africa and the global economic and financial crisis shanta devarajan world bank
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Africa and the Global Economic and Financial Crisis
Shanta Devarajan
World Bank
http://africacan.worldbank.org
Despite a resilient financial system, Africa may be the worst hit
• “Resilient” because – African banks keep their loans on their
balance sheets– Interbank and derivative markets are small– Foreign ownership is low (5%) in two largest
countries (Nigeria and South Africa)– But:
• 40% of South Africa’s loans are in mortgages; house prices are falling
• Nigeria’s domestic credit grew rapidly in 2007-8
Source: IMF World Economic Outlook, 2008
1. Africa has been increasingly relying on private capital flows
Signs that capital flows are slowing down or reversing
• Stock prices are falling (private capital was a large share of market assets)– Nigeria’s stock exchange index has fallen
60%, Kenya’s 40%
• Ghana and Kenya have postponed their sovereign bond offerings (worth $800m); D.R. Congo expects $1.8 billion shortfall in FDI
2. Remittances are slowing
• Currently estimated at $20 billion
• Expected to decline by 4.4% in 2009
• 75% of Africa’s remittances come from U.S. and Western Europe
• Lesotho gets 29% of GDP in remittances
3. Foreign aid may be affected
Source: David Roodman, Center for Global Development
4. Commodity prices are falling
4. Commodity prices are falling
Terms of trade shocks(change in trade balance as percentage of 2006 GDP)
Bottom 5, 2008
Seychelles -13.90
Eritrea -11.68
Togo -7.79
Cape Verde -7.25
Senegal -7.07
Top 5, 2008
Nigeria 22.92
Gabon 28.23
Congo, Rep. 30.53
Angola 34.77
Equatorial Guinea 49.12
Bottom 5, 2009
Equatorial Guinea -26.05
Angola -19.00
Congo, Rep. -17.15
Gabon -15.69
Nigeria -13.01
Top 5, 2009
Ethiopia 1.39
Mauritius 2.44
Togo 3.44
Eritrea 3.39
Seychelles 5.92
5. Macroeconomic imbalances
• Ethiopia– 60% inflation– Trade deficit of 30% of GDP
• Ghana– Current account deficit of 19% of GDP, fiscal
deficit of 14.5% of GDP
• South Africa– Current account deficit of 8% of GDP
Implications
• Africa’s GDP growth rate will slow from 4.9% in 2008 to 2.4% in 2009
GDP growth in Sub-Saharan Africa
5.1
6.9
6.26.6
6.9
6.1
4.2
5.5
2.4
4.9
4.1
0
1
2
3
4
5
6
7
8
2003 2004 2005 2006 2007 2008 2009 2010
GD
P g
row
th %
November 2008estimates
March 2009 estimates
Implications
• Africa’s decade-long growth has raised expectations among its people– Political fallout?
• Part of Africa’s growth due to reforms undertaken since the 1990s
Lower inflation across the board
Source: World Bank WDI database. Indices were calculated based on the GDP weighted growth rates.
17
2429 31 33 31 33
30 3227 28
31 33
13 13
7 6 6 7 6 5 4 2 3 2 2
0
20
40
60
80
100
120
140
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Ave
rag
e In
flat
ion
Rat
e %
0
5
10
15
20
25
30
35
40
45
Nu
mb
er o
f C
ou
ntr
ies Inflation>20%
10%<inflation<=20%
Inflation<=10%
Average inflation rate
Implications
• If there is a growth collapse—a human crisis
Differences between sample averages, selected variables, SSA 1975-2005
Growth
acceleration Growth
deceleration During Otherwise During Otherwise Life expectancy (years) 51.3 50.1 48.1 51.0 Dependency ratio .91 .93 .93 .92 Under 5 mortality (per 1,000) 145.8 161.9 187.1 148.8 Infant mortality (per 1,000 live births) 84.3 93.9 113.2 85.5 Primary completion rate (% of relevant age group) 52.5 49.9 41.4 52.9 ODA (% GDP) 13.6 13.6 11.9 14.11 ODA per capita (US$) 68.3 53.2 41.5 61.2 Consumer price index (%) 15.1 75.2 177 23.2 Source: Arbache and Page (2007).
Policy response
Initial Conditions
Weak Moderate to Strong
Impact
Immediate e.g. Comoros, DR Congo, Guinea, Kenya, Seychelles, Sudan
e.g. Mauritius, Sao Tome and Principe, Zambia
Short term e.g. Burundi, Cote d’Ivoire, Ghana, Ethiopia, Guinea-Bissau, Liberia, Sierra Leone
e.g. Benin, Botswana, Burkina Faso, Cape Verde, Lesotho, Nigeria, Swaziland
Tailor assistance to initial conditions and impact
Initial Conditions
Weak Moderate to Strong
Impact
Immediate Fast-disbursing financial assistance (e.g. $100 million emergency credit to DR Congo)
Scale up existing operations; possible fiscal stimulus; dialogue with civil society and other stakeholders (e.g. $30 million loan to Mauritius increased to $100 million)
Short term Knowledge and financial assistance to smooth the reduction in macroeconomic imbalances (e.g. possible program in Ghana, coordinated with the IMF)
Contingency planning and “front-loading” assistance (e.g. credits to Gambia, Benin, Mali increased)
GDP growth in Sub-Saharan Africa
5.1
6.9
6.26.6
6.9
6.1
4.2
5.5
2.4
4.9
4.1
0
1
2
3
4
5
6
7
8
2003 2004 2005 2006 2007 2008 2009 2010
GD
P g
row
th %
November 2008estimates
March 2009 estimates
The Hope and the Challenge of Africa