However, global economic growth is still expected this year, led not by the US or EU, but by China and other large emerging economies. Of course, these economies are affected by the global economic crisis, but they are still growing due to increasingly developed domestic markets. As such, 2009 will mark the first year in which developing countries will account for 100% of global economic growth.
For Africa, this bodes well, as China and other industrialising countries such as India will continue to demand exports of raw materials, commodities, energy, etc. Although the demand will not be as large as that which fueled the recent commodity boom, there is still a tremendous appetite coming particularly from China.
This is evidenced by China's recent investments of around US$1 billion for Australia's Midwest, a steel and iron producer, US$2 billion for Oz Minerals, the world's second largest zinc miner, nearly US$20 billion for shares in Rio Tinto, including its mining operations around the world, and US$25 billion invested in Russia in exchange for 20 years of oil supplies.
The terms of trade improvement, generated by rising export to import prices, seen in much of sub-Saharan Africa, as a result is likely to continue, though at a more moderated pace. The challenge for African nations is how to transform these real income gains into sustainable development. This will centre on two main factors.
The first is to foster the process of industrialisation so that modernisation occurs, rather than just resource extraction, which does not help the country move up the value chain.
Second, prudent macroeconomic management and maintaining a competitive exchange rate will be important, as robust exports can cause currency appreciation that erodes the competitiveness of other goods and services sold in global markets.
Finally, countries that benefit from globalisation are those which manage the process, including the terms in which foreign investment are made.
The last few years has seen robust economic growth in many African countries, in contrast with the stagnation evident in much of the previous three decades. There may be an asset bubble that has burst and caused a global financial crisis, but the real economy gains are evident in Africa and in other emerging economies. Seizing this opportunity through gaining a better understanding of the changed global economic structure will be crucial for governments and businesses alike.
