The major economic downside of the war is likely to be the diversion of some of the foreign aid, which might otherwise have been earmarked for Africa, to the Middle East and Afghanistan. Despite this, both the World Bank and the IMF have published surprisingly upbeat forecasts for sub-Saharan Africa in 2003/04, with the IMF projecting growth of almost 5.5 per cent next year.

IMF optimism is based on "continued policy strengthening the global recovery and higher non-fuel commodity prices". The World Bank is more cautious, even contradicting its Washington partner by warning that it sees little scope for domestic policy changes to spark faster expansion over the next 18 months.

SOUTH AFRICA
Because there is a link between GDP growth and stock market prices, these bullish forecasts should boost African stock markets. The major exception to this trend is South Africa. The Johannesburg Securities Exchange (JSE) is driven by more sophisticated market considerations - notably the currency, interest rates and links with stock markets in the OECD economies, especially New York, London and Tokyo. Accordingly, in the first four months of 2003, collapsing world markets and the strong rand more than offset positive domestic developments. So much so that after staging a strong rally in the latter half of 2002 and pushing above 9000 in late January, the JSE All

Share Index slumped to an 18-month low in April. Investors shrugged off Finance Minister Trevor Manuel's forecasts of stronger growth, lower inflation and interest rates in 2003/04 - focusing instead on the likely impact of the rand on export industries and capital inflows from abroad. By May, the rand had recovered to R7.10 against the US dollar, compared with a record low of R13.85 in December 2001. While the government and central bank are delighted, market analysts warn that the strong rand has virtually wiped out the gains made by the dollar gold price. Accordingly, prices of resource-based companies like Anglo American; AngloGold; the platinums; and the coal, sugar and ferroalloy exporters all took a knock on the JSE.

At the same time, key South African equities, like Anglo American, brewer SABMiller, Old Mutual and Standard Bank, are listed in London and their shares fell sharply in Johannesburg, in line with global trends. To cap it all, the gold rally ran out of steam. Bullion prices surged 21 per cent to a high of US$ 389 an ounce over the last year before losing 15 per cent in a fortnight, then steadying at around US$ 330 an ounce.

However, not even looming war could derail the much-delayed high profile initial public offer (IPO) of shares in the state-controlled telecoms utility, Telkom. It was a success of sorts but at the end of the exercise the issue had raised only 40 per cent of the amount originally targeted. In 2001, the target was R10 billion (US$ 1.25 billion), but the IPO raised only R3.9 billion. Furthermore this was only achieved by cutting the offer price to R28 a share - a significant deduction from the original target range of R33 to R40.

The JSE experience is not typical of the rest of Africa. Nowhere else on the continent does the stock market play anything like as important a role as in South Africa. This is highlighted in a new case study by researcher Heloisa Marone in a Working Paper published by the IMF: "Do stock markets make a contribution to economic development in small African economies?"