Africa currency management improved - World Bank

| Wednesday October 13, 2010 00:00

World Bank MD Ngozi Okonjo-Iweala said, however, that rising capital inflows could become a concern as African countries attract more money from short-term investors seeking higher returns.

Global currency tensions are at the centre of discussions at meetings of the International Monetary Fund and World Bank in Washington this weekend.

'The continent has implemented remarkably sensible policies. Fiscally, they've been responsible. Exchange rate management has been reasonable. People have learned the lessons of overvaluation in the past,' Okonjo-Iweala told Reuters. 'Part of the new resilience that they are showing is that they understand that flexibility with the exchange rate is part of the package.'

South Africa, the continent's biggest economy, is concerned by the strengthening of its rand - up nearly 30 percent since the start of 2009 - but other African countries have seen less impact.

Okonjo-Iweala said competitiveness could suffer in the CFA zones of largely former French colonies in West and Central Africa, where currencies are pegged to the euro.

'That is one group that perhaps they need to watch how they manage, but I would say that in the rest of the continent, they've learned lessons,' she said.

Africa has recovered far more quickly than from previous global crises, with annual growth close to the levels of around 5 percent it had enjoyed before this downturn, making it of increasing interest as an investment destination.

'That is a real issue that has to be watched. What Africa needs now is not so much portfolio flows but foreign direct investment,' said Okonjo-Iweala.

'Managing that is critical. What we are urging to potential investors is not saying 'don't go into Africa's capital markets', but 'investment for the continent is better put into the real sector because that is where the long term returns are'.'

But Okonjo-Iweala said it was not the time to talk about capital controls.

'Let's get to the stage where flows are really, really significant and then we'll see,' she said.-(Reuters)