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WB predicts economic growth in Africa

Capital flows into Africa are predicted to grow significantly in 2012, as investors seeking higher returns...

Johannesburg Securities Exchange. Picture taken on 8 August 2008. Picture: Taurai Maduna/Eyewitness News

Capital flows into Africa are predicted to grow significantly in 2012, as investors seeking higher returns out of Europe look at the continent for better opportunities in infrastructure projects, a World Bank's senior official said on Friday.

The Washington-based development lender expects economic growth on the world's poorest continent to be 5.3 percent this year and 5.6 for 2013, despite increased concerns about the euro zone debt crisis, its main export market.

Marcelo Giugale, Africa's Poverty Reduction and Economic Management director at the bank, said that the appreciation of the region's currencies against the dollar was an indication of increased foreign direct investment (FDI).

"Most currencies in Africa have appreciated this year, which means investors expect some of those countries to do very well," Giugale told Reuters in an interview.

"There is a boom in urban construction, mainly from repatriated money. The amount of offer that Africa is getting to build its infrastructure, which are long haul investments, is clearly increasing."

For instance, the government in Tanzania said it plans to build a 300 MW gas-fired power plant in the south of the country during the 2011/12 financial year, which runs until June 30, 2012, to plug energy shortages, after securing a loan from China. The plant is estimated to cost $684 million.

Tanzania says the project would also involve construction of a 1,100 kilometre power transmission line from Mtwara in southern Tanzania to Singida region in the centre of the country.

In neighbouring Uganda, British oil company Tullow Oil Plc has a $10 billion plan to start pumping oil from huge reserves discovered on the shores of Lake Albert. Early production is scheduled to start in 2013, before ramping up to a major production phase in 2016.

Frontier African currencies came under pressure in 2011 mainly due to widening balance of payments as crude prices soared on the global markets, pushing consumer prices higher, while central banks lagged behind the curve in arresting inflation.

FDI into Africa was forecast by Ernst & Young, to reach $150 billion by 2015 from $84 billion in 2010, driven by strong growth in new projects.

Giugale said the expected discovery of more natural resources like oil and precious metals, coupled with high commodity prices on the global market would wean the continent off export dependence on European markets.

"Previously a cough in the rich world would cause pneumonia here. But not any more ... there is resilience and spare capacity," said Giugale.

He cited lack of integration and barriers to trade between African countries as a hindrance to growth in the region, which could benefit from free flow in capital and human resource across borders.

Trade among African countries remains low despite individual countries increasing trade with the outside world, with some African countries sending up to 80 percent of their exports to with non-African countries.

"If you were to remove these barriers you will be capturing billion of dollars in commerce and millions of Jobs," Giugale said.

Timeline

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