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Keep the eyes on the prize of higher economic growthSound policies and sensible measures that were put in place enabled African countries, and in particular South Africa, to ride out the storm of global recession and lead the world in recovery.
As Africa’s largest economy and the only African member of the G20 group of countries; and as an important member of the ever more influential group of emerging market countries – South Africa indeed occupies a significant place on the world economic stage.
But in order to remain ahead of the pack as an emerging global player, South Africa may have to make structural changes to increase competitiveness, in part by increasing competition in the country’s own domestic markets.
This is the view of Caroline Atkinson, director of External Relations at the International Monetary Fund (IMF) in Washington, who recently visited South Africa. “It is important to keep the eyes on the prize of higher economic growth that benefits the entire population,” she says.
Atkinson adds that South Africa’s position is extremely important. “As the only African country in the G20, its voice carries a special resonance. South Africa is well placed to contribute to the work at the G20, bringing to this work an experienced and competent economic team.
“It also has a special opportunity to speak for the rest of Africa on the world stage.”
Looking at South Africa’s role in the greater context of the global economy from the IMF’s perspective, she points to its status as an “emerging market economy” – a middle-income country with increasingly sophisticated financial markets and a complex economy with strong linkages to the global economy.
“It is against other emerging markets that we usually compare South Africa. Countries like Brazil, Chile or Turkey, to name a few. In this group, South Africa holds its own well, with its modern financial markets and its track record of strong macro-economic policy-making,”
says Atkinson.
“The weight of this group of countries in global output and trade has been steadily increasing, especially over the last decade. With this larger role has come a stronger voice and, indeed, some of these countries, including South Africa, are part of the so-called G20 – the group of the 20 largest economies whose leaders have been busy in the last year trying to work out a co-operative solution to the problems posed by the global economic and financial crisis.”
In this regard, Africa is doing quite well, she says, as the African economy already was in the process of recovering. According to Atkinson, this marks a significant change from the past.
“Traditionally, recoveries in Africa have lagged the rest of the world. This time, Africa is moving ahead of the curve, reaping the rewards of good economic policies that were put in place before and during the crisis.”
However, Africa still faced the twin challenges of reviving strong growth and reinforcing resilience to the economy as the global financial crisis subsides.
The low- and middle-income countries were typically innocent victims of the crisis, she says.
Their policies and frameworks were stronger than in the past, but they fell victim to a collapse in trade, remittances and capital flows, as well as a sharp reduction in commodity prices.
The result was lower growth and deteriorating social indicators.
“Although growth across sub-Saharan Africa plummeted during the global crisis to an average of 2% in 2009 from 5.6% the previous year, the IMF projects that it will bounce back to 4.5% this year and 5.5% in 2011,” says Atkinson.
Africa had reduced debt burdens, strengthened its fiscal positions, lowered inflation, and improved its foreign exchange reserves situation.
“Because fiscal deficits and debt positions had improved dramatically, many countries were able to use fiscal policy to counteract the crisis, rather than making it worse. Fiscal policy was countercyclical in two-thirds of sub-Saharan African countries in 2009,” she adds.
African countries did not put up barriers on trade, but instead continued to pursue policies that broadly continued encouraging foreign investment and trade. They were able to bring inflation under control, using interest rate policies to reduce interest rates as another means of mitigating the impact of the crisis.
Since the onset of the global economic crisis, the IMF had stepped up its help to Africa by boosting lending, expanding technical assistance, and offering policy advice on how to counter the crisis and protect the most vulnerable. The IMF says its total assistance to Africa escalated US$5 billion last year from a total of US$1.7bn in 2008.
This speaks volumes for the kind of relationship the IMF has with Africa these days.
There was a time when Africa viewed the IMF as a kind of despised, rich uncle whose help was required from time to time – help that never came without stringent and mostly unpopular conditions.
Or, as Atkinson puts it, the IMF was viewed more as a policeman than a doctor.
But with reforms in recent years having taken place both in the IMF and in African governance and economic management, that relationship seems to have undergone considerable change – for the better.
“We have made mistakes in the past, as is perhaps inevitable, but we are trying to learn from these mistakes. We did not always pay enough attention to local circumstances, political realities, or social consequences,” she says.
“Even so, I would argue that our interaction with Africa has been very successful. Countries with sustained programme engagement over the past two decades saw higher growth than those without such engagement – this is a fact.
“But we are now going further, making our lending arrangements more flexible. We listened closely to feedback from countries in Africa and elsewhere, and used it to strengthen the design of our programmes,” Atkinson adds.
“Last year, for example, we revamped all our facilities to support lower income countries by sharply increasing the amount of subsidised resources that countries can get access to, eliminating interest charges through the end of 2011, and streamlining the conditions that attach to such programmes. We are tailoring our lending programmes to an increasingly diverse group of countries – there is no ‘once size fits all’ approach.”
“And we are accommodating higher deficits during the crisis, and making sure that social spending and core safety nets are maintained or strengthened,” she says.
The IMF has been working for several years on reforms to its own governance structure to increase the voice and the weight in IMF internal decision-making of low- and middle-income countries. It already has completed some important steps in this regard, such as an increase of the “quotas” (i.e. shares in the IMF’s collective capital) held by some emerging market countries such as China, South Korea and Mexico.
“But more work lies ahead to bring the distribution of quotas more closely in line with the effective weight of our members in today’s global economy, while preserving the voice of some of our smaller members,” says Atkinson.
As to how the role of the IMF in Africa is evolving, she says African members are supported in a variety of ways, reflecting the diversity of their circumstances. In some cases, money is provided – typically on subsidised terms in Africa -- to help deal with a short-term emergency or to address a medium-term shortage of foreign exchange.
The IMF further provides macro-economic policy advice to all members.
“We also support country efforts to strengthen their institutions through our technical assistance programme, and to build their capacity through our training programmes. We are opening three new technical assistance centres in Africa this year,” says Atkinson.
“Africa is the largest client of the IMF in terms of technical assistance. We consistently emphasise macro-economic stability, sustained growth, and protecting the most vulnerable.”
She says the world economy now is growing again, and the IMF believes “the worst is now firmly behind us”.
Risks remain, as many advanced countries now must deal with the fallout from the crisis – high debt levels, unemployment, and slower growth for some time to come. Until the recovery is strong enough to build up jobs and bring down unemployment, it is difficult to declare the crisis over, she maintains.
And countries such as South Africa need to be mindful of future risks, rebuilding their policy space by gradually and carefully withdrawing the current stimulus to be prepared for the next rainy day.
“But all this said, we do believe, as IMF managing director Dominique Strauss-Kahn said recently in South Africa, ‘Africa is back’,” says Atkinson.
“And while the costs of the recession and crisis should never be underestimated, we do believe that the worst was averted. This time a year ago, it seemed possible that the world would tip into another Great Depression. Global leaders came together to prevent that, and the recovery started sooner than many had expected – in that sense, the effects of the crisis have been less bad than initially feared.”
She says that South Africa’s economy is diversified and complex and that the country has a strong macro-economic policy framework, a flexible exchange rate regime, and a sophisticated financial sector. All this, she says, helped make the South African economy dynamic, resilient and adaptable to external shocks, as was seen during the recent global recession.
However, as South Africa seeks an ever more advantageous presence for itself on the global stage, it steadily has been nurturing a strong and growing relationship with countries such as India and China. In fact, China is now South Africa’s leading trade partner, with bilateral trade volume having hit a historic high of more than US$16bn in 2009 – and still growing.
Now, some commentators are warning that China could be sitting on a huge bubble and that the Indian economy may not be all it is made out to be either, trending down rather than up.
If they are correct, would this not be dangerous for South Africa, being so closely involved with these countries?
Atkinson does not agree. China, she says, is on “a clearly strong growth path, and India also is recovering strongly from what was a relatively shallow slowdown”.
“We expect that strong growth which, as you say, has been a big help to South Africa, to continue.
“Diagnosing a bubble ex ante is very difficult. We would certainly not say that China is sitting on an enormous bubble, though we are aware that some commentators have made that claim.”
“What can be said, is that in the last 35 years, there have been many crises erupting in different parts of the globe whose effects have spread to other countries. It is hard to banish crises, or even anticipate well where the next problem may occur. Thus, countries like South Africa need to be mindful of these risks, as they enjoy the benefits of globalisation,” she adds.
“Luckily, we have learnt how to make economies more resilient, so that they are less affected by global turbulence and quicker to recover, as has happened in Africa during this global shock. And overall, countries that are open to trade and globalisation have been more successful in the long term in reducing poverty and achieving strong growth.”
During her IMF career, Atkinson has worked on a wide cross section of countries as well as on policy issues in the European, Western Hemisphere, and Policy Development and Review Departments.
She also has held high-level positions in key official and private sector organisations, including at the Bank of England, the United States Treasury and the Council on Foreign Relations.
She further has worked as a journalist for the Washington Post, The Economist, and The Times of London.
Atkinson graduated with a Bachelor’s degree with honours in Philosophy and Economics from Oxford University.
Stef Terblanche
