Africa and Middle East

AEO finds Africa hit by the crisis but set to rebound

 

AEO finds Africa hit by the crisis but set to rebound

 

The 2010 edition of the African Economic Outlook (AEO) was launched on 24 May.

Abidjan, 24 May 2010 – The 2010 edition of the African Economic Outlook (AEO) was launched today at the Annual Meetings of the Boards of Governors of the African Development Bank Group.

The AEO finds that the global crisis brought a period of relatively high economic growth in Africa to a sudden end: Africa’s GDP growth was slashed from an average of about 6% in 2006-2008 to 2.5% in 2009. Given the pace of population growth this means that growth of per capita GDP came to a near standstill. Average growth is expected to rebound to 4.5% in 2010 and 5.2% in 2011, although the recession will leave its mark.

“The good news is that the continent has proved resilient to the crisis. The bad news is that, despite rebounding growth next year, the downturn could make it more difficult for some African countries to meet the Millennium Development Goal of halving the number of people living in poverty by 2015,” said Henri-Bernard Solignac-Lecomte, Head of the Europe, Africa and Middle East Desk at the OECD Development Centre.

An uneven recovery across the continent. Southern Africa, which was hardest hit in 2009, will recover more slowly than other regions with an average growth of almost 4% in 2010/2011. East Africa, which best weathered the global crisis, is projected to again achieve the highest growth with more than 6% on average in 2010/2011. North and West Africa should both grow at around 5% and Central Africa at 4% during the same period.

An uneven recovery across sectors. In 2009, Africa’s export volumes declined by 2.5% and import volumes by about 8%. Sectors such as mining and manufacturing were particularly exposed to the fall of commodity prices and global trade in goods and services.

Policies that cushioned the impact of the crisis. Africa proved to be more resilient to the global crisis than some observers had feared thanks to prudent macro policies prior to the downturn that resulted in improved economic fundamentals in many African countries. This, together with sustained aid flows, earlier debt relief and loans by the International Monetary Fund, the World Bank and the African Development Bank provided space for adopting counter-cyclical policies, which cushioned the impact of the crisis. Nonetheless, policy challenges remain.

"The prospect of only a moderate recovery in a number of African countries makes it even more pressing to address the structural problems which existed even before the global crisis, and which reduced growth potential and led to high poverty levels" said Léonce Ndikumana, Director, Development Research Department, African Development Bank.

Taxation as an independent resource for economic development. The 2010 AEO includes a special study on Public Resource Mobilisation—or taxation— one means for African governments to become less dependent on aid in the long run, to the benefit of recipients and donors. There are very large differences in the tax raising performance of individual countries.

Annual taxes per capita ranged in 2008 from between USD 20 to 40 in Burundi, Guinea-Bissau, Congo Dem. Rep., Sierra Leone and Ethiopia, to USD 4 866 in Equatorial Guinea, and USD 11 725 in Libya. In fact, tax effort estimates confirm that some countries collect as little as half of what would be expected, given their living standards and economic structures, while others collect two to three times what is expected. In particular, resource-rich countries have made little effort to broaden their tax base. By contrast Kenya, Morocco, Ghana and Cape Verde have shown that it is possible to collect taxes effectively from diversified sources.

Strategies towards more effective, efficient, and fair taxation in Africa typically lie with broadening the existing tax base. Policy options include cracking down on fraud and evasion, removing tax preferences, particularly for large corporations and traders, dealing with abuses of transfer pricing techniques by multinationals and taxing extra10th annual International Economic Forum on Africactive industries more fairly and more transparently.

The 2010 AEO findings will be debated by African ministers and CEOs of companies investing in the region at the 10th annual International Economic Forum on Africa on 11 June at the French Ministry of Economy, Industry and Employment.

 

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