Before the crisis, private capital flows to Africa had been rising—faster than in any other region—to $53 billion, more than official development assistance. These flows had created expectations that Africa had “turned the corner”. Politicians like Ellen Johnston Sirleaf were claiming that these flows were evidence that their policy reforms were working (and they were right).When the crisis hit, these flows contracted to about $30 billion. South Africa alone saw equity and bond issues go from $20 billion in 2007 to $4 billion. Ghana and Kenya canceled sovereign bond offerings worth $500 million.
Remittances too had been increasing rapidly, to a peak of $20 billion in 2007. But 75 percent of Africa’s remittances come from the U.S. and Western Europe, the epicenter of the crisis. Also, we are used to thinking of remittances as countercyclical—when your family is doing badly, you send them more money. This time, the crisis started in remittance-sending countries.As a consequence, remittances are expected to decline by about 13 percent in 2009.
This is a double-edged sword, as those who were hurt the most by the commodity price boom are the ones most helped now, and vice-versa.
Finally, there is a question about whether foreign aid will decrease. The major bilateral donors have committed to maintaining their GDP shares of aid, but since GDP is falling (and in some cases their currencies are devaluing), the dollar value is likely to decline. The experience of previous financial crisis—in Nordic countries—is sobering.
Africa: Enhancing growth and reducing poverty in a volatile world ShantaDevarajan World Bank http://blogs.worldbank.org/africacan
Before the global crisis Africa was experiencing sustained, relatively rapid economic growth As fast as all developing countries (except China and India)
For the first time in 20 years, Africa’s growth is equal to that of developing countries (except China and India)
Before the global crisis Africa was experiencing sustained, relatively rapid economic growth As fast as all developing countries (except China and India) Broad-based: 22 non-oil countries had 4+ percent average GDP growth from 1998-2008
Source: World Development Indicators, World Bank
Before the global crisis Africa was experiencing sustained, relatively rapid economic growth Broad-based: 22 non-oil countries had 4+ percent average GDP growth from 1998-2008 Due to Higher commodity prices Increases in aid, debt relief and capital flows Improved macroeconomic policies
If FDI flows, more important recently, were to fall, growth would suffer Source: World Bank, Global Economic Prospects 2010: Crisis, finance, and growth
Although least integrated, Africa may be the worst hit by the crisis Private capital flows Remittances
Remittances Source: Ratha and Mahopatra (2009)
Although least integrated, Africa may be the worst hit by the crisis Private capital flows Remittances Tourism
Tourist arrivals(compared with equivalent period in 2008) Source: World Bank staff estimates
Although least integrated, Africa may be the worst hit by the crisis Private capital flows Remittances Tourism Primary commodity prices
Terms of trade shocks(change in trade balance as percentage of 2006 GDP)
Note: 2008 includes 2008/09 fiscal year; 2009 includes 2009/10 fiscal year Source: Regional Economic Outlook, IMF (October 2009)
Although least integrated, Africa may be the worst hit by the crisis Private capital flows Remittances Tourism Primary commodity prices Foreign aid
Foreign aid? Source: David Roodman, Center for Global Development
Impact: Decline in growth Source: African Economic Outlook database
Result: Growth declines Per capita income declines For the first time in a decade Human crisis 7-10 million thrown into poverty 30-50,000 additional children dying before their first birthday Possible reversals in economic reforms—didn’t happen
Revenue, Expenditure and Deficit (relative to earlier projections) Source: Krumm, Dhar and Choi, “Fiscal Response to the Global Crisis in Low Income African Countries”, August 2009
Policy responses Time-bound bailout programs E.g., Tanzania’s emergency rescue program limits government guarantees and loans to two years Accelerated reform programs E.g., Nigeria is deregulating its downstream petroleum sector, reducing costly and regressive subsidies
Implications Policy environment has never been better External resources are as productive as they have ever been Continued reforms and additional resources could accelerate progress towards the Millennium Development Goals
Low competitiveness Source: World Bank, Doing Business Database
Infrastructure deficit Note: Road density is in kilometers per kilometer squared; telephone density is in lines per thousand population; generation capacity is in megawatts per million population; electricity, water and sanitation coverage are in percentage of population
Climate Risks and Development: The “Poor Countries’ Danger” Potential Impact of Climate Change on Agriculture: Projected Percentage Change in Agricultural Productivity in 2080 Note: Scenario: SRES A2. Source: Cline 2007.
Back to Infrastructure deficit Note: Road density is in kilometers per kilometer squared; telephone density is in lines per thousand population; generation capacity is in megawatts per million population; electricity, water and sanitation coverage are in percentage of population
GEOGRAPHICAL SCOPE OF THE STUDY SELECTED CORRIDORS OF THE STUDY
THE TRANSPORT PARADOX IN AFRICA (1) A disconnect between low transport costs but high transport prices Transport costs are not excessively high in Africa comparing to France for example However, average transport prices in Africa are high in a global comparison
THE TRANSPORT PARADOX IN AFRICA (2) Although low efficiency, profit margins of trucking companies are high An interesting observation: On Central Africa corridor, trucks with lower average yearly mileage have the higher profit margins
Example of the impact of market deregulation: the case of Rwanda Average transport prices (constant and current) from Mombasa to Kigali
Africa’s time Before the crisis, policies were steadily improving and showing results During the crisis, policies continued to improve Policy environment has never been better Medium-term challenges, while daunting, can also be met with a combination of resources and reform Africa may be poised for sustained, rapid growth, as India was 20 years ago, and China 30 years ago