Euro zone woes threaten African growth

JOHANNESBURG – The African Development Bank (AfDB) is likely to trim Africa’s 2010 growth forecast by between 0,5 and 0,8 percentage points due to an expected slowdown in Europe, chief economist Mthuli Ncube said yesterday.

The Tunis-based bank and the OECD forecast in May that Africa’s economy would expand 4,5 per cent this year and just over five per cent in 2011, but debt turmoil in the euro zone and its impact on growth has eaten into that optimism.’We are thinking of revising our growth forecasts downwards. We’ve just started the work of trying to understand better the impact of Europe on Africa,’ Ncube told Reuters on the sidelines of a conference in South Africa’s commercial capital.’Our thumbsuck prediction is that we may have to shave off somewhere between half a percent to 0,8 of a per cent in terms of our growth forecast because of Europe,’ he said.’We think there’s a 50-50 chance that a major slowdown, a double-dip recession (in Europe), will become a reality.’The main impact of Europe’s woes on the poorest continent would be through reduced trade, Ncube said, although tightening of credit lines by European banks was also likely to hit growth – as it did in late 2008 when the financial crisis struck. He also pointed to a likely reduction in aid from European governments such as Germany, Britain, Denmark and the Netherlands, where political opposition to domestic austerity measures is bound to grow.’If German taxpayers are being asked to tighten their belts, they might just turn around and say ‘Why not African consumers as well?’ It’s only human.’According to the World Bank, aid to sub-Saharan Africa amounted to US$38 billion in 2008 and exceeded tax and other official revenues such as minerals duties in 14 states in the region.While a sudden reduction of budget support is likely to hurt many African governments’ spending plans, it may ultimately be the bitter pill the continent needs to wean itself off handouts, whose impact on growth is seen as limited at best.Uganda, for instance, reported a 20 per cent rise in tax receipts for the first half of the 2009-10 financial year – evidence of its push to reduce donor-dependence – but Ncube said there was still a long way to go.’It’s a long haul trying to get the tax systems right and in place,’ he said. ‘It’s not easy and will take time.’Another issue African policymakers will have to deal with is a short-term spike in inflation caused by depreciation of currencies such as the Kenyan and Ugandan shillings and Zambia’s kwacha this year.’The weakness in the currencies will cause a blip in inflation, but at the same time I’m confident about the skills in macroeconomic management all across Africa,’ Ncube said, adding that the region’s long-term inflation trend was down. – Nampa-Reuters