THE IMPACT OF THE GLOBAL ECONOMIC CRISIS ON AFRICA
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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

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

  • Conclusion


Introduction
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


  • 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 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


  • 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


  • 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
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.


Globalising the crisis
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;


The impact of the crisis on africa
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 africa1
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.


  • 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


    • 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


    The impact of the crisis on africa2
    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 africa3
    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


    • 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


    • 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.


    • Expansion of informal sector jobs

      • Increasing competition for low-income occupations

      • Informal sector has high decent work deficits


    Responding to the crisis
    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
    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


    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
    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.



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