Globalization and Declining Aid Bring Sub-Saharan Africa to a Turning Point

• Pages: 219-220

Page 219

After an extended period of mediocre performance, the economic situation in sub-Saharan Africa has improved markedly in the last few years, sparking renewed optimism about the continent's economic future. For the region as a whole, real GDP growth averaged 4!/4 percent a year in 1995-97, up from 1!/2 percent in 1990-94; per capita output rose at an average annual rate of almost 1!/2 percent in the past three years, compared with an average decline of 2 percent a year in the first half of the 1990s; and after reaching a high of 44 percent in 1994, annual inflation dropped to 13 percent in 1997. However, these averages conceal significant differences in performance among countries and the region's economic situation remains difficult, with many countries heavily dependent on foreign assistance. Recent improvements are nevertheless encouraging because they have resulted mainly from improved macroeconomic and structural policies in a number of African countries and are not due to favorable exogenous developments, such as changes in weather conditions or terms of trade gains.

The basic question now is whether these developments are temporary or whether they augur a fundamental change in the region's economic fortunes. In a new study, Africa: Is This the Turning Point?, Stanley Fischer, the IMF's First Deputy Managing Director; Ernesto Hernández-Catá, Deputy Director of the IMF's African Department; and Mohsin S. Khan, Director of the IMF Institute, examine this question. They argue that changes in the external environment in the 1990s, such as increasing globalization and declining official development assistance (ODA), have indeed brought sub-Saharan Africa to a turning point. To meet these challenges and sustain the recent growth momentum, countries in the region will need to combine policies aimed at macroeconomic stability with enduring structural reforms to encourage private investment. Challenges to Meet

According to the Organization for Economic Cooperation and Development (OECD), gross bilateral ODA disbursements to sub-Saharan Africa fell to $10.7 billion in 1996 from $13.9 billion in 1990-a declining trend that is likely to continue, the study notes. While a continuing fall in ODA will require far-reaching adjustment for many African countries, it could also help to bring about a fundamental reorien-tation of economic policies aimed at increasing the role of the private sector and private capital flows. The decline in ODA...