Transcript Impacts on Growth and Development African Countries

The Global Financial Crisis: Impacts on
Growth and Development African Countries
Presentation to INWENT
By
Mr. Kasekende
Chief Economist,
African Development Bank
Tunis, 6 December 2008
Impact of the Financial Crisis on Africa
Main Message
 Africa is feeling the impacts of the crisis
 Short run impact-less development finance
 Medium term impact - global economic slow down will reduce
commodity prices and demand for African exports
 Countries may need to boost domestic demand to maintain
economies on an upward growth trajectory
Page  2
Economic Performance up to 2007: robust and strong
Since 2002 Africa growing in tandem
with global economic growth
Export growth (high commodity prices)
and rising investment main drivers
US$ million
6
5
500,000
25
400,000
20
15
300,000
10
200,000
5
100,000
0
-5
0
4
-10
2000
3
2001
2002
2003
Export US$mill
2
2004
2005
2006
2007
Export Growth %
Rising Investment underpinning growth
1
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
World
Africa
Gross Domestic
Investment/GDP (%)
GDP Growth (%)
7
25
20
15
10
5
0
2000 2001 2002 2003 2004 2005 2006 2007 2008
World
Page  3
Africa
% Growth
Exports the main driver of growth
Growing Integration of Africa into the global economy
Decoupling more limited than
previously thought:
• private capital flows rising
•The share of trade in GDP
increasing
•Regional debt markets are
expanding
•More investors interested in
African equities
Source: IIF 2008
Trade is a growing share of GDP
Remittances a major source of external finance
80.0
% Share of GDP
50
US$ Billion
40
30
20
10
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
1999
2000
2001
2002
2003
Sub-Saharan Africa
Page  4
2004
2005
North Africa
2006
2007
Total Africa
2008e
2000
2001
2002
2003
2004
2005
Trade as % of GDP
2006
2007
2008
Impact of the Crisis on banking: though small, African capital markets
are growing
 Although African banks do not
have complex derivative
instruments nor rely excessively
on foreign borrowing
US$ Billion
Size of Capital Markets in Africa
1400
1200
1000
800
600
400
200
0
 High levels of foreign
ownership indicates potential
contagion channel
2005
2006
2007
Debt Securities Bank Assets Stock Market Capitalisation
Page  5
 Small market size implies that
even limited withdrawals could
be significant
 Lending by foreign banks to
African private banks is
declining (e.g. in some countries have
banks seen lines of credit shrink)
Impact of the Crisis: Stock Markets Affected
Page  6
Impact of the Crisis: Currencies affected
Page  7
Impact on Commodity Prices
Page  8
Impact on Trade: Global Trade volumes falling
The Baltic dry Index
sharply fell over the last
six month, reaching an alltime low in December,
from a peak in mid-May
African exports set to
grow only by 4.8% in 2009
compared with 26.9% in
2008
Source: IIF Capital Markets Monitor, Dec. 2008
African Export to fall sharply in 2009
Percent Growth
30
25
20
15
Also, trade financing
10
being affected
5
0 9
Page
2007
2008
2009
2010
Growth forecast being revised downwards
Deterioration of African Growth
November Assumptions:
April 08 Version
November 08 Version
7.0
• Lower foreign demand
from the rest of the world
(drop by 0.41% in 2008 and
0.58% in 2009)
• Higher inflation in the rest
of the world (boost by
1.09% in 2008 and 0.27%
in 2009)
• Oil prices are assumed
higher in 2008, by
10$US/bbl; and lower in
2009, by 9$US/bbl.
6.5
5.9
6.0
5.9
5.5
5.5
5.0
4.9
4.5
4.0
2003
2004
2005
2006
2007 a/
2008 b/
2009 b/
Inflationary Pressure
April 08 Version
10.0
November 08 Version
8.9
9.0
8.0
7.5
7.0
6.0
6.4
6.3
5.0
4.0
Page  10
2003
2004
2005
2006
2007 a/
2008 b/
2009 b/
Some Country Examples: Egypt

The stock price index CASE 30 more than halved since
the global financial crisis unfolded: it fell by 57% from 31
July-2 Dec. 2008.

The Crisis is now affecting growth performance and
undermining growth outlook: growth projections revised
growth from 7.2% to around 6% in 2008 and 6% in 2009.

Job creation slowed down: 180.000 jobs created in 3Q 2008
compared to 200,000same period in 2007

The Suez Canal revenue was US$467.5 mil in October,
down from $469.6 million in September. The lowest monthly
Page  11
revenue since April 2008.
Some Country Examples: Egypt

Tourism booking indicators for winter season are down by
40 percent compared to the same period of last year.

Trade affected: Government reported a US$2.2bn loss in
exports and a fall in imports by $4.3 billion, which is
synonymous a sharp decline in the trade balance deficit.

But inflation pressure receding and banking sector been
insulated thanks to the very low loan-to-deposit ratio and a
small total mortgage exposure

Government announced a fiscal stimulus package,
including new investments worth about USD 1.2 billion.
Page  12
Some Country Examples: South Africa

According to the SARB, South African financial sector
remains broadly robust and stable.
•
The banking system is not dependent on foreign lines of credit
•
The Central Bank has not yet has to make any special liquidity provision
•
The domestic interbank market remains fully functional

But the South Africa’s JSE All Share Index has fallen by
about 28% from end of July to 2 December 2008

Similarly, the Rand has depreciated against US$ by 28%
from 31 July 2008 to 2 December 2008.

High structural current account deficit compared with most
other emerging economies (-7.3% of GDP in 2007; -7.7% in
2008) financed mainly by potentially volatile portfolio inflows
Page  13
Some Country Examples: South Africa cont’d

3Q 3008 GDP growth was 2.9%, down from 2Q GDP
growth of 4.4%. Growth for 2008 forecast at 3.8%, against
5.1% in 2007.

Risk of inflation

The mining sector already adversely affected by contraction
of metal demand due to economic downturn in developed
and emerging market.

Manufacturing, which makes up 16% of the economy,
contracted for a sixth straight month in October.

Due to credit squeeze, new vehicle sales in October fell to
their worst level of 2008 and 31 percent down on the same
month in 2007

Significant potential job losses
Page  14
Some Country Examples: Kenya

The stock market has experienced some volatility since
June 2008

The Kenyan shilling depreciated by about 17% between 31
July to 2 December 2008.

GDP growth set to soften considerably from 7% in 2007 to
4% in 2008

Inflationary pressures remain significant: month on month
overall inflation rate rose from 28.4% in October 2008 to
29.4% in November
Page  15
Some Country Examples: Kenya

The Crisis having a negative effect on two of Kenya's key
foreign-exchange earners: the tourism and horticulture
sectors

Kenya has experienced growth on the domestic bond
market, whose turnover has increased from Kshs 34.1 billion
in 2004 to 84.9 billion in 2007.

However, the global financial crisis makes it difficult for the
government to implement its plan to float a US$500 million
infrastructure Eurobond.
Page  16
Some Country Examples: Nigeria

The Nigeria Stock Exchange (NSE) has suffered a major setback, with
the all-share index declining 45.3% from March 5, 2008

Decline in the price of oil is creating challenges for public finance

Government expects oil production to drop from 2.45 million barrels a
day in 2008 to 2.29 million barrels in 2009

Crude accounts for 80% of government revenue and 90% of exports.

The central bank is restricting the sale of USD to preserve foreigncurrency reserves amid dwindling export earnings

International hedge funds managers have already taken as much as
USD 10 billion out of the country

Nigerian banks are seeing their credit lines shrink rapidly (e.g., letters of
credit)

Fund-raising for new initiatives such as the Nigeria Infrastructure Fund
are facing difficulties
Page  17
Policy Responses

Domestic sources to boost economic growth
–
Sustain macroeconomic reforms to make our economies
more resilient
–
Strengthen domestic resource mobilisation to support
domestic investment as external support weakens
–
Begin thinking now about appropriate macroeconomic
responses

Deepen integration to boost domestic market
–
Page  18
(invest in infrastructure) economic and financial reforms