1. Africa and the Global Economic and Financial Crisis Shanta Devarajan World Bank http://africacan.worldbank.org

2. 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

3. Source: IMF World Economic Outlook, 2008 1. Africa has been increasingly relying on private capital flows

4. 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

5. 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

6. 3. Foreign aid may be affected Source: David Roodman, Center for Global Development

7. 4. Commodity prices are falling

9. Terms of trade shocks (change in trade balance as percentage of 2006 GDP) Bottom 5, 2008 Seychelles -13.90 Eritrea -11.68 Togo -7.79 Cape Verde -7.25 Senegal-7.07 Top 5, 2008 Nigeria22.92 Gabon28.23 Congo, Rep.30.53 Angola34.77 Equatorial Guinea49.12 Bottom 5, 2009 Equatorial Guinea-26.05 Angola-19.00 Congo, Rep.-17.15 Gabon-15.69 Nigeria-13.01 Top 5, 2009 Ethiopia1.39 Mauritius2.44 Togo3.44 Eritrea3.39 Seychelles5.92

10. 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

11. Implications Africa’s GDP growth rate will slow from 4.9% in 2008 to 2.4% in 2009

12. 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

13. Lower inflation across the board Source: World Bank WDI database. Indices were calculated based on the GDP weighted growth rates.

14. Implications If there is a growth collapse—a human crisis

15. Policy response Initial Conditions WeakModerate to Strong Impact Immediatee.g. Comoros, DR Congo, Guinea, Kenya, Seychelles, Sudan e.g. Mauritius, Sao Tome and Principe, Zambia Short terme.g. Burundi, Cote d’Ivoire, Ghana, Ethiopia, Guinea- Bissau, Liberia, Sierra Leone e.g. Benin, Botswana, Burkina Faso, Cape Verde, Lesotho, Nigeria, Swaziland

16. Tailor assistance to initial conditions and impact Initial Conditions WeakModerate to Strong Impact ImmediateFast-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 termKnowledge 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)

17. The Hope and the Challenge of Africa