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Growth in Europe has slowed sharply, and the U. As growth has slowed, so has trade. World trade expanded by nearly 7 percent a year in the decade between and , but since the pace has fallen by more than half to just 3 percent a year. The changes are not all negative: With growth slowing, commodity prices have dropped significantly. The prices of corn, copper, and cotton have all fallen by more than 20 percent since , and iron ore and oil prices have dropped more than 50 percent.

These declines have had a wide-ranging impact on export earnings, budget revenues, investment, employment, exchange rates, and foreign exchange reserves. Correspondingly, growth in sub-Saharan Africa slowed from 5 percent in to 3. Once again, there is wide variation, with some countries hit hard and others actually benefiting from price changes see Chart 3.


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Oil exporters have seen the biggest drop in growth, alongside iron ore, copper, and diamond producers. Angola, Liberia, and Zambia also have been hit hard. By contrast, most sub-Saharan African countries are oil importers, and they have benefited from the drop in fuel prices. Similarly, many countries are food importers and have been helped by the decline in prices for rice, wheat, and other food products. Countries with more diversified exports are experiencing a more moderate impact on export prices, coupled with gains on the import side.

Kenya, Mozambique, Rwanda, Tanzania, and Uganda are still expected to grow by 5 percent or more this year. World Bank researchers estimate that infrastructure deficiencies in Africa have reduced growth by more than 2 percentage points a year. Only about one-third of rural Africans live within two kilometers of an all-season road, compared with two-thirds in other regions.

And while many parts of Africa have abundant water, the lack of water storage and irrigation facilities undermines economic activity. The impact of these shortages will only grow as climate change advances.

Demographic shifts present another major test. Nigeria alone could have million people by , more than double its current size. Urban populations will grow especially quickly, posing major challenges in job creation, infrastructure, education, health, and agricultural production. But demographic shifts also provide an opportunity: Larger urban populations, a growing share of working-age people, and increased female labor force participation all present opportunities to expand manufacturing and services—much as happened in Asia in recent decades—especially when accompanied by investment in infrastructure and education.

Perhaps the most difficult challenge of all will be climate change. Temperatures in sub-Saharan Africa are expected to rise between 1. There will be myriad effects, including a rise in sea level in coastal regions, lower water tables, more frequent storms, and adverse impacts on health. Arguably worst will be the blow to output and labor productivity in agriculture, the dominant source of income in Africa, especially for the poor.

But once again, the effects are likely to vary widely: Continued long-term progress through this challenging period calls for action in four areas.

First up is adroit macroeconomic management. Widening trade deficits are putting pressure on foreign exchange reserves and currencies, tempting policymakers to try to artificially hold exchange rates stable. Parallel exchange rates have begun to emerge in several countries.

But since commodity prices are expected to remain low, defending fixed exchange rates is likely to lead to even bigger and more difficult exchange rate adjustments down the line. As difficult as it may be, countries must allow their currencies to depreciate to encourage exports, discourage imports, and maintain reserves. At the same time, budget deficits are widening, and with borrowing options limited, closing the gaps requires difficult choices.

At the core will be the ability to mobilize domestic resources and increase tax revenues, which will allow countries to control deficits while financing critical investments in roads, power, schools, and clinics. The amounts involved are significant: In some countries, it might make sense to augment domestic revenue with borrowing, especially for priority infrastructure projects.

But the burden of debt is accelerating, interest rates are rising, and spreads on sovereign bond issues in Africa are climbing quickly—putting the brakes on further borrowing. Second, countries must move aggressively to diversify their economies away from dependence on commodity exports. Governments must establish more favorable environments for private investment in downstream agricultural processing, manufacturing, and services such as data entry , which can help expand job creation, accelerate long-term growth, reduce poverty, and minimize vulnerability to price volatility.

The effects of the current commodity price shocks are so large precisely because countries have not diversified their economic activities.

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The exact steps will differ by country, but they begin with increasing agricultural productivity, creating more effective extension services, building better farm-to-market roads, ensuring that price and tariff policies do not penalize farmers, and investing in new seed and fertilizer varieties. Investments in power, roads, and water will be critical. As in east Asia, governments should coordinate public infrastructure investment in corridors, parks, and zones near population centers to benefit firms through increased access to electricity, lower transportation costs, and a pool of nearby workers, which can significantly reduce production costs.

Financing these investments will require a deft combination of prudent borrowing mixed with higher domestic revenue. At the same time, the basic costs of doing business remain high in many countries. To help firms compete, governments must lower tariff rates, cut red tape, and eliminate unnecessary regulations that inhibit business growth.

Now is the time to slash business costs and help firms compete domestically, regionally, and globally. The increases in school enrollment and completion rates, especially for girls, are good first steps. But school quality suffers from outdated curricula, inadequate facilities, weak teacher training, insufficient local control, teacher absenteeism, and poor teacher pay. The coming years call for dramatic improvement in quality to equip students—especially girls—with the skills they need to be productive workers.

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Finance & Development, June - Crisis Resolution and Private Sector Adaptation

Robust efforts are needed to improve access to health facilities, train providers, bolster the delivery of basic health services, and strengthen health systems more broadly. Fourth, continued long-term progress requires building institutions of good governance and deepening democracy. The transformation during the past two decades away from authoritarian rule is remarkable, but it remains incomplete.

Better checks and balances on power through more effective legislative and judicial branches, increased transparency and accountability, and strengthening the voice of the people are what it takes to sustain progress. Some nondemocratic countries have done well, but the majority of authoritarian governments have been governance disasters.

Finally, the international community has an important role to play. Foreign aid has helped support the surge of progress, and continued assistance will help mitigate the impacts of the current slowdown. Larger and longer-term commitments are required, especially for better-governed countries that have shown a strong commitment to progress. To the extent possible, direct budget support will help ease adjustment difficulties for countries hit hardest by commodity price shocks.

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In addition, donor financing for infrastructure—preferably as grants or low-interest loans—will help build the foundation for long-term growth and prosperity. Meanwhile, this is not the time for rich countries to turn inward and erect trade barriers. Rather, wealthy nations should encourage further progress and economic diversification by reducing barriers to trade for products from African countries whose economies are least developed. It is easy to be pessimistic in the current global economic environment. But of course, it is always easy to be pessimistic.

The Global Demographic Transition. Fostering Growth in Europe Now. Reforming China's Public Finances. World Economic Outlook, May Asset Prices and the Business Cycle. Frontier and Developing Asia: The Next Generation of Emerging Markets. Proceedings of a Symposium held in Washington, D. Structural Adjustment and Macroeconomic Policy Issues. Understanding Growth and Poverty: Theory Policy and Empirics.

Nallari Raj; Griffith Breda. Policies for African Development: From the s to the s. Reinvigorating Growth in Developing Countries: Lessons from Adjustment Policies in Eight Economies. Adjustment and Financing in the Developing World: The Role of the International Monetary Fund. Power and Imbalances in the Global Monetary System. The Financial System Under Stress. The Restructuring of Capitalism in Our Time.

Growth and Policy in Developing Countries. Tax Policy Reform and Economic Growth. Sub-Saharan Africa May Finance and Development, June Finance and Development, September How to write a great review. The review must be at least 50 characters long. The title should be at least 4 characters long.

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