IMF sees Africa shunning dependence for trade and prosperity

Dominique Strauss-Kahn, the International Monetary Fund (IMF) managing director, recently visited Kenya as part of his African tour.

While in the country, Mr Strauss-Kahn took part in a panel discussion on Africa’s Economic Transformation: The Road Ahead, at the university of Nairobi. Here are excerpts of the discussion.

African economies have been affected by the global economic and financial crisis. What is your assessment of Africa recovery?

Africa has been an innocent victim of the crisis and its trade has plummeted, capital flow has dried up and remittances have declined. This affected the gains made in the last two decades.
However, Africa has progressed much better through the crisis than other parts of the world.

Indeed, Africa will record strong recovery as we predict a 4.5 per cent growth.

The quick recovery is on the back of improved economic policies adopted during the reform period.

Macroeconomic policies were prudent, strong social budgetary allocation reduced debt burdens hence low repayments and strong reserves that provided cushion for the fall back expenditure programme.

The use of expansionary stimulus package forestalled the decline and this will provide the legroom for private demand to drive the recovery.

Despite these, Africa faces twin challenges which are to revive strong growth, and to reinforce resilience to future shocks. Africa economies are highly vulnerable to economic dislocation through dependency on commodities which are affected by cyclical demand and price fluctuation and remittances.

How has Kenya fared and what are the emerging issues that need to be addressed?

Kenya, like other Sub Saharan African countries, was affected by the global crisis witnessed through decline in the number of tourists, a fall in prices of key exports such as tea and coffee, and a decline in the purchase of fresh produce.

However, the country has managed to contain effects of the global crisis through use of effective counter-cyclical policies. The increased spending on infrastructural projects, use of the stimulus package, and strong revenue collection tampered the effects of the crisis. Prudent macroeconomic policies, increase capital flows and relatively high remittances helped the economy to remain strong.

In addition, important progress was made in addressing weaknesses in governance and the business climate hence attracting foreign direct investment.

The economy is yet to recover from the shocks of the 2008 political violence and prolonged drought that depressed growth.

Integration of the economy to the global system is expected to drive recovery as the global economy picks up through increased tourist visits, remittances and uptake of fresh produce.