The prevailing global financial crisis and the associated credit crunch had the potential to undermine recent gains made to Africa’s financial systems, which, had benefited from the worldwide “glut” in liquidity prior to the meltdown, the second ‘Africa Competitiveness Report’, released on Wednesday, asserts.

Gross domestic product (GDP) growth across the world’s poorest continent, which rose by an average annual rate of 5,9% percent between 2001 and 2008, was also expected to slow to below 3% in 2009, on the back of lower commodity prices and a pullback in foreign direct investment.

Compiled jointly by the World Economic Forum, the African Development Bank and the World Bank, the report was released ahead of the World Economic Forum on Africa taking place in Cape Town this week.

It argued that the Africa’s financial systems had deepened and broadened in recent years, but that this trend could be reversed as the effects of the slowdown took hold.

“For better or worse, the future of Africa’s financial systems is closely linked to the development of global finance, as are its real economies,” the report averred, adding that limited access to financial services remained a major obstacle for African enterprises.

It urged policymakers to focus on further institution building, including judicial reform, as well as the establishment and reform of collateral and credit registries.

“Cautious” and “context-specific” government intervention to help financial market participants expand its financial services was also suggested, along with efforts to deepen financial sovereign and corporate bond markets.

The report also warned that the crisis posed new challenges for regulatory authorities, which had to be prepared for the failure of the parent bank of one of their large foreign-owned banks.

INFRASTRUCTURE AND TRADE

Inadequate energy and transportation infrastructure also remained a major bottleneck to productivity growth and the competitiveness of African companies.

“Investment in upgrading infrastructure would both place Africa on a higher growth trajectory, as well as serve as a fiscal stimulus at a critical time,” the report’s authors said.

African governments would need to improve access to finance, resist pressure to erect trade barriers, upgrade infrastructure, improve healthcare and educational systems and strengthen institutions if they hoped to improve the competitiveness of their businesses.

It encouraged government to open their energy generation, transmission and distribution sectors to private participants, but should be wary that the sequencing of reforms ensures that energy is available to all. The report also encouraged countries to harness the “enormous” potential of renewable energy sources, especially hydro-electric and solar, which could transform Africa into a net exporter of energy.

On transport, the report suggested action on two fronts: infrastructure and regulations.

“Creating a major road network in Africa has been advocated for years, but thus far has not happened.

“Yet, such a network would generate an estimated expansion of overland trade by about $250-billion in 15 years, with benefits for Africa’s rural poor,” the authors argued.

The deregulation of the trucking sector, meanwhile, would reduce transport costs.

The report also recommended that protectionist forces be resisted, and that efforts be made to keep markets open to trade, in spite of the economic crisis.

Africa’s leaders, the authors said, should resist domestic political pressures to erect trade barriers.

“Enhancing trade in Africa will help the continent weather the global slowdown,” the report said.