Download Africa and the Global Economic and Financial Crisis

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
1. Africa has been increasingly
relying on private capital flows
Source: IMF World Economic
Outlook, 2008
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, 2009
Bottom 5, 2008
Seychelles
-13.90
Equatorial Guinea
-26.05
Eritrea
-11.68
Angola
-19.00
Togo
-7.79
Congo, Rep.
-17.15
Cape Verde
-7.25
Gabon
-15.69
Senegal
-7.07
Nigeria
-13.01
Top 5, 2008
Top 5, 2009
Nigeria
22.92
Ethiopia
1.39
Gabon
28.23
Mauritius
2.44
Congo, Rep.
30.53
Togo
3.44
Angola
34.77
Eritrea
3.39
Equatorial Guinea
49.12
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
8
6.9
7
GDP growth %
6
6.2
6.6
6.9
6.1
5.5
5.1
November 2008
estimates
4.9
5
4.2
4.1
4
March 2009 estimates
3
2
2.4
1
0
2003
2004
2005
2006
2007
2008
2009
2010
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
140
45
7
6
6
7
6
5
4
2
3
2
2
40
35
13 13
100
30
80
25
60
20
33 31 33
30 32
29 31
40
24
27 28
31 33
17
20
0
15
Number of Countries
Average Inflation Rate %
120
Inflation>20%
10%<inflation<=20%
Inflation<=10%
Average inflation rate
10
5
0
95 96 97 98 99 00 01 02 03 04 05 06 07
19 19 19 19 19 20 20 20 20 20 20 20 20
Source: World Bank WDI database. Indices were calculated based on the GDP weighted
growth rates.
Implications
• If there is a growth collapse—a human
crisis
Differences between sample averages, selected variables, SSA 1975-2005
Growth
Growth
acceleration
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
Impact
Moderate to Strong
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, GuineaBissau, Liberia, Sierra
Leone
e.g. Benin, Botswana, Burkina
Faso, Cape Verde, Lesotho,
Nigeria, Swaziland
Tailor assistance to initial conditions
and impact
Initial Conditions
Weak
Impact
Moderate to Strong
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)
The Hope and the Challenge of Africa
GDP growth in Sub-Saharan Africa
8
6.9
7
GDP growth %
6
6.2
6.6
6.9
6.1
5.5
5.1
November 2008
estimates
4.9
5
4.2
4.1
4
March 2009 estimates
3
2
2.4
1
0
2003
2004
2005
2006
2007
2008
2009
2010