Africa Seeing Rewards of Better Policies

• Author: Laura Wallace
• Position: IMF External Relations Department
• Pages: 72-73

Page 72

In recent months, prices of oil, nickel, tin, corn, and wheat have hit record highs, building on dramatic increases since their lows of 2000. What does this mean for sub-Saharan Africa, a highly diverse region of net commodity importers and exporters?

Abdoulaye Bio-Tchané, who recently stepped down as Director of the IMF's African Department, tells the IMF Survey that, so far, unlike in past commodity booms, Africa is coping well.

But Bio-Tchané, who will shortly take over as president of the West African Development Bank, warns that Africa needs to move swiftly to sustain and broaden growth-given that few African countries look likely to meet the UN Millennium Development Goals (MDGs) on poverty and human development.

IMF Survey: How is Africa as a whole faring with the boom in oil, metals, and food prices now affecting the global economy?

Bio-Tchané: In contrast to earlier commodity booms, this time around Africa has been coping remarkably well. Resource-rich countries have been using their windfall profits to scale up outlays on infrastructure and social services, and they've also been saving a lot more than in previous episodes, reducing the risk of a boom-bust cycle.

Net commodity importers have held up quite well so far. But with the recent further increases in fuel prices and the unexpected surge in food prices, they're now facing a double blow, which could lead to higher inflation and slower growth. And, given the dire social situation in some countries, the high prices are being felt more severely than in other regions.

For African policymakers, the immediate challenge will be to find an appropriate mix of financing and adjustment. The IMF can help by being sufficiently flexible and imaginative to help them address not only an economic but also a social situation. In the years ahead, stabilization and economic reform offer the best means of adjusting to the boom.

IMF Survey: What can governments do about the impact of food price hikes?

Bio-Tchané: In the short run, they could alter tax policies or introduce targeted subsidies. For instance, in some countries, import duties on products like rice and milk are running at 40 percent, so the tax could be lowered to 30 percent or even 20 percent. In fact, a couple of countries have done just that- and the IMF has temporarily accepted the reduction. Similarly, some countries might want to subsidize transportation in urban areas, and, here again, the IMF could be supportive.

IMF...