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Economic Report on Africa 2004

Unlocking Africa’s Trade Potential

image of Economic Report on Africa 2004

The Economic Report on Africa is an annual series that reviews the continent’s economic performance and near-term prospects. This year’s report’s main conclusion is that trade liberalization alone will not boost growth and poverty reduction in Africa. In 2003, Africa was the second fastest growing developing region, yet, only 5 countries achieved the 7% or higher growth rate required to reach the Millennium Development Goal of halving poverty by 2015. FDIs inflows continued to increase but still remain largely concentrated in the natural resources sector. Although the regional outlook for 2004 is positive, with growth projected to accelerate, there are still several downside risks to be faced.

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Fiscal implications of trade liberalization

Trade liberalization is a potential source of fiscal instability for African countries because of their high dependence on trade taxes for public revenue. The policy challenge is how to maintain fiscal stability while liberalizing trade. For African governments with inefficient tax administrations, and for those that still rely heavily on trade taxes, the problems can be severe. During the late 1990s many African countries struggled to maintain sustainable fiscal positions even when their government revenues were rising. At the same time, they pushed forward with trade liberalization and their trade tax revenues as a percentage of GDP declined.

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