The World Economic Crisis and its Impact on Sub Saharan Africa Implications for Competitiveness and Growth Leslie Maasdorp

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The World Economic Crisis and its Impact on Sub
Saharan AfricaImplications for Competitiveness
and Growth
Leslie
Maasdorp

22 January 2009

Hamburg Germany
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Aim of this Presentation
The Worlds Economy is in turmoil and Africa
although somewhat insulated from the direct
consequences of the collapse of global markets is
not immune from the consequences emanating from a
market slump of this degree. This presentation
will set out
Details of
By Outlining
Corresponding Challenges and Responses
In light of the a stressed global and regional
environment
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Contents
Growth Its implications and the Outlook for Sub
Saharan Africa
Impact on Growth and Development in Sub Saharan
Africa

• Key Policy Challenges

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Sustainable Growth as an Enabler of Change
The Growth Report Strategies for Sustained
Growth and Inclusive Development
Sustained, inclusive growth and the policies,
investments and political underpinnings that
support it
Sustained, inclusive growth and the policies,
investments and political underpinnings that
support it
Engagement in the Global Economy and developing
strong export market
Maintaining economic security and providing
access to basic services for the employable
population
FACTORS INFULENCING SUSTAINABLE GROTWH
Public Investment, Health and Education
Credible, Inclusive and Pragmatic Leadership and
an effective Governance Framework
Deep, Mobile, Productive Labour market which
combines skilled and un-skilled workers to
promote economic growth
Urbanisation and the promotion and management of
movement into productive employment
Prudent Fiscal and Monetary Policies which are
flexible and responsive
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Sustainable Growth as an Enabler of Change
Growth Commission - Factors Necessary For
Sustained Growth
Translating Objectives in Terms of Growth
Achieved thus far
Engagement in the Global Economy Strong Export
market
African countries actively participate in diverse
sectors of the global economy and have bi-lateral
trade agreements with BRICs and ASEAN economies
as well as special trade agreements with EU and US
The number of democratic countries in Africa has
increased form 10 in 1980 to 34 by the end of 2007
Credible, Leadership and Effective Governance
Framework
World Bank estimates that the middle class in
Africa will stand at 43million by 2030, compared
to the 2000 number of only 12.8million people
Urbanisation and inclusion and promotion of
participation of employable sector of society
into the economy
Public Investment, Health and Education
Infrastructure development and investment in
infrastructure has been growing at a sustained
pace in most African countries
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Sustainable Growth in Africa Key Social
Indicators
Africas Journey Towards Sustainable, Inclusive
Growth Primary School Enrolment, Mortality
Rate, Fertility Rate and Population using
Improved Water (2007 figures)
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Africas Growth - Global Context
GDP Growth Across Africa 2003 - 2009
GDP Growth
Year

• The global slowdown in growth comes at a a time
  when for the first time since the 1970s, a large
  number of African countries are enjoying high
  rates of persistent growth

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Sustained Growth In Africa Mozambique and
Tanzania
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Contents
On the Origins of the Global Financial Crisis
Impact on Growth and Development in Sub Saharan
Africa

• Key Policy Challenges

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Impact on Growth and Development in Sub Saharan
Africa
Translating Depressed Global Growth in African
Terms
Many African Countries See a Negative Impact on
Current Accounts as A Consequence of 2008
Commodity Price Changes

• - Since SSA remains less integrated in the global
  financial markets, direct impact of the turmoil
  is likely to be less severe than in advance
  economies
• Africa is not immune from the crisis and will
  continue to feel the secondary effects of
  suppressed growth
• - Slower global growth would likely reduce demand
  for Africas exports and depress its terms of
  trade
• - Consequence of global downturn, foreign direct
  investment, portfolio, aid, and remittances
  inflows could slow as well.

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Africas Relative Immunity to the Crisis
Factors Influencing Africas Relative Insulation
from the Primary Effects of the Global Financial
Crisis
Lack of integration into Global Financial
Markets

• - Africas global share of
• stock market capitalization 1.81
• public debt securities 0.31
• bank assets 0.15 respectively
• Only 17 African countries have accessible stock
  exchanges
• African financial institutions are relatively
  inactive in the derivatives market and as a
  consequence are insulated from the risks
  associated with dealing with these instruments
• Financial Institutions rely mainly on domestic
  market resource mobilistaion to support
  operations and have not relied heavily on foreign
  borrowings to finance operations
• Residual controls on capital accounts of Banks
  ensures that assets are held on debt issued which
  makes the deleveraging process less severe as
  seen in developed economies

Relative Inactivity in the Derivatives Market
Domestic Market Resource Mobilisation
Residual Controls on Capital Account
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Impact of the Global Financial Crisis on SSA
Consequential Effects of the Global Crisis on SSA
Global Response
Challenge Posed to Africa as a Consequence
Point Of Impact
Equity Markets
Withdrawal from risky assets and flight to
safer securities US Treasury Bills
How will Africa continue to attract investments
in local equity markets averse to risky emerging
market assets
Debt Capital Markets
Virtual closing up of debt capital markets
A significant portion of financing of regional
developments in the infrastructure arena will
continue to come under pressure as African
countries find it difficult to raise capital in
international debt markets
Suppressed Appetite for Emerging Market Debt
Foreign Investment and Aid
Countries are pulling back on investments in
other economies as the risk of a recession edges
closer
In an increasingly strained liquidity
environment, the benefits for investment Into
Africa need to be re-enforced
Decrease in demands for Key Exports
Weaker global demand
Exports accounts for 39.5 of SSA cumulative
GDP, for oil exporting countries excluding
Nigeria the figure stands at 66.2 As global
growth slows, windfall gains from record high
commodity prices should be absorbed into the
economies
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Africas Vulnerability as a result of the Crisis
FDI Flows
Foreign Direct Investment into SSA as a
Percentage of GDP1985-2006
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Lower Commodity Prices Impact on Export Earnings
Falling Commodity Prices Coupled with weaker
Global Demand Directly Impacts on Africas Export
Earnings
Selected International Metal Prices Aluminium,
Copper, Zinc
Selected Metal World Prices Aluminium, Copper,
Zinc

9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Jan 2007
Jun 2007
Dec 2007
Nov 2008
Jun 2008
Aluminum, US per metric tonne
Copper, US per metric tonne
Zinc, US per metric tonne
Source Africa Development Bank Interim Impact
of Financial Crisis, Jan 09
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Lower Commodity Prices Impact on Export Earnings
Falling Commodity Prices Coupled with weaker
Global Demand Directly Impacts on Africas Export
Earnings
Selected International Metal Prices Coal,
Uranium, Iron Ore
Selected Metal World Prices
175
150
125
100
75
50
25
Jan 2007
Jun 2007
Dec 2007
Nov 2008
Jun 2008
Coal, US per metric tonne
Iron Ore, US cents per dry metric tonne unit
Uranium, US per pound
Source Africa Development Bank Interim Impact
of Financial Crisis, Jan 09
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Lower Commodity Prices Impact on Export Earnings
Falling Commodity Prices Coupled with weaker
Global Demand Directly Impacts on Africas Export
Earnings
Selected International Metal Prices Platinum,
Silver, Gold Palladium
Source UBS Mining and Metals Global Weekly, Jan
09
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Contents
On the Origins of the Global Financial Crisis
Impact on Growth and Development in Sub Saharan
Africa

• Key Policy Challenges

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Key Policy Challenges - Designing a Pragmatic
Response
Designing a Response Plan with a Multi-Pronged
Approach
Phase 1
Phase 2
Phase 3
Prognosis of challenge Understanding threats,
impacts and implications
Formulation of responsive short term mitigants to
problems identified in phase one
Focus on laying the foundation for long term
growth

Recommendations on Optimal Strategy Formulation
SHORT TERM INITIATIVES
LONG TERM FOCUS
Focus on investments and initiatives that will
bolster global competitiveness and guarantee
return to economic growth in the long term
Should focus on alleviating the social cost of
the economic downturn
Relieve pressure on businesses under stress
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Key Policy Challenges
What African Leaders should consider when dealing
with the consequences of the Global Crisis
Dry up of Liquidity
Tightening of credit environment globally could
prove to be a challenge for growth and
development objectives
Maintaining prudent fiscal policies
Macro economic policies should be robust and take
into account upside and downsides of global growth
Incorporating windfall gains from commodity
price surges

• View on incorporating the windfall gains from
  commodity price surges back into the real economy
  of countries

Increasing agricultural output
Should focus shift to significantly increasing
agricultural output as a means of bolstering
economic growth across the continent
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Questions Discussion