World economies
AFRICA
The Sub-Saharan African economy has been growing steadily. This is unprecedented in view of the stagnancy that characterised the region in the last few decades as a result of political instability and income volatility. Economic growth in the region hovered in the region of 6per cent per annum while inflation is 7.5per cent. The IMF and World Bank argue in separate reports that the region is witnessing its strongest growth in 30 years. This steady economic performance in the region is driven by revenues from oil which has been on unprecedented rise in the last few years. The three major benefiting countries Nigeria, Angola, and Gabon are presently awash with oil revenues. While Angola is witnessing its fastest growth ever (17per cent) projected to be 20per cent in 2008, Nigeria is presently growing at 6per cent.
Forecast growth for African economies will be an average 6,2 per cent in 2008, according to ‘Economic Report on Africa’ published by the United Nations Economic Commission for Africa (ECA) and the African Union (AU). According to the report, African economies continued their growth momentum and achieved an overall real GDP growth rate of 5,8 per cent in 2007. Some 30 countries recorded higher economic growth rates in 2007 than 2006, but growth performance varied substantially across countries and regions.
Africa’s economic growth performance was driven mainly by robust global demand and high commodity prices. Other growth factors on the continent include: consolidation of macroeconomic stability, improving macroeconomic management and greater commitment to economic reforms, increased private capital flows and debt relief, increasing non-fuel exports. Africa has also witnessed a decline in political conflicts and wars, especially in West and Central Africa, though peace remains fragile in some parts of the continent. Key challenges to growth in 2008 include a fall in global commodity demand and prices and the risk of sharper slowdown in the US economy.
High oil prices hurt the many countries that import oil by weakening the current account and adding inflationary pressure, at the same time as continuing to benefit oil exporters including Angola and Nigeria. Other constraints to Africa’s growth are political instability in some countries, inefficient public infrastructure and unreliable energy supply at the national level, as well as poor integration of transportation and energy networks at the sub-regional level. The report says that substantial progress has been made in the area of external debt relief. However, very limited progress has been made in the other core areas of the Consensus such as mobilising domestic financial resources for development; mobilising international resources for development; promoting international trade as an engine of development; increasing international financial and technical cooperation for development; and addressing systemic issues.
IRAQ
Although the very high level of violence abated in 2007, Iraq continues to experience a difficult security situation in parts of the country. Yet the country made significant progress according to the International Monetary Fund. The Fund’s decision to continue supporting Iraq’s economy recognizes the significant progress the country has made under the IMF program. Still much remains to be done to put Iraq on a path to sustainable growth. The main objectives of the new program, which will run through March 2009, are to maintain macroeconomic stability, facilitate higher investment and output in the oil sector, and advance structural reforms and institution building.
Because of the security conditions, however, the implementation of the public investment program fell short of budget plans, and oil output and economic activity in general did not expand as much as was hoped. Before oil exports through the northern pipeline to Turkey resumed in the last quarter of 2007, oil production hovered around 2 million barrels per day (mbpd). Maintaining macroeconomic stability remains a key objective of the authorities’ program for 2008.
Real GDP growth is expected to increase steadily, rising to over 6per cent in 2008-09, as oil production rises and the services sector recovers slowly. The IMF has released new real GDP projections for Iraq, which forecast that growth will pick up strongly from 1.3per cent in 2007 to 7.1per cent and 7.5per cent in 2008 and 2009 respectively. The Fund has estimated that Iraq returned a small fiscal surplus in 2007, as oil revenue was supported by high oil prices and the government failed to fully disburse its capital and current expenditure budgets.
The Central Bank of Iraq will gear its monetary and exchange rate policies toward achieving this objective. Fiscal policy will help contain inflation by keeping current spending, notably the wage and pension bill, in check to limit pressure on Iraq’s small non-oil economy. The envisaged increase in government investment, in view of its high import content, should have only a limited impact on inflation.
Inflation, which spiked at 65 percent at end-2006, was sharply reduced with a policy package that included exchange rate appreciation, monetary tightening, and fiscal discipline. These policies, together with measures to reduce fuel shortages that resulted in declining black market fuel prices, limited the increase in consumer prices to less than 5 percent during 2007. Core inflation, which excludes fuel and transportation prices, fell to about 12 percent from 32 percent in 2006. The Economic Intelligence Unit (EIU) has lowered its inflation forecasts, after the Central Bank of Iraq released new data revealing that consumer price growth fell to just 4.7per cent, year on year, at end-2007.
Although much remains to be done, Iraq has registered a number of successes. Significant progress was made in stabilizing the macroeconomic environment and in advancing the structural reform agenda. The 2008 program will focus on similar objectives to capitalize on the momentum achieved by the first program and, in particular, to help the economy begin growing again. Continued progress, however, will depend on the success of efforts to stabilize the security situation and strengthen the political consensus.
In light of Iraq’s large reconstruction needs, the government has prepared an ambitious investment program for 2008. It is taking steps to speed up projects that could not be undertaken in previous years, in particular to rebuild infrastructure and improve the provision of electricity, water and sanitation, education, and health care. Provided that further security improvements allow execution of the public investment program and a return to a more normal functioning of the economy, economic activity outside the oil sector should pick up.
The authorities’ program will also focus on the oil sector and the need for higher investment to raise output and for greater transparency. Raising oil production will be crucial to provide the resources needed for reconstruction over the medium term. Projects to increase production and export capacity in the south and better protect the northern export pipeline are either under way or planned. With continued exports through the north, oil production is projected to increase to 2.2 mbpd in 2008, helping to boost economic growth overall to about seven per cent.
NIGERIA
The Nigerian economy is largely dependent on revenues from oil. The 2008 budget recently presented to the National Assembly reveals that oil sector is expected to contribute 80per cent or N3.63trillion, while non-oil sector comprising of agriculture, manufacturing, solid minerals, services and other invisibles combined will fill the 20per cent funding gap which comes to a paltry sum of N910billion. The implication of this is that oil revenues as it is presently will either make or mar Nigeria’s developmental dream sequel to the transient nature of oil prices. This also negates the over emphasised government commitment towards diversifying the Nigerian economy from a mono product to a multi product economy.
The manufacturing sector was projected to contribute at least 45per cent to GDP effectively overtaking oil while agriculture was envisioned to play a key role in employment generation. Perhaps the most outstanding contribution towards the realisation of the Nigerian dream came from the banking sub-sector during the year under review; the industry has suddenly become the toast of international venture capital/Investors. By the end of 2007, total foreign investments in the banking sector would have reached an all high value of $1bn ((N127bn) this is a sign of continuous growing investor’s confidence in the Nigerian economy, this is coming despite the global economic crunch which has seen the dollars crashing against other major global currencies. Credit to the domestic economy and private sector has grown tremendously in the last 12 months.
Basically, the Nigerian economy continued on its steady growth part for most part of 2007. However, politics of policy reversals threatened the expected accelerated growth for most part of the year after the transition in May. The growth of the Nigerian economy is hinged largely on the stability or otherwise of the political leadership. The election petition tribunals are still sitting and if recent judgments are anything to go by, the economic fortunes of Nigeria in 2008 may be hanging precariously in unstable waters. However with the commitment of the Federal government to the enthronement of the principles of rule of law, due process, transparency and accountability, the confidence of investors in the Nigerian enterprise will be on the upward swing.
The government believes the economy will expand by 7 – 8 percent this year. The contributions to this growth will come, broadly, from the oil and the non oil sectors. The government expects double digits growth rates this year in the agricultural, telecommunications, real estate and business services sectors of the economy.