The BRICs, Not the First World, Spearhead Global Recovery: Although the World Is Well on Its Way to Recovery Following the Global Economic Crisis, Poorer Nations in Africa, and Elsewhere, Can Expect a Rough Ride as Donor Commitments Reduce. Africa's Best Strategy in the near Future Is to Look to the Emerging Markets, Rather Than Their Traditional Trading Partners, for Essential Growth
Siddiqi, Moin, African Business
Emerging economies, led by Brazil, Russia, India and China, are reviving economic activity and trade after a dreadful 2009 when world merchandise trade volumes plunged 18%, the steepest drop since the 1930s' Great Depression. This demonstrates the rapid transition of economic power from the North to the South. The brighter prospects spearheaded by the emerging economies is good news for commodities and investors recovering from deep global recession.
Africa can benefit from stronger ties, in particular, with Developing Asia, where real GDP growth in 2010 is forecast by the IMF at a robust 8.4%, compared to the sluggish 2.1% for the Organisation for Economic Cooperation and Development (OECD) economies, which are troubled by high unemployment, swelling public debt and weak financial sectors. However, in 2008 (the latest year for which figures are available), African exports to advanced economies were worth $300bn against $61bn to Asia, of which China accounted for almost $50bn.
Dominique Strauss-Kahn, managing director of the IMF says the global economy is rebounding faster than expected, but that the recovery is fragile. "Domestic demand, mostly in advanced countries, is still driven by the public sector stimulus." The world economy is witnessing a multi-speed revival with emerging countries, mainly in Asia, having recovered almost fully. He noted Asia was leading the way.
The Bretton Woods Organisations differ, however, in their projections. The World Bank envisages global GDP recovering to 2.7% after contracting 2.2% in 2009, whilst the IMF predicts a decent 3.9% expansion this year. Both anticipate developing nations to outgrow their OECD counterparts. The former should grow by 5-6%, surpassing the projected 2% growth (at best) for advanced economies. Due to the anaemic performance in mature markets, policy makers face challenges as they seek to unwind the 'extraordinary' stimulus measures that prevented meltdown in financial markets. The World Bank agrees: "The strength of the recovery will depend on consumer and business-sector demand picking up and the pace at which governments withdraw fiscal and monetary stimulus," and adds, "If this is done too soon, it might kill the recovery; yet waiting too long might reinflate some of the bubbles that precipitated the crisis."
Strauss-Kahn echoed this sentiment by saying: "We must complete the global project to address the failings in regulation, economic policy, and governance that lay behind the crisis."
Weathering the storm
Stronger economic frameworks and timely policy responses enabled the developing world to withstand external shocks. The African countries that experienced a slowdown are well placed to recover. Trade slump was less noticeable in Asian countries, as China's fiscal stimulus package--worth $575bn (over five quarters)--is benefiting the region.
Much of that stimulus has led to higher imports of raw commodities and investment goods. China, which could become the world's No.1 economy by 2040, is predicted to surge at 10% this year, slowing slightly to 9.7% in 2011. India too is emerging as a regional powerhouse thanks to skilful macro-management and its industrialisation drive.
Commodity markets are reaping the benefits of the impressive Asian revival and improving global conditions, despite generally high inventories. Energy and metals prices (especially copper) rose faster than prices of food or agricultural raw materials. Future spot prices derived from key commodity futures options indicate firmer prices in 2010/11, but the probability of renewed price spikes, as in mid-2008, appears remote -unless an unforeseen supply crunch leads to a rapid drawdown of stocks. Commodity demand in developing nations is more income elastic than in the Western world (i.e. demand rises in tandem with income growth). But rallying commodity prices could stifle timid upturns in Europe and Japan. …