- Trade - Finance
Global crises: The New IMF and Africa
Aid should not exclude reforms
Experts are unanimous on one point. Africa will be hardest hit by the global recession. The economic crisis will deepen and aggravate other existing crises. However, no recovery plan worthy of the name has yet been drafted. The continent could soon experience terrible repercussions. But, if sufficient efforts were made, the global recession would be an opportunity to undertake radical reforms in African economies to enable the continent rise above the global quagmire.
In a statement last month Donald Kaberuka, president of the African Development Bank, said African economies will move more slowly after the crisis normalises. The International Monetary Fund in a report on global financial stability released on 21 April 2009, estimated that due to a depreciation affecting assets from banks, insurances and other financial institutions the crisis would cost the world economy a total of four trillion dollars between 2007 and 2010; for the United States 2.7 trillion dollars, the Euro zone and United Kingdom 1.1 trillion and Japan 199 billion.
The report also condemns the absence of boldness, imagination and above all the slow speed with which countries are managing the crisis; with reference to their implicit shilly-shally plans against the world’s biggest recession in 60 years. Africa is no exception, as it has not drawn any serious recovery plan. It is especially distressing that the IMF forecasts a 1.3% decline in the world’s GDP as well as an 11 per cent fall in world trade this year (2009). The decline has already been felt in the raw material export sector (with Russia in the lead) as well as the manufacturing sector (Japan, Germany).
The absence of a bold plan to revive in Africa
However, one of the many paradoxes of the IMF’s "World Economic Panorama" is too amusing to ignore: despite the collapse of international trade, Africa, albeit being a prisoner of its raw materials, would experience a 2% growth in 2009. Is it to be understood that Africa is protected from the international financial crisis because of its low integration into the global economy? Strange economic principles...
King of all paradoxes: if African economies are more resilient to the crisis than their developed counterparts, why rank them among "the most vulnerable"? — to borrow the G20 vocabulary in London. Why would the IMF double loaning opportunities for the fifty poorest countries in the world, forty of which are on the African Continent? Ironically termed "aid" only because the IMF lends below the financial market rate, it is the loan of "last resort".
Nevertheless, Africa is not protected by that so called shield of poverty and misery. In fact, Mandela’s rainbow nation – the most powerful economy on the Continent and a member of the G20 – could not believe the crisis would hit so close to home. South Africa had not experienced a recession in 17 years (since 1992) and therefore thought it had acquired an economic-crisis-immuned-system by virtue of two unstoppable factors, invented by the brilliant Finance Minister Manuel Trevor, who is expected to keep his post in Jacob Zuma’s government. The plan was to put financial markets and businesses at rest ... On the one hand, there is a stringent change in regulations. On the other hand, his cautiousness with the now unpopular "sub prime" and "toxic assets" that caused the collapse of the international financial system and which has affected every country on the African continent. For 2009, the IMF has announced a 0.3% decline of the South African GDP whilst it predicts an economic revival in 2010, just in the nick of time for the FIFA 2010 World Cup organised by the southern African country.
However, that is only the tip of the iceberg as more endangered economies on the continent head for extinction. Somalia is one great example: as the most dangerous country in the world, its repeated institutional crises block all development efforts further affecting the gloabl African economy.
The worst is yet to come
Indeed, the global crisis has served to deepen and worsen other existing internal crises. First and foremost, an aggravation of the food crisis, which means that more hunger related riots could follow. It is no coincidence that agriculture has become the top priority of the G8 industrialized countries. Michel Barnier, French Minister of Agriculture, talked about the new geopolitical imperative with unusual frankness: "we can not limit the agricultural discourse to the World Trade Organization (WTO) alone. If trade was sufficient enough to eradicate hunger in Africa, we would have known by now" The G8 wants to fight against food shortages, food price volatility… and in consequence, work against financial speculation. Now that’s a trend setter. Putting actions into words... But the economic crisis has been there and heard all the overly uttered principles time and over again...
So far a 200 million euro investment in African agriculture has been pledged by the French Agency for Development (Agence française du développement), the African Development Bank, the International Fund for Agricultural Development and Kofi Annan’s foundation "Alliance for a Green Revolution in Africa." According to the anti-crisis promoters, the initial sum of 200 million euros will be subsequently increased to 500 million euros.
But that is not all. Another disaster is looming: the health crisis. This global recession of hurricane proportions could adversely affect public health policies, particularly the fight against AIDS. Sounding the alarm bell, Michel Kazatchine, executive director of the Global Fund to fight against AIDS, Tuberculosis and Malaria (three pandemics that seriously affect Africa), said that the crisis "affects the rich and I am worried about their ability to fulfil their commitments on development assistance.” He further indicated that the positive inroads that have been made to fight diseases in the past 6 to 8 years could be lost “if efforts are not sustained." The worst could very well lie ahead.
Radical but needed reforms
The international financial crisis encourages a mechanically induced reduction of official development assistance. With the crisis come changes in government priorities that sometimes bring about a reversal of policies. The fear this threat brings cannot be underestimated. However, this global recession is also an opportunity to undertake a radical reform of African economies. It should encourage structural adjustments and new strategic choices for a better integration in the new global economy now arising as a result of the crisis. It should be remembered that the regulation advocated for by the new IMF, which took shape at the G20 summit in London, proposes strong institutions and regulations capable of adequate checks and balances.
Intuitive mutation always precedes economic revolution. Deng Xiao Ping’s "four modernizations" policy put China among the rank and file of major economic powers in only 30 years. And according to the IMF, China is expected to resist the brutal recession that has rocked the world. In Asia, the finance ministers of thirteen countries meeting in Bali have announced the creation of a $ 120 billion emergency fund, a line of emergency credit fund to help Asian countries in crisis scenarios. Japan, China and South Korea are the principal donors.
It is incumbent on Africa to duly deal with the global economic crisis...