- East Africa
- Panafrica - Tanzania
- Development - Finance
Global economic downturn: Africa walking a tightrope
World downturn squeezing Africa
As the world’s economic woes deepen, Africa’s leaders are delivering a strong message that the international community must help the continent protect the development gains of recent years. In a report prepared for the 2 April meeting of the Group of 20 (G-20), a high-level consultative body, at which South Africa is the continent’s only representative, a committee of 10 African finance ministers and central bank governors set up to monitor the crisis, has told world leaders that they must honour their commitments to increase aid, improve trade access and agree to a fairer, more flexible way of managing international financial affairs.
After a mid-March meeting between African leaders and the G-20’s host, UK Prime Minister Gordon Brown, to put Africa’s case, Ethiopian Prime Minister Meles Zenawi appealed to the self-interest of richer countries. He warned that if the crisis is allowed to worsen there could be total chaos in some countries and the cost of the resulting violence “is going to be much higher than the cost of supporting Africa.” In their report, the Committee of 10 urged donors to devote 0.7 per cent of their stimulus packages to assist poorer countries not able to afford similar stimulus measures.
‘The greatest danger’
The current crisis “poses the greatest danger ever to Africa’s development,” Tanzanian President Jakaya Kikwete told a 10–11 March conference on African development in Dar es Salaam. The International Monetary Fund (IMF) is now predicting the global economy will fall into recession this year, with economic growth in sub-Saharan Africa forecast at best to barely top 3 per cent — only half the average of the past decade. There is a real risk that what started out as a financial crisis will rapidly become a humanitarian catastrophe as millions of people are thrust into deeper poverty
African leaders have also called on countries to resist putting up new trade barriers to protect faltering economies. We need a “level playing field on trade and the removal of subsidies that penalize Africa,” Kofi Annan, chair of the Africa Progress Panel, an advocacy group, said in his keynote address to the Dar es Salaam meeting.
“We thought we were safe from the impact of the crisis on the financial sector,” Nigerian Finance Minister Mansur Muhtar said in Lagos in March, “but, today, no country is safe.”
Mineral and oil exporters have been hit particularly hard. Copper prices are down over 60 per cent. Oil, at around $45 a barrel, is at a fraction of its highs of over $140 less than a year ago. Prices for rubber, cotton, palm oil and timber are also well down.
Shrinking world demand is translating into mounting unemployment. The mining sector is particularly badly affected. In the Democratic Republic of the Congo (DRC), estimates of the number of miners thrown out of work in the last six months range between 200,000 and 300,000, with a further 1 million people feeling the indirect impact.
African families also have less money coming in from members working abroad. The recent growth in such remittances slowed notably last year, and many countries are reporting a sharp fall off in flows in recent months.
Worsening economic prospects and a far more cautious attitude by investors has led to the flight of capital from many countries. Foreign investors withdrew some $4 bn from the Nigerian capital market in 2008, according to the Nigerian Stock Exchange’s Director-General Ndi Okereke-Onyiuke.
And while oil and food prices may be falling on world markets, local currencies have also been depreciating, sometimes at a much faster rate. Zambia’s kwacha is down 60 per cent over the past six months, making imports more expensive.
Walking a tightrope
Most African countries “must walk a tightrope” between preserving gains from economic reform and trying to protect the poor from the worst impacts of the downturn, the IMF says. Few countries will be able to spend their way out of trouble, warns African Development Bank (ADB) President Donald Kaberuka. “We do not have the same fiscal space as developed countries to pump-prime the economies via massive spending,” he told a summit meeting of the African Union in February.
This means it is particularly important to keep official aid flowing. The Committee of 10 says Africa needs an additional $50 bn this year just to sustain pre-crisis levels of growth.
Five African countries have already borrowed from the IMF’s special emergency funding facility. The World Bank has made some $2 bn available for emergency funding, with the DRC its first recipient. The ADB has set up a $1.5 bn emergency liquidity fund for countries’ short-term financing needs, as well as a $1 bn trade finance initiative to help African banks and other financial institutions maintain operations.
A greater voice
African leaders are not asking only for more urgent funding. They also want a seat at the table when plans are made for economic recovery. Africa needs “a rightful voice in the shaping of the global financial system and the responses to the current crisis,” President Kikwete told the Dar es Salaam meeting.
This should include a further strengthening of Africa’s voice in the IMF, which must increase its support for Africa with more financing and greater flexibility in its lending, according to a statement issued at the Dar es Salaam meeting. Donor countries are already moving to boost the IMF’s resources. In March, the Fund announced it would make more money available to countries affected by the crisis more quickly and with fewer strings attached.
Debate on reforming the international finance system will continue. An expert commission set up by the UN General Assembly to prepare for a conference in June on the development impact of the world economic and financial crisis, chaired by Nobel laureate Joseph Stiglitz, has called for a Global Economic Council based in the UN to replace the G20.