Africa could be next

Finweek English Edition - - Economic Trends & Analysis - GRETA STEYN

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.”

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