The impact of the current global financial and economic crisis will spread to all parts of the world, including African countries, despite their economies being less integrated into the international financial system. Many African countries have already started experiencing this impact as evidenced by massive capital outflows; decline in private capital inflows, foreign direct investments; remittances; government revenues; and decreasing demand for and falling prices of commodities.
The crisis has also been accompanied by widespread currency depreciations in Africa, with inflationary pressures persisting in many countries. The impact of the crisis on the private sector has been worsened by the tightening of credit markets due to shortage of bank liquidity as well as the rise in uncertainty, making it difficult for African banks to secure lines of credit on international markets. The effects have been felt in many African countries, with most notable examples being closures of mining industries in countries such as
The current financial and economic crisis has adversely impacted on the improved and satisfactory economic growth performance of African economies, which averaged in excess of 5 percent per annum over the past five years. Following the Global financial and economic crisis, March 2009 African Development Bank estimates indicate that real GDP growth in Africa is expected to decline to around 2.8 percent in 2009, and May 2009 projections point to even lower average economic growth rate of around 2.4 percent in 2009. The UN estimated that an average GDP growth rate of 7 per cent per annum would be required for Africa to achieve the MDGs by 2015. In the light of the recent economic downturn and its impact on growth, among others,
According to International Monetary Fund (IMF) estimates, the current account balance on average, as a percentage of GDP, is expected to widen from a deficit of about 2 per cent in 2008 to about 6 per cent in 2009. This gap is projected to widen more for oil exporting countries. Furthermore, the fiscal balance, as a proportion of GDP, is expected to decline from a surplus of 5 per cent in 2006 to a deficit of 4 per cent in 2009 owing to expected declining levels of aid flows.
Many questions, therefore, remain unanswered - “How will African countries embrace the impact of this global financial crisis which is affecting even innocent poor people? Who is to blame? What is the role of international financial institutions such as the IMF and the World Bank? What is the role of the national governments and regional organizations? What is the role of the private sector, and more specifically, what is the role of Employers’ organizations?”
Efforts are being made to address these questions. Examples include the African Ministers of Finance and Central Bank Governors Conference held on 12th November 2008 on the financial crisis, the G20 Summit on Financial Markets and the World Economy in Washington, held on November 15, 2008; the meeting of the Committee of Ten African Finance Ministers and Central Bank Governors held in Cape Town, South Africa, on January 12, 2009; and the Twelfth Ordinary Session of the Assembly of the African Union held from 1-3 February 2009 in Addis Ababa, Ethiopia.
More recently, the meeting on “Changes: Successful Partnerships for Africa’s Growth Challenge” organized jointly by the Government of United Republic of Tanzania and the International Monetary Fund in Dar es Salaam, Tanzania, and the G20 Summit held in London on April 2, 2009 also addressed these questions. These meetings have come up with several policy responses for implementation.
The issues that we may wish to discuss include: requesting monetary authorities to consider appropriate and sustainable mechanisms for lowering base rates to encourage lending while also maintaining macroeconomic stability; ensuring that African countries pursue prudential regulations that are comprehensive in covering all financial institutions and all types of financial operations; and ensuring that African countries put in place appropriate governance of loan guarantee institutions as well as conducive institutional and legal environment to minimize moral hazard. In addition, we may wish to support the development of domestic and regional bond markets, which have also offered a great potential for improving domestic resource mobilization in Africa.
The African Development Bank (AfDB) has been able to implement emergency assistance programs by reallocating resources through the Emergency Liquidity Facility, the Trade Finance Initiative and other ways of support to low income countries. However, for the AfDB to play its counter-cyclical role effectively, it would require shareholders to agree on a general increase in resource in particular a capital increase. This would ensure that the AfDB is able to scale-up financing without jeopardizing its long term viability and sustainability of its lending program.
Equally important is the need to accelerate the establishment of Africa’s three pan-African financial institutions, namely, the African Central Bank, the African Monetary Fund and the African Investment Bank. Work on establishing the African Investment Bank is quite advanced, following the adoption of its Protocol during the January/February 2009 African Union Summit held in Addis Ababa, Ethiopia. The Statute of the Bank is expected to be adopted during the forthcoming June/July 2009 African Union Summit.
The African Ministers of Finance and Central Bank Governors Conference of 12 November 2008 on the financial crisis, the G20 Summit on Financial Markets and the World Economy in Washington held on November 15, 2008 and the Assembly of the Twelfth Session of the Assembly of the African Union held from 1-3 February 2009 in Addis Ababa, Ethiopia, and the G20 Summit held in London on April 2, 2009 have all called for a comprehensive reform of governance of the global financial system and the Bretton Woods Institutions (BWIs), to adequately reflect the changing global economic realities and emerging challenges, with special emphasis on greater voice and representation for emerging and developing economies. Since this recommendation is yet to be implemented, this Forum may wish to add its voice to it.
Assessment of the delivery of commitments on aid shows mixed results. Total net ODA to Africa, which increased to a record US$43.4 billion in 2006, declined by 10.8 per cent to US$38.7 billion in 2007. Similarly,
Despite commitments to increase ODA flows to Africa, only a few countries have met the 0.7 per cent ODA to GNP target set by the United Nations, while the European Union has made a commitment to reach an ODA to GNI target of 0.56 per cent by 2010. This is welcome and represents an important first step towards meeting the overall target of 0.7 per cent. Although a number of commitments have been undertaken by developed countries to scale up resources for
Africa faces mounting challenges in relation to improving trade performance and the slow progress of the multilateral and bilateral trade negotiations. Pro-development expectations are attached to the outcomes of the Doha Round and EPA negotiation processes with the European Union. In addition, the Aid for trade initiative constitutes a major opportunity to render trade as an operational engine for growth. It is, therefore, critical that the pace towards a successful conclusion of the Doha Development Round is accelerated.
The current global and economic crisis has demonstrated the need for Africa to promote intra-African trade and regional integration in general to bolster economic growth and development by enlarging markets and reducing vulnerability to shocks. Clearly, promoting export diversification, maintaining competitiveness of
I am convinced that finding solutions to addressing the impact of the global financial crisis on African economies requires the involvement of each one of us.
By Dr. Maxwell M. Mkwezalamba,
Commissioner for Economic Affairs, African Union at the official opening of The African Employers’ Regional Forum on “The Financial Crisis, Economic Recovery And Employment.”