High imports, low exports put SA at risk - IMF
September 14, 2006
 By Quentin Wray
Singapore - The International Monetary Fund (IMF) warned yesterday that sub-Saharan Africa "would be hurt if global financial market conditions deteriorate" because it relied heavily on private capital flows to finance the current account deficit.
South Africa is one of the countries at risk as its current account, which measures trade balances as well as services and other income flows in and out of the country, has risen sharply in recent years due to the fast pace of import growth and mediocre export performance by the manufacturing sector.
However, the IMF's 2006 article 4 staff report, released last week, said that though the current account was a concern, South Africa's good fundamentals would "mitigate the impact of any adverse external shocks on the economy". And it gave South Africa a thumbs up, despite global volatility.
A global economic slowdown was one of four risks facing sub-Saharan Africa, the IMF said in its semiannual World Economic Outlook report, which is being released today. The IMF is holding its annual meetings in Singapore over the next two weeks.
Other risks are the negative impact of sustained high oil prices, the effect of slower growth on exports and the avian flu pandemic, "given relatively undeveloped healthcare systems".
Despite the risks posed by the global environment, the IMF said sub-Saharan Africa was enjoying its strongest period of sustained economic expansion since the early 1970s on the back of better oil, metals and coffee prices.
This was despite the sharp increase in oil prices that had been a burden on oil-importing countries.
The IMF said Africa's growth rates were still far off the 7 percent needed to halve poverty by 2015, which was one of the millennium development goals.
It estimated that regional growth would be 5.2 percent this year, slightly higher than global growth, which had been pegged at 5.1 percent. This is the third year in a row that regional growth has exceeded 5 percent.
The impact of oil had been muted, as unlike earlier oil price hikes in 1979-80 and 1998-2000, there had been a simultaneous increase in prices of other commodities exported by low-income nations.
The IMF said oil prices had increased by 25 percent in real terms over the period 2002-05; copper had risen 30 percent; coffee prices had risen 19 percent; and gold, aluminium and diamonds had increased by between 9 percent and 10 percent.
However, the IMF warned that while the region had benefited from the commodity boom, these benefits were not felt equally by all countries. For the 33 countries for which data are available, 13 experienced net gains from the movements, while 20 suffered losses.
The major gainers were oil exporters Gabon, Nigeria and the Sudan, while the biggest losers were Ghana, Madagascar and Senegal.
To maintain the growth trajectory, the IMF said it was "important that governments in the region continue to press ahead with reforms to promote private sector investment, including foreign investment, which remains low and largely concentrated in South Africa and Nigeria".
It said reforms were needed to encompass further trade liberalisation, reduce government involvement in the economy, improve regulations and governance, and develop infrastructure and economic institutions.
The nature of reforms needed is a hotly contested debate and developing country representatives have increasingly started taking issue with IMF programmes.
Other debates that will no doubt take place during the meetings will be the need to give poorer countries more say over how the IMF and its sister institution, the World Bank, are run and the need for better surveillance of rich countries. - With additional reporting by Ethel Hazelhurst in Johannesburg
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