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
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.