Recovery from the Global Crisis: Implications for SADC and Development Finance

1. Recovery from the Global Crisis: Implications for SADC and Development Finance Keith Jefferis May 2010

2. Remember early 2009 …. World Economy SADC/SSA No financial crisis, but concern about knock-on effects of global crisis, via Trade Capital/financial flows Risk aversion Macroeconomic concerns Growth slowdown BoP Fiscal problems Poverty • Financial crisis • Freezing of credit markets • Sudden plunge into deep recession • Collapsing commodity prices • Concern about prolonged depression • Rising unemployment • Bank rescues and fiscal injections

3. Global growth slowdown ... and recovery • Depths of recession – 4Q2008 and 1Q2009 • Recession was deep, but recovery has been robust • Fears of prolonged depression not realise • Global growth projected to settle in 3% - 4% range in 2010-11

4. Emerging markets leading the recovery • Recovery has been driven by emerging markets • Faster emergence from recession • Higher growth during recovery • Less affected by financial crisis and debt problems – more resilience • Developed economies – sluggish recovery: • Fiscal/debt problems • Unemployment • Euro-zone crisis

5. South Africa lagging other EMs, but recovering • South Africa’s recession has been comparable in depth to Emerging Markets generally, but: • SA lagging general EM recovery • SA growth expected to be reasonably robust in 2010, due partly to World Cup effect • Growth projected to weaken going into 2011

6. Signs of recovery ... minerals prices Copper Nickel

7. … and oil prices

8. Economic Developments in Sub-Saharan Africa

9. SSA Economic Outturn • Greater resilience than expected • Growth slowdown relatively modest • Quick recovery expected • Macroeconomic stress manageable • Greater impact on middle income countries, more integrated into global markets Source: IMF REO SSA April 2010

10. Why such a modest economic impact on SSA? International Domestic Prior reforms and restructuring -> many countries started from strong macroeconomic position Prior fiscal reforms enabled fiscal stimulus Appropriate monetary policy response – inflation not a major concern Resilient financial systems Contrast with previous crises • Quick and robust global recovery in growth, trade & commodity prices • SSA growth slowdown driven by reduced demand, not banking crises • Emerging market growth -> commodity prices • Recovery in financial flows

11. Finance & Capital Markets • Central to economic problems in developed markets – and transmission of those problems around the world • Credit crunch • Risk aversion • Market collapses • Impact short-lived • Only small decline in remittance inflows • Development assistance: overall flows held up, especially with boost from MFIs • Recovery of risk appetite • Resurgence of portfolio flows to EMs – low returns in major markets • SSA role of FDI – less volatile than short-term flows

12. But of course there are problems… • Fiscal & Debt conditions • Limited fiscal space • Needs to be carefully managed • Partial but not full recovery in global demand • Well below trend • Employment & Incomes • Rising unemployment • Household income squeeze • Poverty alleviation/MDGs • Setbacks/delayed achievement • Fragile states • Especially vulnerable

13. Economic Outlook - SADC

14. Inflation: much reduced, not a major concern, allows monetary policy easing 46% Source: IMF REO for SSA (April 2010)

15. Real GDP growth – recession mostly avoided in 2009, strong recovery projected for 2010 Source: IMF Regional Economic Outlook, April 2010

16. Fiscal balance: some large deficits, esp. in SACU, but generally manageable

17. Current account: some large deficits, and dependence on capital inflows Source: IMF Regional Economic Outlook, April 2010

18. Reserves: some declines, but still comfortable in most countries Source: IMF Regional Economic Outlook, April 2010

19. Outlook & risks – world economy • More positive than a year ago • Worst fears of depression appear not to be realised • International recovery under way • Recovery in financial and commodity markets • BUT volatility and uncertainty still apparent in currencies, commodity markets • “Double –dip” recession cannot be ruled out • Medium-term outlook still uncertain • End of inventory-driven upturn • Duration of impact of fiscal stimulus • Consumer confidence • Lagging impact of rising unemployment • Financial sector uncertainty – re-regulation • De-leveraging • Rising long-term interest rates & crowding out of private investment

20. Outlook & risks …. SADC Positive Negative Slow growth in Europe – major export market Global growth – still vulnerable Limited growth of donor resources, especially bilateral Commodity price volatility Slow progress on regional integration Energy shortages • Africa growth should resume pre-crisis trajectory – helped by higher global growth • Resource rich – benefit from resumption of commodities boom • Focus can now change – from short-term output stabilisation to medium-term development challenges

21. Implications for DFIs • Finance is at the centre of attention • SADC financial systems generally stable • Recognition that markets and commercial FIs cannot achieve everything • Many African countries still by-passed by commercial flows • Banks still cautious • Recognition that particular development gaps exist – infrastructure, SMMEs, agriculture, unbanked – that may have to be filled by DFIs • Scope for more stable view of risk • Improving domestic bond markets • AfDB – AFMI • Government resources constrained • More resources from MFIs • Opportunities in new technologies & partnerships (MFIs, telcos, donors) • Regulation?

22. Thank You