African Perspectives and Recommendations to the G20

A report from the Committee of African Finance Ministers and Central Bank Governors established to monitor the crisis. March 17, 2009

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Executive Summary

Although most African countries are not on track to meet the Millennium Development Goals, Africa had made steady progress over the last decade, building the foundations for higher growth and poverty reduction. This more optimistic picture is now being undermined by factors outside its control. While the initial effects of the financial crisis were slow to materialize in Africa, the impact is now becoming clear. It is sweeping away firms, mines, jobs, revenues, and livelihoods; it is in short a full blown development crisis. For the first time in a decade there will be zero growth per capita. This note provides evidence of the effects, and suggests action needed. For Africa no less than elsewhere time is of essence; decisive remedial action is needed now.

The growth outlook has deteriorated severely. Macroeconomic balances have worsened, with many countries facing widening current account and budget deficits. The crisis is reducing trade, the mainstay of recent strong growth in Africa.  The expected shortfall in export revenues amounts to USD251 billion in 2009 and USD277 billion in 2010 for the continent as whole, with oil exporters suffering the largest losses.

In addition to exports, capital inflows are also declining, including worker remittances and tourism receipts. The stocks of foreign reserves are running dangerously low, with some countries down to only a few weeks of import cover (for example, the DRC). This severely jeopardizes the capacity to import even basic commodities such as food, medical supplies, and agricultural inputs. The poor are the most affected. The private sector has been affected by shortage of liquidity in international markets, with adverse impact on trade and investment. International banks have failed to issue lines of credit or even confirm pre-committed ones. Projects have been delayed, and some have already been cancelled.

African governments have undertaken measures to minimize the impacts of the crisis. These include: setting up special monitoring units, providing fiscal stimulus packages, revising budget expenditures, targeting assistance on key sectors, strengthening the regulation of the banking sector and markets, expansionary monetary policy, and foreign exchange controls to protect the exchange rate. The key concern is the deceleration of growth, which will disproportionately affect the poor. It is critically important to preserve the foundations of growth erected through steady policy reforms and improvements in the investment climate; this will allow the continent to resume growth after the crisis.

To achieve this goal, it is critical to sustain adequate levels of investment, especially in infrastructure. However, Africa’s ability to do so is severely limited.  Pre-existing resource constraints are being exacerbated by a widening saving-investment gap. We estimate that just to sustain pre-crisis levels of growth in Africa would require an additional $50bn in 2009 and $56bn in 2010.  Increasing investment to the level needed to achieve higher, MDGs-consistent, growth rates, would require an additional $117bn in 2009 and $130 billion in 2010.

Previous, repeated, commitments to increase aid to Africa must be delivered quickly: speed of access is vital.  But that alone will not be enough if Africa is to be able to restore a level of growth sufficient to reduce the levels of poverty.  New and additional resources must be unlocked.  Africa must be part of the global response to the crisis.

Our key recommendations to the G20 are:

Demonstrate political will and take action now

• The severity of the crisis calls for the same sense of urgency as shown in rescue plans for banks and corporations in advanced economies.
• Delivering quickly on existing commitments is key to donors’ credibility as committed development partners for the continent.
• Protect the poor and the vulnerable by ensuring essential public investment programmes in health, education, nutrition, and sanitation can be maintained.
• Support social safety nets to protect the poor, the unemployed and the socially marginalized.

Provide additional resources

• Commit 0.7% of developed economies own stimulus packages to assist poorer countries,  ensuring new initiative are truly additional to existing aid plans.
• Augmenting the concessional resources available to the IMF and ease access.
• Increase and sustain investment in infrastructure at national and regional level: stimulus packages must primarily target infrastructure projects.
• Increase the resource envelope for regional development banks; in particular agree on an early review of capital adequacy of the African Development Bank.
• Increase trade financing by injecting new resources for specialized facilities, including through regional development banks.

Increase policy space and flexibility, and reduce conditionality

• Focusing on results, rather than prescribing rigid policies and actions, allowing countries space to respond according to their particular needs and circumstances.
• Provide more predictable flows of aid, with more fast disbursing and front loaded assistance, consistent with African priorities.
• Increase flexibility in macroeconomic frameworks to allow more scope to balance macroeconomic stability and the need to stimulate domestic demand.
• Review debt sustainability criteria reviewed to allow access to credit to countries with adequate potential to borrow.
• Reform procedures in order to promote more rapid and less conditional delivery.

Promote trade

• Conclude an ambitious and development focused Doha Round, provide Aid for Trade, and technical assistance
• Increase transparency, accountability, and equitable representation
• Provide adequate voice and voting rights to African countries in IFIs and major global governing bodies
• Tackle tax havens and assist in the recovery of Africa’s stolen wealth; enforce transparency in financial transactions in banking systems in advanced economies to deter illegal transfers of funds from African countries.