Private Sector Gains Ground in Africa

• Author: Simon Willson
• Position: IMF Survey online

In an interview with IMF Survey online, the head of the IMF’s African department, Antoinette Sayeh, said Africa had demonstrated a new openness to the private sector in recent years. This, together with a more attractive climate for investors had helped to maintain investment from abroad.

"Africa has seen a significant increase in foreign investment that predates the crisis, and during the course of the crisis, those investments also fared reasonably well," she said.

During a wide-ranging interview, ahead of a three-country trip to Africa by the Fund’s Managing Director, Dominique Strauss-Kahn, Sayeh said Africa had demonstrated considerable resilience during the recession, and she was now hopeful about the future prospects for the continent.

IMF Survey online: It seems that most of the countries of sub-Saharan Africa were better prepared to handle the effects of this latest global economic crisis than previous crises. What’s made Africa more resilient this time around?

Sayeh: One key factor has been the considerable progress made by African countries beginning in the late 1990s and in the first decade of this century, in addressing their fiscal problems and reducing their fiscal deficits. So that when the crisis hit, despite the fact that many countries suffered from lower revenues as a result of the reduced demand for African exports, countries were able to sustain spending on key priorities. Some of them made space for additional expenditure, in some cases to protect the poor from the impact of the crisis. That was possible because previous efforts at reform had borne fruit in more sustainable fiscal positions.

Another factor was that inflation had come under control so they were also able to use interest rate policy and reduce interest rates as another means of mitigating the impact of the crisis. Where exchange rates were flexible, countries let them adjust and this helped them deal with the shocks. I would say finally that African countries did not begin to put up barriers and look inwards. Instead they continued to pursue policies broadly encouraging foreign investment and trade.

All those factors, taken together, meant this time around Africa was able to better withstand the impact of the crisis. That gives us optimism that as the global economy recovers, the recovery in Africa will keep pace.

IMF Survey online: Related to your last point, Africa has been described as staying open for business during this latest crisis. Is that a...