Ghana’s situation is an example of how fast a growing economy can slump without the right measures to limit the effects of international financial system instability
VENTURES AFRICA – Several large economies in sub-Saharan Africa have posted high growth rates, leading to projected aggregated surge of almost 6 percent in 2014 for the entire region, but steps need to be taken to ensure continued growth, according to a new report by The United Nations Conference on Trade and Development (UNCTAD).
Historically high commodity prices have largely been supporting this growth that has persisted for more than a decade, but other factors such as improvements in agriculture and recovery from civil conflicts, have also played important roles.
However, there are downside risks as demonstrated by the recent return of both Ghana and Zambia to the IMF in the face of sharp declines in their currency value.
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Despite the impressive figures recorded across sub-Saharan Africa, growth remains weak in the north due to political uncertainty that has lingered since the Arab Spring in 2010, forcing disruptions in oil production. Growth has also remained subdued in South Africa at around 2 percent due to a shrinking domestic demand and a long-standing strike that crippled the mining sector.
The report noted however that developing countries have managed to recover from the Great Recession faster than developed countries. This is because many of them benefited from high commodity prices, especially those whose governments were able to capture a significant share of natural resource rents and use the additional revenues to cushion domestic spending. Other countries, despite being exposed to the vagaries of international finance, were able to tackle the consequences of the global financial crisis by supporting domestic demand with countercyclical policies.
UNCTAD however noted that there are limits to what can be achieved by both countercyclical policies and gains from the terms of trade. The UN agency therefore said that these countries need to find new sources of dynamism to add to demand-side policies that have worked well for them thus far.
“Several countries need to improve their domestic investment and conduct industrial policies aimed at an expansion of their productive capacity and competitiveness so as to respond to rising demand without excessive pressure on domestic prices or trade balances,” the report stated. (VENTURES AFRICA)
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