Economic Report on Africa 2004: unlocking Africa's trade potential

In 2003, Africa was the second fastest-growing developing region, with a growth rate of 3.8 %. Higher oil prices and production, rising commodity prices, increased foreign direct investment (FDI), backed up by improved weather conditions underpinned this encouraging growth. Yet, only 5 countries achieved the 7% or higher growth rate required to reach the Millennium Development Goal of halving poverty by 2015; 40 registered positive but below 7% growth rates, while 7 registered negative growth rates. African countries continued to exhibit good macro-economic fundamentals by keeping fiscal deficits under control, despite the challenge to increase spending to meet poverty reduction goals. FDI inflows to Africa increased by 27%, compared to the previous year. though still largely concentrated in the natural resources sector, the service sector is continuing to become more attractive to foreign investors. The regional outlook for 2004 is positive, with growth projected to accelerate to 4.4%. There are several downside risks though. The recovery in the global economy is marred by significant international imbalances in terms of the large current account deficit of the United States and the matching surplus concentrated in a few countries. Adjustment, through sharp depreciation in the US dollar, could put a stop to this recovery. Protectionist sentiments arising, particularly in the form of cotton subsidies granted by the US and other industrial countries, have damaged the economic prospects of cotton-producing West African countries. Further protectionist measures could seriously harm Africa's medium-term prospects.