Professor Happy Siphambe
University of Botswana
The collapse of the investment bank, Lehman
Brothers on September 15, 2008 is widely
regarded as the start of the severe global
Economic forecasts steadily worsened so that
by January 2009, the IMF was forecasting
negative growth in all major industrial
economies and global GDP for the year was
forecasted at 0.5 percent
As charts 1 and 2 show economic growth of the
world and that of Africa will decline due to the
financial crisis in 2009
The worst hit will be Sub-Saharan Africa which is
forecast to grow at 1.7 percent in 2009
compared to 5.5 percent in 2008.
IMF forecast are that the world economy will
recover from the economic recession in 2010,
where growth is expected to be small but
positive at 1.9 percent.
This recovery is in response to the economic
policies that have been put in place since the
beginning of 2009
Four main channels:
banking failures and reduction in domestic
Reduction in export earnings
Reduction in tourism demand
Reduction in financial aid flows to developing
First channel is very small if at all it exists
due to banks in developing countries having
limited interrelationships with international
Main effect in terms of 1 is thru stock market
volatility- most stock market indices were
observed to decline since the beginning of
There is limited evidence of non performing
loans due to the crisis. Eg Lesotho increased
from 2% to 3.5 % between 2006 and 2008.
Major impact of the crisis in developing
countries comes thru second round effects-
in particular decline in export demand and
Comes from fall in commodity prices as well
as decline in demand for commodities
especially those that are luxurious.eg
ODA and remittances also fell
Focus on five small African countries- Botswana,
Lesotho, Gambia, Namibia and Swaziland
Four of the countries are SACU members and also
highly dependent on SA and some to the extent
of using the SA currency, Rand.
Therefore the response of the SA economy will
largely shape the SACU countries as well.
IMF forecast SA economy to record negative
growth of 0.3% in 2009
Benefit is low inflation- 11.5 in 2008 to 6.1 in
2009- due to fall in commodity prices especially
Between 1991 and 2008 the five countries
recorded positive growth rates which were quite
impressive even though lower than those
required to achieve the MDGs.
IMF forecast is that all the five countries will
decline in 2009 due to the crisis- worst hit are
Botswana and Namibia- due to decline in
Botswana- -10.4 in 2009
Result- closure of some diamond plants in
Botswana and Namibia- low Govt revenue which
led to postponement of NDP 10 for Botswana and
budget cuts of 7%
Lesotho forecast to grow marginally at 0.6%
compared to 3.5% in 2008- slow growth due
to decline in textile exports to USA.
Also reduction in SACU revenues as a result
of low imports- SACU revenue account for
60% of total Govt revenue.
Also fall in remittances as SA reduces labour
in its mines in response to low prices of gold
Swazi economy is forecast to grow marginally
at 0.5% compared to 2.5% in 2008.
Also affected by decline in SACU revenue and
fall in remittances similar to Lesotho
Also decline in exports of textile
But likely to be cushioned by exports of sugar
and agro based products which are income
Gambia is forecast to have a lower growth of
4% in 2009 compared to 5.9 in 2008.
Impact is felt more in terms of tourism.
Demand for ground nuts less likely to be
affected given that
A positive impact of the crisis in the low
inflation sue to decline in commodity prices.
After having relatively high inflation rates of
up to 18 percent in November 2008,
Botswana’s inflation started declining and
had reached a low of 8 percent in May 2009.
The same trend is observed for the other
countries and this trend is expected to
continue into most of 2009.
As the commodity market worsens due to both low
prices of exports and low demand for exports from
developing countries, the balance of payment is also
likely to worsen
For Africa the current account is expected to worsen
to -6.5% of GDP in 2009 compared to 1% in 2008.
For sub-Saharan Africa it is expected to be -7.7 in
2009 compared to -1.8 recorded in 2008.
Countries experience- Botswana expected to decline
from 14.3 % of GDP current account balance in 2008
to 7% in 2009; Lesotho 12.7 to -3.2 in the same
period and Namibia from 9.2% to 2.3 % in the same
Swaziland- -6.4% of GDP from -1.4% and Gambia
Most currencies have depreciated against the USD since
the crisis started- leads to high foreign debt and increase
in cost of imported intermediate inputs- less production
and loss of employment.
Decline in commodity prices especially oil –none of the five
is a major exporter of oil.
The prices of copper, coffee, cotton and sugar declined by
more than 20 percent between 2008 and 2009
Swaziland is a major exporter of sugar meaning therefore
that it faced a major decline in its revenue from that
The volume of exports has also declined due to low
demand from the major traders like USA due to the crisis
Forecasts from World Trade Organization indicate that the
volume of global trade is expected to decline by 9 percent
Another area is the fall in remittances – Lesotho, Swaziland
and Gambia remittances represent more than 10% of GDP.
FDI also expected to decline.
Donors also likely to reduce ODA- a number of African
countries highly dependent on ODA.eg Gambia 14.7% of
Have implications for balancing their budgets. Eg
Botswana had to postpone NDP 10 and cut budget by 7% .
The need to cut expenditure poses problems given that
Govt also needs to use fiscal policy to stimulate the
Another impact is in terms of loss of employment and
increases in unemployment.
Most have resorted to interest rate reductions,
recapitalization of financial institutions, increasing
liquidity to banks and firms, fiscal stimulus packages,
trade policy changes, and regulatory reforms
For most of these countries a major policy available
was fiscal policy given that they are operating a fixed
exchange rate regime.
Botswana used both monetary and fiscal policy
Monetary- reduced bank rate several times- the
latest in June 2009 by 1.5%.
Namibia and Swaziland also responded by either
reducing interest rates or keeping them unchanged
while SA was raising its interest rates.
In terms of fiscal policy, most countries went for belt
Botswana for instance froze civil service salary increments,
cut Govt budgets by 7%, put restrictions on travel
budgets, vehicle purchases and the creation of new posts
But a number of capital projects were allowed to take off
to provide the needed stimulus to the economy- some are
to be financed through international borrowing
Namibia was exceptional in that it allowed a 24% salary
increment during a crisis year
Govt has not resorted to suing the foreign exchange
reserves which currently stand at USD8.1 billion.
Lastly countries allowed energy prices to decline to benefit
consumers generally when prices of petrol and oil went
Given that the small African countries have very little
control on what has happened to the global economy,
it is however very important that they have a good set
of policy responses that will not worsen the condition
of their economies
To a certain extent, these countries should also take
advantage of the bad economic times to realign their
economic policies to best practice
Botswana has for instance deviated from its past
practice of good macroeconomic management where
only viable projects were financed after having been
subjected to rigorous cost benefit analysis.
The country can perhaps use these bad economic
times to move the economy back to good economic
The international world also has a major role
in terms of assisting these economies to
quickly recover from the negative impact of
the economic slowdown through financial and
There is also need to adequately understand
the impact of the economic and social impact
of the economic slow down through
continuous dialogue, research and sharing
information and best practices amongst the