Download The Global Economic Crisis and Its Impact on Africa

The Global Economic Crisis
and Its Impact on Africa
Cairo
6 June 2009
Crisis Unexpected?
•
•
•
•
•
•
•
•
A crisis foretold
Unsustainable global imbalances
International financial architecture
Ideology: deregulation, self-regulation,
inadequate and inappropriate regulation
capital account liberalization
Financial Globalization: growth, stability?
Most developing countries innocent victims
Policy responses: inadequate; double standards
International cooperation: G7, G20, UN
Globalization: finance>trade
180
350
160
140
250
US$ Trillions
120
100
200
80
150
60
100
40
50
20
0
0
1980
1990
1995
2000
2006
Global financial assets
Global merchandise trade
)Global financial assets as a percentage of GDP (right axis
)Global merchandise trade as a percentage of GDP (right axis
3
As percent of GDP, indices 1980=100
300
Finance-investment nexus?
0.30
0.25
Gross Fixed Capital Formation
0.20
0.15
Gross Financial Investment Abroad
0.10
0.05
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
4
19
72
19
70
0.00
Financial globalization
• Net capital flows from South to North
(US largest borrower)
• Cost of funds not generally lower due to
financial deepening (more
intermediation, financial rents)
• Higher volatility
• Lower growth, higher instability
Short-term capital
inflows problematic
• No real contribution to investment,
growth rates
• Asset (shares, real estate) price + related
(e.g. construction) bubbles instead
• Cheaper finance for consumption binges
• Over-investment  excess capacity
• All exacerbate instability, pro-cyclicality
Contagion: crisis spreads
Financial sector contagion (incl. vicious circles):
Sub-prime crisis  financial crisis
 asset price deflation  liquidity/credit crunch
Financial crisis  Economic recession
(including feedback loops)
Real economy contagion (incl. vicious circles):
 Less investment, especially abroad (FDI)
 Less consumption
 Reduced demand for imports, i.e. for exports of others
 Prices, output declines globally
 Growth, employment declines globally
7
Deflationary spiral
• Asset (stock, property) markets deflating
 negative wealth effect
 more bank insolvency
 generalized credit squeeze
• Lower external demand, world trade
 excess capacity
 investment slowdown
• Depressed domestic demand
 lower prices, output
 lower employment, incomes
Financial impacts on
developing countries
• Despite non-involvement in sub-prime debacle:
 Emerging stock markets collapse greater
 Reversal of capital flows, FDI also down
 Spreads rise, much higher borrowing costs
• But financial positions stronger than during
Asian + LA crises (more foreign reserves,
better fiscal balances)
But reserves rapidly evaporating with export
collapse; fiscal space also disappearing
9
Globalization: Parallel fates
8
Developing
countries
6
World
4
2
Developed countries
0
-2
Preliminary,
revised forecast
-4
10
2003
2004
2005
2006
2007
2008
2009 (P)
World economy in recession,
recovery uncertain
5
4.0
3.9
4
3.9
3.5
3
Optimistic
2
2.7
2.1
1.6
1
0
Pessimistic
2003
2004
2005
2006
2007
2008
2009
-1
-2
-3
-2.6
2010
Recession in most
developed economies
6
4.0
GDP growth rate, %
4
2
1.1
1.5
1.5
1.0
0.4
0.0
0.7
-0.1
0
-0.4
-0.6
-1.1
-2
-4
-1.7
-3.5
-3.7
-6
-7.1
-8
USA
Japan
EU15
NewEU
13
2008
2009
2010 Baseline
2010 Pessimistic scenario
Transition economies too
8
6
5.4
GDP growth rate, %
4.2
4
2
1.5
1.0
0
-0.3
-2
-0.6
-1.9
-4
-6
-5.4
South-eastern Europe
CIS
14
2008
2009
2010 Baseline
2010 Pessimistic scenario
Growth slowed in all
developing countries
8
6.8
7
GDP growth rate, %
6
6.1
5.6
5.4
4.9
5
4.3
4.0
3.9
4
3.0
3
2
5.4
2
4.5
4.1
4.0
3.1
2.9
1.7
1.4
1.7
0.9
1
0
-1
-0.7
-2
-0.7
-1.1
-1.8
-3
Developing
countries
Africa
2008
East Asia
2009
2010 Baseline
South Asia
Western
Asia
2010 Pessimistic scenario
Latin
America
15
Growth by main
country groups
Per capita GDP
Change in
growth rate
growth rate
2004
2009/ 2009/
-07 2008 2009 2008 2004-7
World
Developed
economies
Economies in
transition
Developing
economies
2.6
0.9
-3.4
-4.3
-6.0
2.1
0.3
-4.1
-4.4
-6.1
7.7
5.5
-2.6
-8.1
-10.2
5.7
4.0
0.1
-3.9
-5.6
LDCs
5.2
3.6
0.3
-3.3
-4.9
Growth by main
regional groups
Per capita GDP growth rate
World
Developed economies
USA
Japan
European Union
Economies in transition
Developing economies
Africa
North Africa
Sub-Saharan Africa
East and South Asia
East Asia
South Asia
West Asia
Latin America + Caribbean
LDCs
LDCs excl. Bangladesh
2004-07
2.6
2.1
1.6
2.1
2.4
7.7
5.7
3.4
3.6
3.6
7.3
7.8
6.5
3.7
4.0
5.2
5.4
2008
0.9
0.3
0.1
-0.6
0.7
5.5
4.0
2.5
3.6
2.2
5.0
5.3
4.9
2.6
2.7
3.6
3.4
2009
-3.4
-4.1
-4.4
-5.9
-3.4
-2.6
0.1
-1.0
1.4
-1.9
1.8
1.8
2.6
-1.2
-3.0
0.3
-0.6
Change in growth rate
2009/
2008
-4.3
-4.4
-4.6
-5.3
-4.1
-8.1
-3.9
-3.5
-2.3
-4.1
-3.2
-3.5
-2.4
-3.8
-5.8
-3.3
-3.9
2009/
2004-7
-6.0
-6.1
-6.0
-8.0
-5.8
-10.2
-5.6
-4.4
-2.2
-5.5
-5.5
-6.0
-3.9
-5.0
-7.0
-4.9
-6.0
Regional GDP growth rates
in PPP terms, 2007-2010
 2007
World
Advanced
Economies
 2008
European
Union
 2009
Emerging
&
Developing
Economies
 2010
SubSaharan
Africa
Central &
Eastern
Europe
Middle East
Note: The IMF World Economic Outlook classification of the Middle East region includes Egypt, Iran, and Libya.
Source: IMF, World Economic Outlook Update, January, 2009.
Recent African growth over
60 developing countries will see
declining incomes in 2009
70
60
60
Developed countries
Economies in transition
Developing countries
50
40
33
30
22
18
20
13
12
14
10
2
1
0
2008
2009
2010
Jan-09
Dec-08
Nov-08
Oct-08
Sep-08
Aug-08
Jul-08
Jun-08
May-08
Apr-08
Mar-08
Feb-08
Jan-08
Monthly Crude Oil
Prices ($/barrel)
Food prices will
remain higher
350
300
250
200
150
100
50
2000
2001
2002
2003
2004
Wheat
2005
2006
Maize
2007
2008
2009
Rice
2010
2011
World trade collapsing
12
10.9
9.2
7.7
Annual percentage change
8
6.6
4.1
4
2.4
0.5
0
2004
2005
2006
2007
2008
2009
2010
-4
-8
-12
-11.1
29
Trade collapse consensus
10.0
6.0
5.0
% change
2.2
0.0
-5.0
-10.0
-9.0
-13.2
-15.0
WTO
2007
2008
OECD
2009 Forecasts
South exports fall more
(volume index, 1998 = 100)
280
Developing and other non-OECD
country exports
260
240
220
World trade
200
180
160
OECD country exports
140
120
20
06
M
20 1
06
M
20 3
06
M
20 5
06
M
20 7
06
M
00 9
6M
20 11
07
M
20 1
07
M
20 3
07
M
20 5
07
M
20 7
07
M
00 9
7M
20 11
08
M
20 1
08
M
20 3
08
M
20 5
08
M
20 7
08
M
00 9
8M
20 11
09
M
1
100
Source: CPB
African export growth over
Agricultural prices rose +
fell
Source: THE-Ambrosetti based on IMF data; January 2000 = 100; f = forecast
Oil, metal prices more
Africa’s main trading
partners (US$bn)
Global imbalances narrow
with deflation
600
United States
400
Japan
Billion US$
200
0
European Union
-200
-400
-600
Developing
countries (excl
China) and EiT
-800
China
2004
2005
2006
2007
2008
2009
36
Trade impacts: summary
• Exports decline 
all developing countries
• Terms of trade  primary exporters
• Trade surpluses,
reserves may run down quickly
• But lower energy, food prices help
net food and oil-importers
37
90
Apr 09
Jan 09
Oct 08
Jul 08
Apr 08
Jan 08
Oct 07
Jul 07
Apr 07
Jan 07
Oct 06
Jul 06
Yen/US$
Apr 06
Jan 06
Oct 05
Jul 05
Apr 05
Jan 05
Oct 04
Jul 04
Apr 04
Jan 04
Dollar volatility continues
135
0.90
120
0.80
105
0.70
Euro/US$
0.60
Capital inflows contract
$ Billions
750
500
250
0
2005
2006
2007
2008
2009*
Share of global FDI
FDI inflows to Africa (US$bn)
Credit crunch continues
Percentage of lenders tightening standards, by size of enterprise seeking loans
Panel A: United States
Panel B: European Union
100
80
Large and Medium
Small
Small & Medium
80
Large
60
60
40
40
20
20
0
-20
Q1
Q2
Q3
2006
Q4
Q1
Q2
Q3
2007
Q4
Q1
Q2
Q3
Q4
0
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
2008
2006
2007
2008
Q3
Q4
Borrowing costs
remain high
10
8
6
4
2
0
Africa
Asia
Latin America
Europe
Aid flows unreliable
8%
LDCs
7%
6%
5%
4%
Sub-Saharan Africa
3%
2%
Other LICs
1%
0%
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
African Aid Trends
Bilateral ODA (US$bn)
120
All Recipients
100
Africa
80
60
40
20
0
2000
2001
2002
2003
2004
2005
2006
2007
200
ODA to Africa
5.0
4.5
4.0
% of GDP
3.5
3.0
2.5
2.0
Africa
1.5
Sub-Saharan Africa
1.0
1990
1992
1994
1996
1998
2000
2002
2004
2006
Can you see the ODA for Africa
against the G20 recovery effort?
20000
19697
Billion US Dollar
15000
10000
5000
1591
26
0
G-20 total commitment
G-20 fiscal stimulus, 2009
ODA to Africa, 2008
Main DAC donors to Africa (US$m)
Net Aid Transfer?
• Net ODA is net of principal payments,
but not of interest received on such loans
• Net Aid Transfer (NAT) is net of both
• Japan recently received >$2bn/year in interest on
ODA loans
• NAT excludes cancellation of old non-ODA loan,
e.g. a 2003 Paris Club agreement cancelled
some $5bn in non-ODA official debt owed.
• That cancellation is ODA, but generated little
additional net transfers, ie. NAT
• Hence, DRC received $5.4bn in ODA in 2003,
but only $400m. in NAT
Livelihoods threatened
• Declining living standards
• Many livelihoods under threat, especially when
social protection not well-developed
• Migrant workers especially vulnerable
• Prolonged slowdown in world economy likely
to cause remittances, job creation, tourism
and ODA to decline, unemployment to
increase, particularly among youth
Remittances to developing
countries, 2008-2010
(billions of US dollars)
300
2008
250
2009
200
2010
260
239
238
150
100
50
45
41
42
0
Low-income countries
Middle-income countries
Global recovery with coordinated vs
uncoordinated stimuli, 2010-2015
Social impacts
• ILO: >200 m. more working poor
• ILO: Unemployment to rise by 51m
• ILO projections based on IMF 0811
• MDGs, IADGs, social spending at risk
• Rising social unrest
• US intelligence report:
crisis -- greatest security risk
Poverty reduction set back
Slowdown in poverty
reduction compared
with pre-crisis growth
Total
73 – 103 million
Africa
12 – 16 million
East and South Asia
56 – 80 million
Latin America and
Caribbean
~ 4 million
Extreme poverty worsens
Change in extreme poverty (< $1.25/day)
No. of Poor
Change in poverty
’09/‘04-’07
’09/‘08
’09/‘04-’07
’09/‘08
0.6
0.6
0.3%
0.3%
111.1
73.5
1.8%
1.2%
5.9
4.2
1.2%
0.9%
0.1
5.8
101.0
0.1
4.1
65.6
0.1%
1.6%
2.0%
0.1%
1.1%
1.3%
East Asia
16.2
27.5
0.8%
1.3%
South Asia
84.2
37.8
3.0%
1.3%
West Asia
LAC
0.6
4.1
0.2
3.7
0.5%
0.7%
0.2%
0.7%
Transition economies
Developing economies
Africa
North Africa
Sub-Saharan Africa
East and South Asia
Output, jobs recovery
lags, 1991, 2001
Duration of output recovery and job market recovery after the 1991 and
2001 US recessions (in months)
60
1991
2001
50
40
30
20
10
0
Output
Job market recovery
Lags delay recovery
Im m ediate and
s us tained
s tim ulus
efforts
3 m onth delay
Q2
0
Q3
Q4
2
Q1
Q2
4
Q3
6Q4
Q1
Q2
8
Coordination failure
Table 7: Economic Stimulus in 2009
Total
Advanced Economies
Developing & Emerging Economies
As a % of GDP As a % of World GDP
1.7
1.4
1.3
-
2.7
-
Africa: % with <US$1/day
Children who completed
primary school (%)
Girls/boys primary
school enrollment
Under five mortality/1000
HIV prevalence (%):
women 15-24 yrs
Social spending
low priority (11%)
Tax Cuts, 21.5
Other Spending, 39.8
Transfers to Low
Income, 9.2
Employment Measures,
1.8
Infrastructure Spending,
27.8
International responses
• UN, BIS forecasts more accurate than others;
IMF, WB upbeat till late 2008
• IMF, WB also marginalized by G7, etc
• IMF discouraging strong fiscal stimulus by
developing countries without surplus
• G7  G20: more inclusive? legitimate? crisis-,
but not developmental or equitable
• PGA (Stiglitz) Commission of Experts
• Doha Declaration: June 09 summit on impact
of crisis on developing countries
New Bretton Woods
moment?
Bretton Woods, 1944: United Nations conference
on monetary and financial affairs
• 15 years after 1929 Depression
• Middle of WW2
• US initiative vs UK Treasury stance
• 44 countries (28 developing countries; 19 LA)
• IMF, IBRD, ITO – UN system
• Clear emphasis on sustaining growth, employment
creation, development,
not just financial stability
• But BWIs very different governance arrangements
UN leadership?
Universal, legitimate  lead reform process?
Ensure comprehensive systemic reform
Ensure developmental financial system
Ensure inclusive financial system
Develop capacity for offering 2nd opinion
to
interested member states
• Align IMF, WB with UNDA (including
FfD), IADGs to ensure policy coherence
•
•
•
•
•
Thank you
Please visit UN-DESA www.un.org
G24 www.g24.org and PGA
www.un.org/ga/president/63/ websites
• Research papers
• Policy briefs
• Other documents
Acknowledgements: UN-DESA, ILO, ESCWA
77