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Large shortfall in African financing as a result of the global crisis

A $130 billion shortfall in financial flows to sub-Saharan Africa is expected by the end of 2009, according to new evidence from the Overseas Development Institute (ODI). The shortfall in financial resources is a result of declines in the trade balance, international bank lending, remittances, portfolio flows and foreign direct investment to the region during the course of the global financial crisis.

The new ODI report, supported by the African Economic Research Consortium, has also found that 10 African countries are experiencing a drop in real GDP of more than 5% this year compared with forecasts made before the crisis. This is mainly due to decreases in mineral prices as well as through other transmission belts. But some countries have been affected less because the terms of trade changed favourable as a result of gold, tea and cacao price increases.

Developed countries have responded quickly to the crisis with large bailouts, unprecedented monetary easing and fiscal stimuli, but in doing so have shown protectionist tendencies. While developing countries have also adopted policies to mitigate the effects of the crisis, they have, in stark contrast, shown very few signs of increased protectionism.

Report author and ODI Research Fellow, Dirk Willem te Velde, said:

"At the beginning of the crisis last year, many predicted that sub-Saharan Africa would not be affected as much as other parts of the world. Our research has shown this not to have been the case. It is now clear that there have been both real effects through dramatic changes in trade values and financial effects through fewer portfolio flows, less than expected foreign direct investment and withdrawals of international bank lending.

"While some sub-Saharan African countries have been resilient to the crisis, many are suffering growth deficits far worse than anyone predicted and people are being pushed into poverty as a result.

"African countries may not have been able to provide bailouts and fiscal stimuli at the scale of developed countries, but many have arisen from the crisis as better reformers than G-20 countries. There are also some innovative institutional responses. Mauritius and Tanzania, bulding on a period of successful macro-economic management, have set up crisis task forces to deal with the challenges emerging from the crisis which was swiftly followed by the announcement of new policies and fiscal stimuli."

ENDS

Notes to Editors

The report 'Economic Policies in G-20 and African Countries during the Global Financial Crisis: who’s the apprentice, who’s the master?' was first presented at the African Economic Research Consortium Conference on Rethinking African Economic Policies, 6-8 December 2009, Nairobi, Kenya.

The full report can be found athttp://bit.ly/7W2K26

The 10 countries experiencing a drop in real GDP of more than 5% this year compared with forecasts made before the crisis are: DRC, Ghana, Kenya, Mauritius, Nigeria, South Africa, Sudan, Tanzania, Uganda and Zambia.

The report builds on ongoing work on monitoring the effects of the crisis on developing countries. More information can be found athttp://bit.ly/8Brb2g

More ODI resources on the global financial crisis can be found athttp://bit.ly/7KnrWo

Dirk Willem te Velde is available for interview. Please contact Leah Kreitzman (details below)

ODI is Britain's leading independent think tank on international development and humanitarian issues. Our mission is to inspire and inform policy and practice which lead to the reduction of poverty, the alleviation of suffering and the achievement of sustainable livelihoods in developing countries. We do this by locking together high quality applied research, practical policy advice, and policy-focused dissemination and debate. We work with partners in the public and private sectors, in both developing and developed countries.

ODI is ranked as the leading non-US think tank for international development in Foreign Policy magazine's 2009 think tank index. For full listings visit:http://bit.ly/8FkOFJ

For further information, please contact:

Leah Kreitzman, Media Officer, on +44 (0) 20 7922 0431 or +44 (0) 7843276909,

email:[email protected]