Strong growth prospects and double-digit returns for investors will help shield Africa from the debt crisis enveloping the western world, the chief economist of the African Development Bank said.
But if the turmoil in Greece tips developed countries into another full-blown recession, Africa will be hit via a downturn in global trade, falls in commodity prices and a drying up of credit and foreign aid, Mthuli Ncube told Reuters.
“There are downside risks: a slowdown in the global economy and a slowdown in China which is driving the sentiment on commodity prices upon which some of the African countries depend,” Ncube said on the sidelines of the XIth International Economic Forum on Africa in Paris, Reuters reports.
The International Monetary Fund on Tuesday cut its 2011 growth forecast for Sub-Saharan Africa to 5.2 percent from 5.5 percent, warning that a faltering European and U.S. recovery could undermine prospects for exports, aid and foreign capital
However, Ncube said that if the debt crises in developed countries remain contained, he expects recoveries in conflict-hit Egypt, Tunisia, Ivory Coast and even Libya to push average growth in Africa to 6 percent next year.
“I think that because of that Africa is attractive (for investors) and therefore there’s enough cushion to do well even under the current circumstances,” he said.
With global leaders battling to save Greece from defaulting on its debt, advanced economies are under heavy pressure to cut their ballooning debt levels, leading to market turmoil and stringent budget cuts that are crimping economic activity.
The IMF on Tuesday cut its growth forecasts for the euro zone to 1.6 percent from 2.0 percent for 2011 and to 1.1 percent from 1.7 percent for 2012, and said investors were losing faith in the ability of European policymakers to cope with the crisis.
However, Ncube said many African countries have improved their economic management and diversified their economies, while a growing middle class is bolstering demand, leaving the region less vulnerable than expected.
“Domestic factors in the region are really giving Africa shock absorbers to absorb the impact of the crisis.”
Investors in African can get returns topping 25 percent per year, a goldmine that can keep foreign capital flowing into the region even as developed economies falter.
“Twenty five percent, that’s really the minimum you’re getting in Africa. Just look at the returns for mobile telephone companies. The African returns for them have been very high in Nigeria, South Africa, everywhere,” Ncube said.
One of the problems holding investors back is the perception that risk levels are high across the region, due to unrest and corruption. But Ncube said the African Development Bank has a role to play in educating the world in the reality of that risk.
“Every country is different, and that should be understood by investors. But it takes time to understand. What is happening in Ivory Coast is not happening in Zambia,” he said.