Economics: What Is The Current Outlook For Development in Africa?

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Table of Contents

Macroeconomic Situation and Prospects
External Financial Flows to Africa
Trade Policies and Regional Integration in Africa
Progress towards the Millennium Development Goals
Political and Economic Governance
Conclusion
Works Cited

Economy of Africa is facing challenges in overcoming the contractions of economy resulting from global recession. Africa is a continent that strives to achieve economic stability.

The continent is on the road to recovery with the help of controlled prices of commodities and a strengthening global trade. There is a high risk that the growth will not be enough to reduce poverty and unemployment.

Africa must overcome the numerous obstacles before the global economic crisis reduces its potential to grow. This also increases inequality of Africa with the rest of the world (Peterson 102).

The current outlook on the development in Africa describes the changes in the external flows of finances and the trade policies. Africa fosters regional integration to ensure economic developments (Hyden 16751).

Through the resources that Africa is endowed with, the continent is able to secure its future economic development given that it realizes unstable Aid on development and inflow of direct investment (Adam 359).

Macroeconomic Situation and Prospects

According to Harry (457), global economic crisis reduced the economic growth of Africa. Economic growth has reduced by approximately 6% and 2.5% in 2006-08 and 2009 respectively. Per capita Gross Domestic Product (GDP) growth was almost a standstill.

Economic slowdown affected the tourism, manufacturing, and mining sectors significantly. The fall in commodity prices and global trade in goods and services exposed these sectors to decline in returns. Other affected sectors were the services and agriculture sectors.

The countries that had huge harvests are at a position of reducing the effects the economic crisis. The countries that have no harvest are at the danger of advance economic crisis.

The decline in the value of exports and rise in the value of imports led to deterioration in trade and current account balances (Yusuf 48).

Donor countries have maintained the aid flows to Africa despite the fiscal pressure at their home countries. Debt service costs reduced in heavily indebted poor countries because the World Bank and the international monetary fund (IMF) take the initiative to relief debt.

The African countries receive support to cope with economic crisis through additional loans from the African Development Bank, the IMF, and the World Bank.

African countries have the chance of pursuing expansionary monetary and fiscal policies to ease the downturn. Interest rates on key policy and major spending on public programmes reduce to save finances for the essential strategies for reducing effects of economic crisis (Adam 364).

Governments pursue macro policies to counter falling exchange rates, losses of international reserves, and deteriorating current balances. African countries will achieve higher growth after the recession because of ability of the countries to recover in the world trade and world economy.

The global economy is growing fast boosting the growth of Africa’s economy (Connor 26). Uncertainties persist, especially from the banking sectors and the balance of expansionary policies in the monetary and fiscal policies. Africa has internal factors that affect the economy of the continent.

Some countries have political tensions and social discontent that reduce growth. Policy makers in Africa must be aware of the domestic and international risks.

The high poverty levels, inequalities, and reduced potential of economic growth increase the effects arising from global crisis. The weakening economies in Africa are a challenge to the governments of the countries in this continent (Peterson 115).

External Financial Flows to Africa

Foreign direct investment (FDI) is a major source of growth in Africa. FDI increases the activity of the beneficiary firms and other sectors of development through increased competition and technological spillover.

Increase in productivity of a country improves the economic conditions. African countries implement friendly structures of investment to attract foreign investment. FDI benefits a few extractive industries in limited number of countries.

This limits the impact of FDI in developing projects in Africa. Africa faces the challenge of attracting potential investors because of mainly internal factors, such as political instability, fragmented markets, and weak infrastructure (Connor 27).

FDI is rising strongly in Africa because of low cost of raw materials. Africa is developing Special Economic Zones (SEZs) to attract FDI.

Foreign investors benefit from the preferential trade agreements of African countries. Official Development Aid (ODA) proves to be sustainable even in times of economic crisis. The organization offers debt relief to poor countries (Yusuf 54).

The aids to the poor countries accelerate growth in economic development. Development Assistance Committee (DAC) offers aid and support trade of African countries. China proves to the most concerned country in the development of Africa through this programme.

The challenge of China in Africa is that the country is scarcely presence in Africa in terms of debt relief, direct investment, and aid. This has led to the assumption that China is only interested in the natural resources in Africa and not providing aid (Hyden 16753).

Most of the donor countries have the mission of ensuring the aid they provide Africa is effective enough to cause economic development and growth. The African countries are responsible of ensuring the available aid has effects in the economic growth.

Transparency, accountability, and high quality evaluation are good measures of ensuring progress in strengthening development strategies. Donors ensure quality standards of evaluation to set priorities to effective use of aid.

The governments of African countries work together with donors to develop economically (Harry 498).

Trade Policies and Regional Integration in Africa

The continent benefits from the internal trade. The benefits are minimal because African countries have low shares of world trade. Africa constitutes approximately 3% of the total global trade. African countries have low market access, export support or preferences, and equal treatment in the world trade.

The African countries face stiff competition from the developed countries. The low subsidies on African products and services harm African producers. Africa has relatively poor performance in trade because of the weak diversification of the

African trade in terms of destination and structure. Most of the countries rely on mining and agricultural products for exports and import manufactured products from the developed countries (Adam 379).

According to Peterson (129), the economic structure of Africa constraints the supply of diversified commodities because of poor institutional policies, weak financial and capital markets, and poor infrastructure. Other factors that raise trade barriers include political instability and insecurity.

Poor transport infrastructure in Africa increases the costs of transporting commodities compared to the developed countries. The excessive documentation of customs regulations limits free movement of commodities, inputs, investments, and persons. The customs offices lack communication and information technologies.

The procedures lack transparency, consistency, and predictability and are outdated. This results to delays in the trade transactions, reduced revenue, and increase in transactions costs.

The African Development Bank (AFDB) helps the government and institutions improve financial convergence and macroeconomic on the continent. The organization prepares programmes on infrastructure development and economic partnership agreement templates to guide on the negotiation agreements in the world trade.

African countries are strengthening infrastructure development with the assistance of the development partners and regional communities.

The World Bank, African Development Bank, European Union, and other multilateral agencies should rise funding on the development of African countries, especially on the infrastructure (Connor 29).

Progress towards the Millennium Development Goals

African countries have a vision of achieving economic development by 2015. These goals are critical in the development of the continent in the long term. The goals are contained in the UN Millennium Development Goals (MDGs).

African countries will seek to eradicate extreme hunger and poverty to overcome global financial crisis. The countries will achieve universal improvements in primary school completion and enrolment.

This will improve the living standards of people in the continent and the quality in the working environment in Africa (Hyden 16755).

Africa will promote empowerment of women and promote gender equality to increase the productivity of the continent in talent and competence.

The continent will reduce mortality of children under the age of five to reduce malnutrition, low immunization coverage, diseases, and poverty. Africa will develop and improve maternal health through ensuring good health care to mothers during childbirth and growing of the child.

Africa will fight malaria, HIV/AIDS, and other diseases to reduce death rates and promote the health of its people. The continent will ensure environmental sustainability to improve the living standards of people in Africa.

This will involve preservation of water sources, wildlife, forests, and other natural resources. These resources are the major contributors of economic development in Africa (Yusuf 63).

Political and Economic Governance

Increase in the prices of basic consumption products like food and shelter triggers strong reaction and social tensions from several governments in Africa. African governments are in fear of a weakening economy that may undermine the political governance and social stability.

African governments sustain internal demand to limit social tensions. The rise in unemployment creates concerns in the future economic development of countries in Africa.

Democracy in Africa raises government accountability on the economy of a country and the benefits to its citizens (Adam 380).

Africa is suffering financial and human deficits in the government institutions creating a disconnection between the formal and legal provisions and executions. Governments have the responsibility of improving quality, access, and affordability of basic public services.

Most of the countries in Africa introduce business friendly reforms to improve economic development and to make the development process simpler and efficient (Harry 512).

Conclusion

Global economic crisis gives a new dimension on the importance of domestic resource mobilization in Africa. Africa faces economic challenges because of low revenues from exports, overreliance on aid inflows, and uncertain future foreign investment.

African countries can mobilize the public resources they have to develop the continent economically. The continent should introduce efficient and fairer taxation systems to attract trading activities that increase income of people in Africa. Economic recovery will need fight on the high poverty levels and lack of quality expertise in technology.

GDP of many countries in Africa is improving meaning that the continent is in a position to develop economically in the future. Countries in Africa are still depending heavily in aid. These countries should seek to become less dependent on aid to become financially stable.

Works Cited

Adam, Sobel. A global perspective on African climate. Climatic Change 90. 4 (2008): 359-383.

Connor, Stephen. Improving epidemic malaria planning, preparedness and response in southern Africa. Southern African Regional Epidemic Outlook Forum 3 (2004):26-29.

Harry, Dunphy. African Development Bank says many countries expect 2010 growth rates in excess of 4 per cent. Toronto: Canadian Press, n. d.

Hyden, Goran. Governance and poverty reduction in Africa. Proceedings of the National Academy of Sciences of the United States of America 104.43 (2007): 16751-16756.

Peterson, Stephen. Rethinking the millennium development goals for Africa. New York: Harvard University, 2010.

Yusuf, Shahid. Entering the 21st century: world development report, 1999/2000. New York: Oxford University Press, 1999.

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