Light at end of tunnel for Eurozone positive for Africa

The prospects of an economic recovery in Europe – although likely to be slow and drawn out – is good news for Africa.

The Eurozone remains one of Africa’s most important trade and investment partners, and prolonged economic troubles there would negatively impact many of Africa’s agricultural and manufacturing exporters.

The challenges confronting the Eurozone include large amounts of public and private sector debt yet to be refinanced, tight credit conditions, further fiscal austerity and unemployment.

Although Europe faces a tough year, Ernst & Young’s Eurozone Spring Forecast predicts a slow return to growth in 2013.

With a default on Greek sovereign debt negotiated and a second bailout agreed, and assuming that policy-makers continue to keep up the momentum by putting a credible firewall around Spain and Italy, Ernst & Young is forecasting a mild recessionary fall in Eurozone GDP of 0.5% this year. However, 2013 could see Eurozone GDP grow by about 1% before picking up to 2% a year in 2015-2016.

“Despite the turmoil, the majority of large businesses across Europe remain in relatively good financial shape as the past two years have seen them making efficiency savings, improving profit margins and adding cash to their balance sheets. If they have some confidence that stability is returning we could see investment and job creation follow,” commented Mark Otty, Ernst & Young area managing partner for Europe, Middle East, India and Africa.

The Eurozone and Africa

Michael Lalor, director of Ernst & Young’s Africa Business Centre says that Africa should not ignore the opportunities that the Eurozone crisis has opened up to reorientate Africa in the context of shifting dynamics in the global economy. “In the wake of the 2008-2009 global economic crisis, there has been significant growth in trade with and investment from a group of rapid growth markets, led by China and India, that are also now driving global growth.”

“Furthermore, and arguably more importantly, the Eurozone crisis had added impetus to the intra-Africa trade and investment agenda. Even so, there remains significant scope to reduce barriers to and raise levels of cross-border trade and investment throughout the continent,” Lalor added.

He said that Africa should accelerate regional integration and invest in the infrastructure required to boost intra-African trade. A larger and more connected regional market will not only lower dependencies on international trade partners, but will also increase levels of domestically driven growth and diversification.

“Perhaps above all, what the Eurozone crisis has highlighted is the time is ripe for Africa to take ownership and control of its own economic destiny. After a decade of strong and sustained growth, the resilience displayed through the economic crisis, and with a positive long-term growth outlook, African leaders across government and business have an unprecedented opportunity to work together to fundamentally position the continent in the context of the shifting dynamics in the global economy,” said Lalor.