The Global Economic Crisis: Implications for Africa

1. The Global Economic Crisis:Implications for Africa Dr. Lisa D. Cook Department of Economics Michigan State University

2. Context: Study and Practice • Assistant Professor • Research on finance and development • Post-doc at Treasury Department with Tim Geithner and Larry Summers as Senior Advisor on Finance and Development • Advised Governments of Nigeria and Rwanda with Jeffrey Sachs • Working on Gates project on financial crises in Africa

3. Context: Pre-Crisis • Reversal of decades’ long decline of growth in Africa

4. Africa’s Recent Economic Performance • Between 1980 and 1989, real GDP per capita in Africa fell by 1.1% on average. • But between 2000 and 2005, real GDP per capita in Africa increased by 2.1% on average.

5. Africa’s Recent Economic Performance • New article in the American Economic Review • Cook and Beny (2009) • Luck, or significant increases in commodity prices, and policy reforms are correlated with recent trends in economic growth.

6. Africa’s Recent Economic Performance • Now that the world’s luck has turned bad… • …the question is whether the effects of the many crises Africa faced in the last 12 months can be attenuated by policy changes that occurred in the late 1980’s and 1990’s.

7. Africa’s Recent Economic Performance • IMF World Outlook • Bleak picture released earlier this week • Predicts decline from 5.25% in 2008 to 2.0% in 2009

8. Three Global Crises • Food, energy • Financial • Economic (Real)

9. Three Global Crises • Let’s review what has happened in the last 12 months.

10. Three Global Crises • Food crisis • March 2007 to March 2008 (Bloomberg): • The world price of Wheat ↑ 130% • Rice ↑ 74% • Corn ↑ 31%

11. Food Prices • Increased dramatically internationally

12. Food Prices • Corn-based ethanol production was a factor

13. Three Global Crises • Africa has been the region hardest hit by these crises.

14. Food Prices

15. Three Global Crises • Last year this time, the price of gasoline was at its highest price, a national average or $3.50, in recorded history, even when adjusting for inflation.

16. Three Global Crises • Since many of the African countries that export oil also import it, the energy crisis would also have a negative effect on African economies.

17. Financial and Economic Crises • We now know that the global financial crisis followed by the global economic crisis began in the United States.

18. Financial and Economic Crises • Falling demand and rising unemployment in the U.S. have been followed by falling demand in the rest of the world.

19. Financial and Economic Crises • Many predicted that Africa was insulated. • Inside and outside Africa • Financial press, popular press

20. Financial and Economic Crises • This is not so.

21. ODA Crisis • Gleneagles Commitment • Rich countries’ promise to double ODA in real terms to Africa from 2005 • To meet MDGs • 0.7% of GNI by 2010 • Met only by a handful of countries

22. ODA Crisis • Gleneagles Commitment • ODA more than doubled since 2001 • $42 billion in 2001 to $120 billion in 2009 • 0.30% of GNI of donor countries • ODA to Africa also more than doubled between 2001 and 2004 • $10 billion to $26 billion

23. ODA Crisis • Gleneagles Commitment • Shortfall of $240 billion predicted • Economic crisis will diminish prospects for meeting these goals as countries turn inward • Global economic growth slowing

24. ODA Crisis • Gleneagles Commitment • How will they keep these promises? • How will Africa meet the MDGs absent extra ODA flows?

25. Concluding Remarks • Specific Recommendations • During Q&A