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THE IMPACT OF THE 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. Introduction Origins of the crisis Globalising the Crisis Impact of the Crisis on Africa Responses to the Crisis

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THE IMPACT OF THE GLOBAL ECONOMIC CRISIS ON AFRICA

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  1. THE IMPACT OF THE GLOBAL ECONOMIC CRISIS ON AFRICA Presented by Kwabena Nyarko Otoo (Director, Labour Research & Policy Institute, Ghana TUC)

  2. Outline of Presentation • Introduction • Origins of the crisis • Globalising the Crisis • Impact of the Crisis on Africa • Responses to the Crisis • Conclusion

  3. Introduction • In Autumn 2008, the world economy went into the Great Recession • The crisis is said to have originated in the US housing mortgage system • The financial and economic crises were preceded by the food and energy crisis • Africa has always been in crisis

  4. 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

  5. The Origin of the Crisis • The crisis began in the US housing market • The Financial sector became over-exposed to highly unregulated transactions in the housing market • In the late 1990s and early 2000s, the US experienced a housing boom

  6. 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

  7. 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;

  8. ORIGINS OF THE CRISIS • 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.

  9. GLOBALISING THE CRISIS • Low quality sub-prime mortgages found their way into the entire credit system of the world; • Just when the scale of the crisis was becoming manifest in America, sub-prime related difficulties emerged around the world;

  10. 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

  11. 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.

  12. 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

  13. 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. • However mostly in mining/oil exploration • Limited impact on job creation

  14. 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.

  15. 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: • October 2008:US$8million • January 2009: US$6.8million • February 2009: US$6million • Tourism • Reduction in the number of tourist • Reduction in ODA

  16. 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

  17. 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.

  18. 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

  19. 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;

  20. RESPONSES IN AFRICA • Initial responses in much of Africa was: • 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

  21. 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.

  22. 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.

  23. 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)

  24. 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.

  25. End of presentation • Thank you

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