Africa Braces for Fall on Exports and Rising Food Prices

By PASCAL FLETCHER | REUTERS | JULY 31, 2012

Rising food prices could hit commodity producers in Africa with a dangerous “double whammy” when combined with an economic slowdown in Europe and China reducing African exports of oil and raw materials, a leading African economist said on Tuesday.

Mthuli Ncube, Chief Economist and Vice President of the African Development Bank (AfDB), saw the threat of a food price spike casting a shadow over an otherwise positive growth outlook for Africa that will outpace much of the rest of the world.

“Certainly, there is a lot of reason to worry,” Ncube told Reuters, recalling a food and fuel prices squeeze in 2008 that touched off social unrest and food riots in several African nations and also directly affected the continent’s growth.

The 2012 African Economic Outlook produced by the AfDB with other international institutions foresees Africa’s growth accelerating to 4.5 percent in 2012 from 3.4 percent in 2011 in a display of healthy resilience in tough global conditions.

But the World Bank warned on Monday that a worrying broad-based rise in grain prices fuelled by a severe drought in the U.S. Midwest would hurt the world’s poor, including those in the world’s least developed continent, Africa.

“It is a threat … if they (the food prices) keep rising, again we will have social upheaval that will threaten economic growth in Africa,” Ncube said in an interview on the sidelines of a youth employment promotion event in Johannesburg.

Another global food price spike would squeeze both net food importers in Africa and combine with the euro zone crisis in Europe and a slowdown in China’s growth to negatively impact African exporters of oil and other commodities.

“That then becomes a dangerous ‘double whammy’,” Ncube said.

It was estimated that a one percent drop in Europe’s GDP for example would shave half a percent off Africa’s growth.

Ncube added however that the looming food price squeeze could be less severe than in 2008, when it was accompanied by a damaging parallel rise in oil and fuel prices, growing use of biofuels and bad weather.

This sparked violent food riots in African states like Egypt and Cameroon, as well as elsewhere.

Ncube believed too that governments and global institutions were now more aware and better prepared to deal with a fresh food prices crisis. “The world knows what could happen … there is a better crisis response preparedness,” he said.

The AfDB, for example, would be ready to swing into action to financially support governments struggling to cope with sharply higher food import bills and budget crunches.

“PAINFUL SLOG” TO DIVERSIFY

Despite Africa’s comparatively strong economic expansion rates, the continent was experiencing “jobless growth”, particularly in relation to its huge reservoir of unemployed youth, Ncube said.

Youth represented 60 percent of Africa’s unemployed, and despite recording world-topping growth rates between 2000 and 2008, the continent was failing to create the number of jobs necessary to absorb the 10-12 million young and increasingly educated people entering the labor market each year.

Ncube said a major obstacle to more job creation was the persistence of what he called “one-sided economies” in Africa that exported oil and raw materials instead of moving decisively to diversify into job-multiplying manufacturing, commercial agriculture or agro-processing.

“It’s a painful slog to diversify,” he said.

“We need entrepreneurs to do it. We need to spend the time to build that business culture, the entrepreneurs,” he added.

Ncube identified efficient commercial farming in particular as a “missed opportunity” in Africa where, despite an abundance of fertile land, complex social and political issues of land ownership and title were still hampering farming development.

“Africa hasn’t cracked this yet,” he said.