Razia Khan - Standard Chartered
Patrick Smith - Africa Confidential
Dirk Willem te Velde - Programme Leader and Research Fellow, ODI
Antonio Gumende - High Commissioner of Mozambique
Razia Khan (Standard Chartered):
· Provided an investor’s perspective, contrasting initial predictions, initial reactions and recent trends.
· Initial predictions: Initially, there was a great deal of optimism among investors. The global financial crisis was seen as a crisis in the financial markets, which Africa would be relatively shielded from. However, this overlooked the vulnerability of African economies which were increasingly interlinked to international markets. Gradually, investors realised that African economies would also be affected by the global recession.
· Initial reactions: The global conditions which contributed to the crisis were defined by the prevalence of risk. In the context of African economies, investors had also been increasingly looking for greater risks. As the financial crisis began to take hold, investors became much less keen to take on risk. Following Lehman’s bankruptcy, we saw huge investor withdrawal from all emerging and ‘frontier’ markets. Investors in sub-Saharan Africa had seen themselves as a separate ‘class’ to other investors and there was a perception that risks were different in these economies. But they had not realised that African economies had become more ‘mainstream’ and that, as the same investors were investing in other markets, the impacts of the global recession would also be felt in Africa.
· Recent trends: There are some tentative signs of increased appetite for risk in early 2009. But investors still generally have a ‘hands off’ attitude to anything that poses real risks. There remains a great deal of uncertainty as to how African economies will be affected in the longer term, as African markets are still seen as a high risk for investors looking for potential ‘safe havens’. This means that African economies may be some of the last to benefit from any ‘green shoots’.
Patrick Smith (Africa Confidential):
· Initially, there was a predominant view that Africa would not be significantly affected by what was perceived to be a ‘western’ crisis. This was combined with the perception that Asian countries would be able to support Africa during the crisis.
· But, there is now an emerging view that many African countries will suffer severe impacts. For example, Chinese companies are already scaling back their operations in Democratic Republic of Congo, Liberia, Guinea, Angola and Sudan; there have been slumps in demand for African exports in North American and Europe.
· What might this mean for the political and security context? Over the last year, there have been a number of coup d'états (e.g. Guinea, Mauritania) and a worsening of the security situation in Sudan, Somalia, and the Democratic Republic of Congo. It may be that the global recession reinforces or worsens pre-existing challenges and security problems. Therefore, while we have seen some political victims of the crisis in Europe (Latvia, Iceland), in an African context, this is likely to have much longer term repercussions.
· The extent of these repercussions depends on four factors:
1. The depth and nature of the recession.
2. ‘Continuity’ factors or the extent to which other shocks (fuel, food crises) are intensified by the global recession.
3. How African regimes respond to the crisis: Some countries have been more responsive than others to the crisis. For example, the government in Ghana did not recognise the magnitude of the crisis and saw public opinion turn against it for this reason.
4. The international community’s response to the crisis: and the extent to which international institutions open up. There are currently various proposals or initiatives for reform (e.g. World Bank, IMF). A key area of focus should be on tax havens, and how to prevent illicit transfers from developing countries.
Dirk Willem te Velde (ODI):
· ODI produced a Development Charter for the G20 which set out some of the key issues to be addressed from the crisis. These included the need to monitor impacts; enhance financial regulation, ensure some of the fiscal stimulus was directed to developing countries; avoid protectionism in trade and migration; maintain aid commitments and reshape multilateral institutions. To date, progress is under way for some of these (e.g. monitoring, aid commitments by most donors) but on others, there is much less clarity.
· ODI’s monitoring study of the financial crisis has identified four key transmission belts for the impacts of the crisis. These are private capital flows, trade, remittances, and aid (although there is much less data available on aid). The same transmission belts affect different countries differently.
· Some key questions in thinking through ‘where next’ for Africa include understanding what are the potential impacts, what are the possible policy responses, who are the actors and when can they act.
· There are a number of key meetings in 2009 where these issues will be taken further, e.g. at the EU, UN, G8 and G20 levels.
· Perhaps one way forward is to focus on ‘Building Back Better’: how can African countries and the international community develop more stable responses to the crisis?
Key issues highlighted during the discussion included:
· Government responses: Some questioned the nature of states’ responses to the crisis and asked, which African governments are recognising the gravity of the crisis, and how are they responding? Uganda and Tanzania were put forward as countries which potentially had the fiscal space to respond to the crisis effectively. Mauritius was also put forward as a country which had responded quickly to the crisis and had established a taskforce. Some panellists argued that most African regimes are worried about their own security or hold on power in light of the crisis. This could mean an increase in blocking opposition and declining accountability. Overall, a common theme was that there had been a lack of effective response from African countries to date – but that this was also true of many developed countries.
· The ability to absorb shocks: It was agreed that while many European countries are feeling the effects of recession, African countries are far less able to absorb these shocks, both politically and economically (and at national and household levels). How can we ensure that African citizens cope with the impact of the crisis? What does this mean in terms of policies from African governments? What aid instruments are needed? How should the private sector behave or respond?
· The need for a macro-narrative on the impacts of the crisis was put forward: Two issues seemed to have been left out of the ‘narrative’ to date. Firstly, the human development story and the likely impacts on development targets which were already hard achieve (e.g. the Millennium Development Goals). Secondly, little attention had focused on the political opportunities of the crisis – where can African economies position themselves to be part of the future upturn? One political opportunity put forward is that in future years, many developed countries will be paying for the fiscal stimulus. This could allow for faster growth within African economies.
· The need to maintain a focus onclimate change and the need for green economies was raised: it was agreed that environment issues have not taken centre stage in debates on the financial crisis but it would be important to ensure that commitments were not undone.
· The potential of reform of international institutions and their modes of operating within Africa was raised: Are we seeing changed approaches from the IMF in Africa? What kinds of reform should be advocated for institutions like the IMF in their approach to Africa?
· The interaction between the global recession and other shocks, such as the food crisis, was emphasised.
Antonio Gumende (High Commissioner of Mozambique):
· Mr Gumende reflected briefly on the response by the government of Mozambique to the crisis: Mozambique was affected by rising food and oil crises and then by the global financial crisis. The government may not have anticipated the full scale of the crisis at an early stage, but neither did other governments, commentators and experts around the world. The government was now taking a number of measures to respond to the crisis.
· Mr Gumende thanked the panel and audience for their participation in a timely and interesting debate.
World leaders heralded the G-20 summit as the day the world ‘fought back against the recession’. But the global financial crisis continues to deepen in Africa. With the commodity boom turning to bust for many countries, remittances falling, and investments drying up, questions remain about the long-term economic and political repercussions for the continent.
Leading experts will analyse critical issues surrounding the global recession and Africa, including the implications of the decisions made by the G-20, and the impacts of the crisis on political stability, regional trade, and China’s role in Africa.