Published October 12, 2012
TOKYO – Europe's debt crisis and the related cooling in China is weighing on Africa, but even a sharp worsening of the crisis would be unlikely to choke off the region's growth, a top International Monetary Fund official said on Friday.
Most countries in Africa have largely escaped major harm, with the exception of South Africa, which has financial and trade ties with ailing euro zone markets.
"We think the crisis in Europe has had an adverse impact on sub-Saharan Africa, but not, to date, on a scale that would derail growth in the region," IMF Director for Africa Antoinette Sayeh told Reuters.
"Of course, a severe intensification of the euro zone crisis could have a sizeable adverse impact on the global economy, including on commodity prices, with pass-through of these developments to African economies."
"That said, we think it is likely that such a shock would slow, but not derail, growth in sub-Saharan Africa," she said.
An IMF report on Friday projected Africa would grow 5 percent this year and next. The region is home to some of the world's fastest-growing economies, many of them, such as Mozambique, Tanzania, Kenya, Uganda and Ghana, buoyed by new oil and gas finds.
The IMF expects Mozambique to grow 8.4 percent next year, the Democratic Republic of Congo 8.2 percent, Ghana 7.8 percent and the Ivory Coast 7.0 percent.
"Commodity prices make a big difference to the region," Sayeh said. "Notwithstanding what's going in Europe, commodity prices have been kept at a reasonably robust level because of strong demand from emerging economies, notably from China. Our best guess is that sub-Saharan Africa will maintain the 5 percent growth recorded in 2010-11 through 2012-13."
However, if China's economy slows more that could prompt a fall in commodity prices and trade with Africa, hurting growth.
The IMF warned this week of risks to emerging Asia if the euro zone crisis escalates and the United States does not avoid its "fiscal cliff." Beijing has repeatedly assured investors that China's economy is on track to meet the official growth target of 7.5 percent for 2012.
"By and large, the IMF view is that China's slowdown represents a soft rather than a hard landing and, as a result, is unlikely to have a significant impact on commodity prices," Sayeh said. "Of course high growth rates in China are welcome, but we don't see that Chinese growth rates are decelerating so sharply that will have a significant impact on growth in Africa".
South Africa, the region's largest economy but one of its worst performers, is hurting the most from the euro zone crisis. Earlier this week, the IMF cut its growth forecast for South Africa to about 2.6 percent for 2012 and 3 percent next year.
NATURAL RESOURCE BOOM
Elsewhere in the region, however, strong growth rates are coming from higher revenues from natural resources, more domestic demand and a decade of better economic policies.
"It seems like almost every other day another country in the region discovers new natural resource stocks," Sayeh said. "This provides a great opportunity for countries to accelerate the development process, but only if the exploitation of the resources, and the associated budgetary revenues, are managed wisely."
Part of the challenge for these countries, said Sayeh, is to manage the big swings in commodity prices, including saving profits when prices are high.
"The important thing is to really look at the opportunity given by natural resources to leverage country growth performance," Sayeh said. "To do that requires keeping in mind the high volatility of commodity prices -- and, by extension, the volatility of resource revenues accruing to the budget."
A recent surge in global food prices has prompted concerns that the world may be headed for a repeat of the 2008 food price crisis, which triggered unrest in parts of Africa and Asia and an increase in trade protectionism.
Sayeh said while some food is more costly, the overall level of world food prices is nowhere near 2008 record levels.
"It's a bit of a mixture, but does not appear to be translating into significant price increases across sub-Saharan Africa as a whole," she said. "Right now commodity prices are a significant risk for the region ... but we don't see the calamity that looked possible a few years back."
(Reporting By Lesley Wroughton; Editing by Tim Ahmann)