Food prices could spark protectionism in Africa-IMF

from Reuters

By Daniel Flynn

DAKAR, High food prices are prompting African nations to impose protectionist measures which could reduce the already low levels of trade on the continent and harm its economic growth, an IMF official said on Thursday.

Alex Segura, the International Monetary Fund's resident representative for Senegal and Gambia, said the Washington-based lender was concerned by the destabilising effects of the spike in living costs in Africa this year, after violent protests rocked countries from Mauritania to Cameroon.

Guinea, where more than 130 people were killed in protests last year sparked by high food prices, on Tuesday banned the export of all types of foodstuffs, oil and timber in an effort to stabilise the cost of staple goods. The cost of rice in the capital Conakry has doubled since January.

Segura said the IMF was eager to help governments which cut back unnecessary administrative spending and focused on essential health and education budgets, and urged African nations not to fall back on banning exports of basic goods.

Asked if there was a risk of a wave of protectionism in Africa, Segura replied: "Yes, there are some countries which export products like rice and wheat which have introduced export restrictions in the form of exorbitant taxes on exports."

"This has a double impact: it reduces trade flows, which are an important source of economic growth, and it distorts the normal functioning of the economy."

Despite 14 overlapping trade blocs in Africa, the continent has the lowest internal trade rate of any region in the world: less than a 10th of their total. Companies complain that high customs and poor roads make trade on the continent difficult.

Countries from Senegal to Ivory Coast have slashed import taxes on staples such as rice and cereals, after prices soared due to poor harvests, record fuel prices, and tight international food supplies.

Segura said, however, that governments should think twice about using subsidies, which often do not benefit the poorest. He cited a recent IMF study on Senegal which found that butane gas subsidies had actually been of more benefit to the rich.

GROWTH NOT AFFECTED

While high food and energy prices impacted living standards of the poorest, they had not so far had a heavy impact on economic growth in Africa, undergoing the most sustained period of expansion since independence, Segura said.

In April, the IMF trimmed its 2008 forecast for growth in sub-Saharan Africa by 0.3 percentage points to 6.6 percent.

"Most of the impact of high oil prices has already been absorbed," Segura said. He forecast Senegal's economic growth to rise to 5.3 percent, from 4.1 percent last year, before speeding up to 5.9 percent in 2009.

This remained below the 7 to 8 percent economic growth needed to make inroads into poverty and help the continent achieve the U.N. Millennium Development goals, Segura said.

Long-term structure solutions were needed to tackle food supply and the IMF would be prioritising spending in the agricultural sector, Segura said. A recent World Bank study found agricultural investment was four times more effective in reducing poverty than other areas of the economy.