Africa could be next
SEVERAL AFRICAN COUNTRIES with developing financial markets likely to attract institutional financial investors are promising candidates to become part of a second generation of “emerging market” countries. That’s the word from the International Monetary Fund’s David Nellor, writing in the September issue of the IMF’s Finance & Development magazine. Nellor says a distinction needs to be made between resources-rich and resourcesscarce African countries.
The report says resources-rich countries have a poor track record for macroeconomic performance. When commodity prices were high – particularly for oil – governments spent more than their economies could absorb and exchange rates strengthened and choked off other sectors. When commodity prices fell, the non-resources sectors failed to revive. The recent boom in commodity prices raises the question whether resources-rich African countries are handling the situation better this time round.
Nellor says the best emerging market prospects would be resources producers that have installed sound economic institutions to avoid the boom/bust cycle of the past. In the case of Nigeria, since the current oil boom started in 2004 its economic performance has been far better than in previous booms.
“The key to Nigeria’s good performance is that fiscal policy has been set with an eye on the ability of the economy to absorb the domestic demand consequences of spending booming oil revenues.”