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August 7, 2012

Latest Posts from Economist's View

Latest Posts from Economist's View

Posted: 17 Jun 2012 02:43 AM PDT
"In previous global downturns, sub-Saharan Africa has usually been badly affected—but not this time around":
Africa and the Great Recession: Changing Times, by Antoinette Sayeh, iMFdirect: The world economy has experienced much dislocation since the onset of the global financial crisis in 2008. ... But in sub-Saharan Africa, growth for the region as a whole has remained reasonably strong (around 5 percent)...
Of course,... not all economies have fared equally well. The more advanced economies in the region (notably South Africa) have close links to export markets in the advanced economies, and have experienced a sharper slowdown, and weaker recovery, than did the bulk of the region's low-income economies.  Countries affected by civil strife (such as Cote d'Ivoire, and now Mali) and by drought have also fared less well...
So why has most of sub-Saharan Africa continued to record solid growth against the backdrop of such a weak global economy?  And can we expect this solid growth performance to continue in the next few years?
First... As we show in the latest IMF Regional Economic Outlook for Sub-Saharan Africa ... the region has been growing consistently strongly for over a decade.  ... This solid growth record has been supported by ... significantly less civil conflict, the generally favorable commodity price developments benefiting Africa's natural resource exporters; and the extensive debt relief provided to most highly-indebted poor countries. But I would ascribe key importance to sound policy choices by African governments – both in terms of pursuing appropriate macroeconomic policies and pressing ahead with important reform measures.
Specifically, economic policies in the last decade have been directed firmly toward economic stability and market liberalization. Inflation has been tamed, foreign reserves have risen, and debt burdens have been reduced. Fast-growing export markets in Asia have been tapped. The result has been rising investment—domestic and foreign—the deepening of financial sectors, and stronger productivity growth.
Second, sub-Saharan Africa has been partially insulated from the adverse cyclical effects of the Great Recession because of a number of key factors.  Commodity prices for African natural resources have remained relatively high to date, sustained by the continued strong growth of major emerging market economies, most notably China.  African banking systems have not experienced the severe financial stresses recorded in the advance economies... And African policymakers were able to ease budgetary policies to support economic activity during this crisis, instead of being forced to cut outlays because of severe borrowing constraints as occurred in past downturns.
Looking ahead In 2011, output growth in sub-Saharan Africa averaged 5 percent. In 2012, we project that it could be a touch higher...
Not that everything is rosy. Unacceptable levels of poverty and poor social conditions still plague the region. Employment growth lags behind most emerging markets, with much of the growth still in agriculture and traditional services. Progress toward the Millennium Development Goals is too slow. And of course, with European finances still uncertain and geopolitical uncertainty troubling oil markets, the world economy could still take another turn for the worse. A resumed global downturn would hit African exports, investment, tourism, remittances, and aid flows to varying degree – slowing the pace of regional growth for a period but not derailing it over the medium term. ...
Longer-term development Lastly, but crucially... How does sub-Saharan Africa keep up its good growth performance? Mainly, I think, by ... maintaining prudent macroeconomic policies and improving the business climate further. It also requires broadening the revenue base and modernizing public financial management so that essential spending—including on infrastructure and public services—can be financed.
It is also vital that we keep a focus on the young and on inclusive growth. Better education, robust health, and realistic job opportunities are, in the long run, truly the only secure foundations to sustained prosperity.
Posted: 17 Jun 2012 01:17 AM PDT
Will then discovery of oil in the Turkana region of Kenya lead to civil conflict that rips the country apart?:
Oil and Isolation, by Juliet Torome, Commentary, Project Syndicate: In Kenya, there is a running gag that sums up how far away the Turkana people live from the rest of us. When a Turkana man leaves for the capital, Nairobi, the joke goes, he tells his family, "I'm going to Kenya." ...
The Turkana people are, as the joke suggests, as far away from Nairobi as one can be without being foreigners. For this reason, we know very little about them. In schools, we learned about them only within the context of the Leakey family's decades-long work excavating the Lake Turkana basin in search of fossils of humans' ancestors. This could be one reason why Kenyans have historically looked at the Turkana people as archaic beings, millennia away from "civilization" and with different needs from most of the country.
The lack of adequate infrastructure in the Turkana region is evidence of this. Unlike the Maasai, the Turkana inhabit a region that, until now, was of little or no value to the country. There are no wild animals to attract tourists, and, although the Turkana, like the Maasai, have preserved their indigenous culture, they are not renowned around the world, perhaps because of their distance from Nairobi. ...
The discovery of oil presents Kenya with a rare opportunity to end the Turkana community's marginalization. Discussion of how the oil exploration and extraction will proceed needs to start now, and the health of the environment surrounding the Turkana people must be paramount. ...
Some of the precautions... to safeguard ... welfare include establishing a regulatory body that fosters transparency in contract negotiations; balancing oil production with conservation of the area's unique biodiversity; enforcing high standards of corporate responsibility; and regulating land sales to prevent conflicts. Finally, the government should ensure that Turkana people are trained to understand and participate in the new sector.
If Kenya approaches oil exploration and extraction ... and fails to implement these common-sense recommendations, a few years from now Kenyans might be sorry that oil was ever found. Indeed, Kenya could end up with a conflict similar to the one in Nigeria's Niger Delta, where local people took up arms to fight the oil industry's degradation of their environment.
Unfortunately, the foundation for such a conflict has already, sadly, been laid. Many people in the Lake Turkana region are already armed with AK-47s and other weapons originally intended for protection from cattle rustlers. If Kenya's government fails to protect the Turkana from the oil companies as well, its people might well start shooting.
Posted: 17 Jun 2012 12:06 AM PDT
Posted: 16 Jun 2012 01:18 PM PDT
Tyler Cowen:
Broken Trust Takes Time to Mend, by Tyler Cowen, Commentary, NY Times: president Obama caused a stir recently when he said that "the private sector is doing fine" and pinned many of the nation's economic troubles on a decline in public-sector employment. He cited some interesting numbers, but he didn't draw the right lesson — namely, that America is witnessing a collapse of trust in politics, including the shaping of its broad economic policy. 
Since Mr. Obama took office, 780,000 private sector jobs have been created, while the number of public sector jobs has fallen by about 600,000, mostly at the state and local level. A quick look might suggest that we need only to bolster the number of public sector jobs to have a healthier economy, but there is a deeper way to think about the problem.
State and local governments are controlled by politicians and, indirectly, by voters. And for better or worse, those voters have lost faith in the social returns of these jobs and our ability to afford them. The voters have responded by looking to cut expenses, and they've chosen state and local government employment as a target. ...
No time to comment -- will leave that to you.
Posted: 16 Jun 2012 09:14 AM PDT
Calculated Risk says all eyes are on Europe, but "US data was weak again":
US data was weak again. Retail sales and industrial production declined, consumer sentiment was down, and initial weekly unemployment claims increased. And the NY Fed manufacturing survey showed slow expansion in June. However inflation appears to be falling and this increases the possibility of further Fed policy accommodation at the FOMC meeting next week.
Wouldn't it have been nice if monetary and fiscal policy authorities had insured against problems back when it could have done some good (the "wait and see" approach puts policymakers far behind events given the lags in the effects of policy changes)? I can dream, can't I?

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