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Turmoil to disrupt Africa's growth

London - Africa's economic growth is likely to slow to 3.7% in 2011 from 4.9% in 2010, disrupted by political unrest and regime changes in North Africa, the African Development Bank (AfDB) said on Monday.

"Serious headwinds weigh on the momentum for expansion in 2011, notably the political events in North Africa and the high fuel and food prices," the bank said on Monday in its annual economic outlook.

"The first quarter of 2011 has been among the most turbulent in Africa's history."

Egypt and Tunisia ousted their presidents this year, political protests took place in several other North African countries and Western governments have become involved in a conflict in Libya.

North Africa is the region likely to suffer the biggest knock, the AfDB said, forecasting growth there to slow sharply to 0.7% in 2011 from 4.6% in 2010, before picking up to above 5% in 2012.

Growth across Africa is expected to accelerate to 5.8% in 2012, but there are risks from the impact of the earthquake and nuclear crisis in Japan, civil war in Libya and post-election conflict in Ivory Coast.

East Africa's economy is expected to show growth of 6.7% this year, from 6.2% in 2010, but West African growth is likely to ease to 6% from 6.7%, due to the Ivory Coast conflict.

Foreign direct investment, one of the few ways to invest in African countries without liquid capital markets, is estimated to have fallen to $50bn to $52bn in 2010 from $59bn in 2009 and a peak of $72bn in 2008.

Oil exporting countries account for 75% of FDI flows, while China is Africa's largest trading partner, the bank said.

High oil prices are boosting the growth of commodity exporters such as Algeria, Angola, Nigeria and Sudan.

But rising energy and food prices are pushing up inflation, which the AfDB sees averaging 8.4% in 2011 and 7.4% in 2012, from 7.7% in 2010.

Africa's average fiscal deficit is expected to increase in 2011 towards 4% of gross domestic product, but decline again to slightly above 3% in 2012.

The report warned governments against using new-found revenues from oil or other resources in rapid spending which could fuel inflation, recommending the use of sovereign wealth funds to conserve wealth for future generations.

Such funds "could potentially play a bigger role for Africa's development but this also requires that their fiscal transparency and corporate governance structure is further improved", the bank said.

The AfDB holds its annual meeting in Lisbon on June 9 to 10, its first in Europe for 10 years.

North Africa will be the main focus for the meeting.

The AfDB last week approved a $500m loan to support Tunisia's interim government, and also said it would lend the country $210m by the end of June to finance infrastructure projects.

Group of Eight leaders have also called for an extension of the European Bank for Reconstruction and Development's mandate to cover the transition of "Arab spring" economies.
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