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Chinese engineers assemble steel at a construction site in Sudan’s capital Khartoum, Feb. 16. China’s interests in Africa have multiplied in recent years, with trade rising 10-fold since 2000 to nearly $107 billion last year, and Beijing has been at pains to reassure African nations it will not desert them during the economic slowdown. / Reuters-Yonhap |
 By Elijah N. Munyi
With most economies belonging to the Organization for Economic Cooperation and Development (OECD), including Korea, facing potential contraction in their economies, there has been growing concern that governments in these countries would cut their aid budgets to developing countries.
Internationally, pressure is starting to mount on OECD governments to sustain their pledges for official development assistance (ODA).
As the crisis hits harder, the initial concerns over the impact of the crisis on Africa has tended to be framed mainly in terms of the likely drop in donor assistance due to budget cuts in OECD countries.
As I argue in this paper, this concern is overstated. Contrary to popular emotional notions, aid is marginal to African economic growth and the financial crisis has other far more serious implications for African economies.
The most important link between African growth and the global recession is the movement in the oil price.
For Korean policymakers there is need to understand the implication of the global recession on Korea's resource diplomacy especially with Africa. Overall, a slump in the demand (or price) of major commodities will adversely affect some African countries.
But as I argue, the global economic recession might prove beneficial to a better understanding of African economies in several ways. One, it will highlight the decoupling of African economies from OECD economies.
Secondly it will emphasize the importance of internal sources of African growth. Thirdly and most importantly, it will help in converging economic growth in African countries between the oil exporters and importers as low oil prices ease inflation for importers.
Even in the midst of the economic recession among several OECD economies, the International Monetary Fund (IMF) forecasts that Africa will still grow by 6 percent in 2009. How can this be? One, African economies are increasingly getting decoupled from direct dependence on OECD economies.
Divergence of African exports to East Asia and India means that Africa is no longer too exclusively dependent on Europe or the U.S. While OECD economies remain very important to Africa, the rise of India and China has reduced critical direct dependence on OECD economies.
For 2009, India and China are forecast to grow at 5 percent and 6.7 percent respectively. Although production in the two economies is already cooling, demand for oil has not fallen significantly. Thus, these developing countries are expected to mitigate the fall in demand for African resource exports.
Over the years development cooperation policy and practice for Africa has tended to overstate the contribution of aid to African growth. Yet, empirical evidence for a positive correlation between aid and growth in Africa is not definitive.
This means that even if aggregate aid falls in the next two years due to budget cuts in donor nations, there is likely to be little impact on growth as a result of falling aid.
As Professor William Easterly of New York University has put it, there is an overwhelming confusion between ODA efforts (raising or lowering aid disbursements) and outcome (African growth).
Unfortunately, overstating the importance of aid downplays the role played by internal sources of growth such as improved macroeconomic stability, decent agricultural performance and political stability which have far more impact on African growth.
In fact, it is the impact of the financial crisis on macroeconomic conditions for most African countries that will have the most critical effect in Africa.
The oil driven-economic boom has amplified the aggregated continental success while masking the adverse effect of the high oil price on oil importing African economies. Yet this oil windfall is narrowly concentrated on the 13 oil exporting countries.
Now, the economic downturn has led to the drastic fall in oil prices. Due to the low oil prices, oil exporters in Africa will have reduced export revenues, reduced incoming foreign direct investment (FDI) and consequent deterioration in the balance of payments.
This will result in more stringent fiscal situation with reduced government incomes. Growth for oil exporters will fall. Oil importers on the other hand are in for a big relief. The low oil price will ease inflation and the pressure on the balance of payments.
There is going to ease fiscal conditions. Growth for the two types of economies will thus converge.
The global economic crisis will highlight the divergent effects of the crisis on different African countries. This is important in clarifying that Africa is a continent, not a country. Aggregating African ``growth,'' or ``failure'' or ``conditions'' is not very useful in understanding African economies.
Consequently, a Korea-Africa policy based on aggregated notions of Africa the continent rather than specifics of each African economy is bound to be ineffectual.
Elijah N. Munyi is researcher at the Korea Institute for Development Strategy (KDS). He is a graduate of Yonsei University's Graduate School for International Studies. He can be reached at menyaga2000@yahoo.com
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