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Africa Has Less Room to Offset Europe Crisis, AfDB Says

Europe’s crisis is undermining growth in Africa at a time when governments in the world’s poorest continent are running out of fiscal room to offset the effects, the African Development Bank said.

Europe is casting a “shadow” on Africa’s economic prospects, muting the impact of a recovery in North Africa after uprisings that toppled regimes in Egypt, Tunisia and Libya, the AfDB said in a report released ahead of its annual meeting in Arusha, Tanzania today.

Slower growth in Europe, where a debt crisis that began more than two years ago may lead to Greece leaving the common currency, is curbing demand for African exports such as oil and copper, while crimping investment and economic aid. African governments have less room to maneuver because of inflation pressures, widening fiscal deficits and volatile currencies, the bank said.

“Fiscal deficits and government debts are now above pre- crisis levels which limits the room for fiscal expansion if new troubles hit soon,” it said. “A deeper crisis in Europe would have a direct impact on countries which rely on the European market.”

Africa’s economy will probably expand 4.5 percent this year and 4.8 percent in 2013, faster than the 3.4 percent in 2011, according to the report. The Paris-based Organization for Economic Cooperation and Development and United Nations co-wrote the study.

Europe’s ‘Shadow’

“The shadow comes from a worsening of the debt crisis in Europe causing lower global growth,” the report said. “This would further weaken Africa´s export markets, depress commodity prices and undermine Africa´s recovery.”

African finance ministers and central bank heads are meeting in Arusha this week to discuss how to boost growth. The agenda includes talks on reducing reliance on donor funds, boosting trade within Africa and improving governance.

“Europe continues to be the first partner with Africa and therefore there will be contagion,” Mario Pezzini, director of the OECD Development Centre, said in an interview. The OECD’s studies “have unfortunately confirmed that we are closer to the worst scenarios” about Europe.

Nations including South Africa, Kenya, Uganda and Algeria are not working fast enough to narrow their budget deficits, leaving little room for governments to use fiscal policy to stimulate their economies, the report said.

Libya, Egypt

“The pace of deficit reduction is, however, too slow or non-existent so that by the end of 2013 public sector deficits are likely to be higher than before the 2009 global crisis,” the report said.

Inflation, which has soared in East Africa and destabilized currencies in the region, will probably slow to 8.4 percent this year in Africa and 7.3 percent in 2013, compared with 8.5 percent in 2011, the report said.

Libya’s economy will probably expand 20.1 percent this year, the fastest in the region, as oil production resumes after the uprising that ousted Muammar Qaddafi last year, the report said. Egypt, the most-populous nation in North Africa, will expand 0.8 percent as the economy struggles to regain its footing after President Hosni Mubarak was overthrown last year. The North African economy will rise 3 percent, the slowest of all regions in Africa, according to the report.

Oil Producers

South Africa, the continent’s largest economy, will expand 2.8 percent this year, down from 3.1 percent in 2011, the report said.

Growth in West Africa will be led by oil producers such as Nigeria, Ghana and Niger, as well as nations recovering from conflicts, including Ivory Coast and Liberia, the AfDB said. Niger’s economy will expand 11.2 percent this year, the highest in the region.

Rwanda’s estimated expansion of 7.6 percent will lead growth in East Africa, with the region expected to expand 5.1 percent this year, according to the report. Kenya’s economy, the biggest in East Africa, will probably expand 5.2 percent in 2012.

Sub-Saharan Africa’s economy is forecast to grow 5.4 percent this year from 5.1 percent rate in 2011, according to the report.

To contact the reporter on this story: Andres R. Martinez in Johannesburg at amartinez28@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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