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Recovery from the
Global Crisis:
Implications for
SADC and
Development
Finance
Keith Jefferis
May 2010
Remember early 2009 ….
World Economy
 Financial crisis
 Freezing of credit markets
 Sudden plunge into deep




recession
Collapsing commodity prices
Concern about prolonged
depression
Rising unemployment
Bank rescues and fiscal
injections
SADC/SSA
 No financial crisis, but concern
about knock-on effects of
global crisis, via
 Trade
 Capital/financial flows
 Risk aversion
 Macroeconomic concerns
 Growth slowdown
 BoP
 Fiscal problems
 Poverty
Global growth slowdown ... and
recovery
Real GDP growth, qoq, % annualised
Global GDP Growth
6
4
2
0
-2
-4
-6
-8
 Depths of recession – 4Q2008
and 1Q2009
 Recession was deep, but
recovery has been robust
 Fears of prolonged depression
not realise
 Global growth projected to
settle in 3% - 4% range in 201011
Real GDP growth, qoq, % annualised
Emerging markets leading the
recovery
 Recovery has been driven by
10
8
6
4
2
0
-2
-4
-6
-8
-10
Emerging markets
emerging markets
 Faster emergence from
recession
 Higher growth during recovery
 Less affected by financial crisis
and debt problems – more
resilience
 Developed economies –
sluggish recovery:
 Fiscal/debt problems
 Unemployment
 Euro-zone crisis
Developed
Real GDP growth, qoq, %
annualised
South Africa lagging other EMs,
but recovering
 South Africa’s recession
10
8
6
4
2
0
-2
-4
-6
-8
has been comparable in
depth to Emerging
Markets generally, but:
 SA lagging general EM
SA
Emerging markets
recovery
 SA growth expected to be
reasonably robust in 2010,
due partly to World Cup
effect
 Growth projected to
weaken going into 2011
Signs of recovery ... minerals
prices
Copper
Nickel
$10,000
$60,000
$6,000
$4,000
$2,000
$0
20062007200820092010
$50,000
$/tonne
$/tonne
$8,000
$40,000
$30,000
$20,000
$10,000
$0
2006 2007 2008 2009 2010
… and oil prices
Brent crude ($/barrel)
160
140
120
100
80
60
40
20
0
2006
2007
2008
2009
2010
Economic Developments in SubSaharan Africa
SSA Economic Outturn
 Greater resilience than
Real GDP Growth
modest
 Quick recovery expected
 Macroeconomic stress
manageable
 Greater impact on middle
income countries, more
integrated into global markets
percent
 Growth slowdown relatively
8
7
6
5
4
3
2
1
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
expected
Source: IMF REO SSA April 2010
Why such a modest economic
impact on SSA?
International
 Quick and robust global
recovery in growth, trade &
commodity prices
 SSA growth slowdown driven
by reduced demand, not
banking crises
 Emerging market growth ->
commodity prices
 Recovery in financial flows
Domestic
 Prior reforms and restructuring




-> many countries started from
strong macroeconomic
position
Prior fiscal reforms enabled
fiscal stimulus
Appropriate monetary policy
response – inflation not a
major concern
Resilient financial systems
Contrast with previous crises
Finance & Capital Markets
 Central to economic problems
in developed markets – and
transmission of those
problems around the world
 Credit crunch
 Risk aversion
 Market collapses
 Impact short-lived
 Only small decline in
remittance inflows
 Development assistance:
overall flows held up,
especially with boost from
MFIs
 Recovery of risk appetite
 Resurgence of portfolio flows
to EMs – low returns in major
markets
 SSA role of FDI – less volatile
than short-term flows
But of course there are
problems…

Fiscal & Debt conditions



Partial but not full recovery in global demand



Rising unemployment
Household income squeeze
Poverty alleviation/MDGs


Well below trend
Employment & Incomes


Limited fiscal space
Needs to be carefully managed
Setbacks/delayed achievement
Fragile states

Especially vulnerable
Economic Outlook - SADC
Inflation: much reduced, not a major
concern, allows monetary policy easing
30
46%
25
%
20
15
2009
10
2010
5
2011
0
Source: IMF REO for SSA (April 2010)
Real GDP growth – recession mostly avoided
in 2009, strong recovery projected for 2010
20
15
%
10
5
2009
0
2010
-5
2011
-10
Source: IMF Regional Economic Outlook, April 2010
Fiscal balance: some large deficits, esp.
in SACU, but generally manageable
10
% of GDP
5
0
-5
-10
-15
2009
2010
2011
-20
Source: IMF Regional Economic Outlook, April 2010
% of GDP
Current account: some large deficits,
and dependence on capital inflows
10
5
0
-5
-10
-15
-20
-25
-30
-35
2009
2010
2011
Source: IMF Regional Economic Outlook, April 2010
Reserves: some declines, but still
comfortable in most countries
Import cover (months)
25
20
15
2009
2010
2011
10
5
0
Source: IMF Regional Economic Outlook, April 2010
Outlook & risks – world economy
 More positive than a year
ago
 Medium-term outlook
still uncertain
 Worst fears of depression
 End of inventory-driven





appear not to be realised
International recovery
under way
Recovery in financial and
commodity markets
BUT volatility and
uncertainty still apparent in
currencies, commodity
markets
“Double –dip” recession
cannot be ruled out





upturn
Duration of impact of fiscal
stimulus
Consumer confidence
Lagging impact of rising
unemployment
Financial sector uncertainty
– re-regulation
De-leveraging
Rising long-term interest
rates & crowding out of
private investment
Outlook & risks …. SADC
Positive
 Africa growth should resume
pre-crisis trajectory – helped
by higher global growth
 Resource rich – benefit from
resumption of commodities
boom
 Focus can now change – from
short-term output stabilisation
to medium-term development
challenges
Negative
 Slow growth in Europe – major





export market
Global growth – still vulnerable
Limited growth of donor
resources, especially bilateral
Commodity price volatility
Slow progress on regional
integration
Energy shortages
Implications for DFIs
 Finance is at the centre of
 Scope for more stable view of






attention
SADC financial systems
generally stable
Recognition that markets and
commercial FIs cannot achieve
everything
Many African countries still bypassed by commercial flows
Banks still cautious
Recognition that particular
development gaps exist –
infrastructure, SMMEs,
agriculture, unbanked – that
may have to be filled by DFIs





risk
Improving domestic bond
markets
AfDB – AFMI
Government resources
constrained
More resources from MFIs
Opportunities in new
technologies & partnerships
(MFIs, telcos, donors)
Regulation?
Thank You