Transcript Impact of Global Economic Crisis on Africa

THE IMPACT OF THE GLOBAL ECONOMIC
CRISIS ON AFRICA
Presented by
Kwabena Nyarko Otoo
(Director, Labour Research & Policy Institute, Ghana TUC)
Outline of Presentation
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Introduction
Origins of the crisis
Globalising the Crisis
Impact of the Crisis on Africa
Responses to the Crisis
Conclusion
 Introduction
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In Autumn 2008, the world economy went into
the Great Recession
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The crisis is said to have originated in the US
housing mortgage system
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The financial and economic crises were
preceded by the food and energy crisis
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Africa has always been in crisis
 Introduction
• It began in the US housing market but
spread to nearly all aspects of the global
economy
• It has occurred at the same as time as a
global climate crisis
• The current crisis has huge geo-political
implications for global governance
 The Origin of the Crisis
• The crisis began in the US housing
market
• The Financial sector became overexposed to highly unregulated
transactions in the housing market
• In the late 1990s and early 2000s,
the US experienced a housing boom
 The Origin of the Crisis
• The total home equity in the United States, at
its peak in 2006 was valued at US$13 trillion;
• Between 2000 and 2005 the market value of
homes grew by 50 percent
• In the first half of 2005, about half of American
GDP growth came from housing-related
purchases
 The Origin of the Crisis
• Subprime mortgages are given to people
whose credit rating do not qualify them for
mortgages;
• The banks lent aggressively and recklessly
to these financially less secure households
and individuals
• The value of sub-prime mortgages was
estimated at US$1.3 trillion as of March
2007;
ORIGINS OF THE CRISIS
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Borrowers defaulted rapidly and at the same
time
Houses prices fell and people could not sell
their houses to cover their debts
By mid-2008, total home equity had dropped
to US$8.8 trillion from US$13 trillion in 2006
Mortgage delinquencies/Foreclosures
increased
By October 2008, large financial institutions
have lost US$700 billion in bad loans.
GLOBALISING THE CRISIS
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Low quality sub-prime mortgages found
their way into the entire credit system of
the world;
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Just when the scale of the crisis was
becoming manifest in America, sub-prime
related difficulties emerged around the
world;
 The Impact of the Crisis on Africa
 Of the 11 hardest hit countries in
Africa, 3 are in West Africa
 Cote d’Ivoire
 Guinea
 Liberia
 Economic Growth Slowdown
 Economic Growth in sub-Saharan Africa
 2009: 1.6 percent
 2008: 5.8 percent
 Source: IMF
 The Impact of the crisis on Africa
 Financial Sector:
 Stock Market:
 In Nigeria stock markets has shrunk by about 30%
since March 2009
 Repartition of Resources
 Countries with significant foreign
ownership such as Ivory Coast and Cape
Verde are at risk of repatriation of
resources by parent banks.
 The Impact of the Crisis on Africa
 Currencies:
 Depreciation of currencies in West Africa
estimated at between 13% and 27%
 Fall in Export Commodity Prices:
 Liberia has suffered 60% fall in rubber prices
 Some export commodities prices have reduced by
20% between 2008 and 2009
 However, fall in oil prices is helpful to non-oil producers
in West Africa
 The Impact of the Crisis on Africa
 Fall in World Market demand for Export
Commodities
 In Liberia, there has been sharp decline in
demand for steel and iron products
 Fall in demand for Ghanaian timber
 Foreign Direct Investment (FDI):
 In 2008, FDI increased by more than US$60billion.
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However mostly in mining/oil exploration
Limited impact on job creation
 The Impact of the Crisis on Africa
 Remittances
 Importance of Remittances:
 In Senegal, Nigeria, Sierra Leone and
Togo, remittances constitute around 5%
of GDP
 In Cape Verde, Liberia and the Gambia,
remittances constitute over 10% of GDP.
 The Impact of the Crisis on Africa
 Remittances
 Effect of the Crisis of Remittances:
 Senegal is estimated to have lost 10%
 In Ghana it reduced from:
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October 2008:US$8million
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January 2009: US$6.8million
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February 2009: US$6million
 Tourism
 Reduction in the number of tourist
 Reduction in ODA
 The Impact of the Crisis on Africa
 Employment
 Number of the Unemployed in Sub-Saharan
Africa is estimated to increase from 23.6
million in 2007 to 27 million in 2009
 Number of working-poor in Africa (earning
below US$1.25 a day) is estimated to
increase form 168 million in 2007 to 205
million in 2009
 Vulnerable employment is estimated to
increase from 211 million in 2007 to236
million in 2009 in sub-Saharan Africa
 The Impact of the Crisis on Africa
 Job losses in the formal section
 Job losses in export oriented industries
 In Liberia, about 2000 workers were laid-off in
one rubber plantation
 In Ghana by February 2009 about 1040
members of the TWU had lost their jobs.
 Farmers in Benin, Mali & Burkina Faso have
been affected by fall in cotton prices.
 The Impact of the Crisis on Africa
 Expansion of informal sector jobs
 Increasing competition for low-income occupations
 Informal sector has high decent work deficits
 Responding to the crisis
• Global stimulus packages of
US$2trillion (IMF, 2009);
• The stimulus packages were
intended to recapitalisation the
banks to resume lending both at the
wholesale and retail windows;
RESPONSES IN AFRICA
• Initial responses in much of Africa
was:
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Either the economy was too strong to
withstand the impact or;
The economy was integrated enough
into the global economy to be affected;
• When pre-crisis export boom began
to collapse, import surged and
growth slowed down the reality
dawn
RESPONSES IN AFRICA
• The response has so far been a
return to the IMF
• The adoption of pro-cyclical
economic policies:
• Fiscal consolidation,
wage/employment freeze, inflation
targeting, dampening domestic
demand etc.
RESPONSES IN AFRICA
African Development Bank
• Support with Emergency Liquidity Facility
of US$1.5 billion to eligible beneficiaries to
meet short term emergencies and
unexpected funding requirements due to the
crisis.
• Trade Finance Initiative (US$1 billion)
• Budget Support due to short falls from
commodity prices, exports etc.
•Infrastructure financing
• support for the private sector.
RESPONSES IN AFRICA
 Some Initiative by some
Countries in Africa
 Increase in infrastructure spending
 Protection of migrant workers
(Egypt)
 Direct support for workers (South
Africa, Kenya and Mauritius)
 Agriculture for Employment and
Poverty Reduction (Nigeria)
Conclusion
 The current Neoliberal economic paradigm is
incapable of dealing with the needs and
challenges of Africa and its people
 Africa needs developmental, ethical and
accountable states which ensure equitable
distribution of the resources and puts
humans and for that matter employment at
the centre of macroeconomic policy
framework.
 End of presentation
 Thank you