.

Additionally, democratic governments throughout Africa with the possible exception of Botswana will struggle in 2013 due to a combination of massive national social and income inequalities and soaring unemployment. In particular, power struggle among the elite, including within ruling political parties, will likely intensify during the next 12 months in Nigeria, South Africa, Ghana, Senegal, South Sudan, Uganda, Egypt and Tunisia.

2. Conflicts are likely to tear countries apart. The United Nations Security Council on December 20, 2012 authorized military intervention in Mali to reclaim northern territories seized last year by Arab terrorist groups.

The multi-country war in eastern Democratic Republic of Congo dominated UN Security Council deliberations on Africa last year, and will likely continue until a decisive intervention by the international community.

Guinea Bissau may degenerate into civil war fuelled in large part by its alleged role as a major hub for international narcotics trafficking. The Boko Haram Islamist insurgency in Northern Nigeria will not go away until the central government either wins a decisive military victory or negotiates lasting peace.

The rebel insurgency in Central Africa Republic may spawn similar movements in other countries where central governments only have nominal control over large swaths of territory. In particular, the Somali government will continue to remain dependent on African Union troops.

3. Africa development friendly policies remain a work in progress. Various reports by bilateral and multilateral agencies, the Transparency International and think tanks in Africa and the West indicate a continent yet to reach tipping point in regards to development friendly policies.

In particular, the Doing Business Report 2013 of the World Bank indicates ongoing challenges to development policies in Africa. Establishing stable policy regimes and implementing public sector reforms remain long term objectives in the continent. Many African countries do not have fiscal and operational independent judiciary.

Business and civil society friendly policies remain a premium.

Small and medium enterprises rarely benefit from fiscal, policy or logistics incentives from the public sector. Industrialization remains minuscule: the continent accounts for less than one percent of global manufacturing despite representing more than 10 percent of worldwide population.

4. Concern in Africa about unbalanced trade with China and the Gulf States will grow. Trade with China, almost exclusively on Africa’s natural resources, grew from US$9 billion in 2000 to US$160 billion in 2011, according to the Africa Development Bank. Since 2009, China has become Africa’s largest trading partner.

Trade with the Gulf States, focused significantly on access to food and arable land, increased from US$10 billion in 2002 to US$49 billion in 2011, according to the Standard Chartered Bank and Reuters. At the 2012 Africa-China summit in Beijing, China pledged US$20 billion in credits for the next three years, doubling past commitments.

However at the same summit, President Jacob Zuma of South Africa voiced concern about “unsustainable” long term trade ties with China. African leaders want China to import more goods and services from the continent. The focus of Gulf States on agriculture may soon run counter to growing concerns about unsustainable “land grabs” in Africa.

5. Tension with the West over governance reforms will continue.Imports between developing countries rose from 35 percent of all trade in 1995 to 55 percent in 2010.

Africa exports to South countries grew four fold, to US$114 billion, according to the Africa Development Bank. South countries now account for more than 10 percent of foreign direct investments in Africa.

Increasingly, African leaders have viable options regarding foreign economic investments and partnerships. Unsurprisingly, African and Western governments disagree more frequently and openly in regards to governance reforms as precondition for investment.

These disagreements will continue in 2013, especially as Western democracies turn inward to repair ailing domestic economies.