TWN Info Service on Finance and Development
(Apr11/07)
26 April 2011
Third World Network
African finance ministers respond to impacts
of commodity price spikes, call for diversification of their economies
17 April, Washington, D.C.
(Bhumika Muchhala) - During the recent Spring Meetings of the International
Monetary Fund (IMF) and World Bank, African finance ministers outlined
policy measures to respond to impacts of commodity price spikes, and
call for diversification of their economies
The Chairman of the African Caucus of finance
ministers delivered a statement on current food and commodity price
spikes and macroeconomic priorities for sub-Saharan African countries. The
statement said that soaring food and fuel prices requires “appropriate
domestic policies” in Africa and that this “warrants increased IMF financial support.”
It stated that countries should stand ready to respond to commodity
price shock, and that for food prices in particular, “targeted measures
are the preferred approach to support the most vulnerable groups.”
Such targeted measures include temporary price
subsidies for staple food items consumed by most vulnerable population;
conditional cash transfers; and, the direct provision of food, for example
at schools. However, the statement added that "generalized fuel
price subsidies should be avoided, as the benefits…accrue mostly to
higher-income groups, encourage excessive consumption, and are very
costly fiscally.”
While fiscal space in most African countries is
“particularly limited,” policy priorities should include domestic revenue
mobilization and a re-prioritization of expenditure. Monetary policy
should focus on addressing the immediate impact of higher international
commodity prices, although central banks should strive to prevent an
increase in domestic inflation due to commodity price spikes.
The statement also said that fiscal and monetary
policies should work in conjunction with "prudent public wage policies,”
while avoiding price controls which "exacerbate scarcity"
and avoiding export bans which "reduce incentives for domestic
producers".
In a press briefing during the Meetings, four
African finance ministers from Lesotho, Chad, Zimbabwe and Togo stated
that “diversification into more labor-intensive industry would make
Africa’s growth less volatile and more inclusive”, according to a 16
April report posted on the IMF website
(http://www.imf.org/external/pubs/ft/survey/so/2011/car041611a.htm).
Lesotho’s
finance minister, Timothy Thahane, said that the global financial crisis
had spread to Africa though commodity
exports, which spelled out a lesson to the continent that job creation
suffers from commodity price volatility. He said that Africa’s
“economic strategy going forward should be to diversify” and that the
focus must be on “long-term, high and sustainable growth; the creation
of jobs; and on social provision.”
Chad’s
finance minister, Gata Ngoulou, noted that Africa typically exports raw materials that are processed
elsewhere. “We cannot count on commodity exports as a proper base for
our economies,” he stated, as growth remains dependent on stable prices
for export commodities.
Zimbabwean finance minster, Tendai Biti, said
the problem with Africa’s growth is
that “it is not inclusive growth.” He noted that the mainstay of Zimbabwe’s growth
is centered on the mining industry, which is “a byproduct of the commodities
boom that will not touch the peasant farmer in the corner of the country.”
He emphasized that the national strategy needs to be “translated into
growth with jobs.”
Togo’s
finance minster, Adji Otteh Ayassor, called for a new development model
for Africa, stating that “most of our
economies depend on agriculture or mining—there is little manufacturing
or processing… this is a debate that we should start now.”
Togo’s
finance minister went on to say that his government in particular planned
to focus on infrastructure investment. “We want to expand our port facilities
to respond to ever-growing demand. We will have to build capacity in
transportation.” Boosting investments in large infrastructure projects
was particularly important, he noted, for landlocked countries that
need move products to markets.
The ministers welcomed what they termed a “new
energy” in the African continent, which is emerging from greater political
stability through increasing democratization in African states and improved
macroeconomic management.
Chad’s
finance minister, Gata Ngoulou, added that Chad’s economic
rebound was marked by higher growth and lower inflation which was due
to good rainfalls and an exceptional harvest. However, he cited government
policies as playing a major role in boosting economic performance, as
well as major infrastructure projects in oil refiners and electric power
generation.
Zimbabwe's
Minister Biti said that there is a “clear link between growth rates
and respect for the rule of law, elections, and respecting the people’s
will.” He also stressed the importance of food security, saying
that “Africa needed a uniform attitude
toward genetically modified crops and should also boost its agricultural
mechanization.”
The Ministers welcomed Chinese investment in high-technology
sectors in Africa. Finance minister Ayassor of Togo said that his country
is “benefiting from Chinese financing and technology transfers in its
communications projects.” Finance minster Ngoulou of Chad said that
Chinese-financed projects have improved national infrastructure which
“would not have met the criteria of the country’s traditional partners.”
Chad's
Minister Ngoulou added that he was not as concerned as he was in the
past about national debt. “Chinese debt is now useful debt, not like
in earlier decades when it was mostly wasted. Now we do not fear that
these projects will not be repayable,” he said.+
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