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Correct citation : Kasekende Louis, Ndikumana Léonce, Rajhi Taoufik (2009), Impact of the Global Financial and
Economic Crisis on Africa, Working Papers Series N° 96, African Development Bank, Tunis, Tunisia. 36 pp.
 AFRICAN DEVELOPMENT BANK GROUP

Impact of the Global Financial

and Economic Crisis on Africa

Working Paper No. 96

March 2009

ECON
OFFICE OF THE CHIEF ECONOMIST
4
Kasekende Louis, Ndikumana Léonce, Rajhi Taoufik*

EXECUTIVE SUMMARY borrowing by banks is regulated in the

context of exchange control and banks
The current financial and economic crisis face little risk associated with off-balance
has affected the drivers of Africa’s recent sheet operations. This largely explains the
growth performance. Demand for and limited impact on the banking sector in
prices of African commodities are falling, Africa.
capital flows are declining, and promised
increased aid has not materialized. Most African financial markets were affec-
China’s growth has slowed. The only ted by contagion effects, resulting in large
good news is the easing of inflationary losses in value and capital outflows. For
pressures. In Asia and Latin-America, Africa’s relatively liquid financial markets
growth forecasts have already been dras- (e.g. Egypt and Nigeria) the contagious
tically revised downwards. Although the effect were amplified by pre-crisis stock
immediate impact of the crisis were over-valuation and limited diversification
contained, the medium-term effects are of stocks.
likely to be greater.
The financial crisis amplified the increase
Africa’s low level of financial integration in the margin applied to loans in the inter-
meant that African economies were relati- national financial markets, especially for
vely isolated from the direct impact of the emerging and African countries. From
financial crisis. Thus, Africa found itself October 2008, sovereign debt spreads
shielded from the impact of the 2007 sub- have increased. For that similar reason,
prime and the summer 2008 banking several African countries (Tunisia, Kenya,
crises, thereby avoiding the negative Uganda and Tanzania) decided to postpo-
effects of a financial crisis that affected ne resorting to international financial mar-
the very foundations of international finan- kets to mobilize the resources necessary
cial markets. for financing their growth, turning instead
to local markets.
African financial systems are dominated
by the banking sector, and financial mar- With the deepening crisis in developed
kets are still underdeveloped and even countries and in China, the downward
non-existent in many countries. Foreign trend of primary commodity prices has
increased and threatens to undermine the cial markets. However, no bonds issue in
gains recorded in recent years. This foreign currency has been registered in
decrease will have several consequences 2008 for African countries. This situation
including declining reserves, non-profitabi- raises concern in particular as several
lity of some oil fields and mineral depo- countries rely on foreign private capital to
sits, reduction in government funding cover their current account deficits.
capacity and cancellation or postpone-
ment of a number of investments in extra- Recent data on migrant remittances show
ctive industries that are highly dependent signs of stagnation or slight decline world-
on foreign direct investment. wide. However, in the absence of data, it
is too early to draw a definitive conclusion
Africa will not be spared from the pessi- for Africa
mistic world trade outlook for 2009. This
outlook is reflecting the bad growth out- Overall, Africa will move from a budgetary
look of industrialized and emerging coun- surplus accounting for 2.3% of GDP in
tries, resulting in weak global demand. 2008 to a budgetary deficit of 5.5% in
Export growth rate is expected to drop by 2009. Oil exporters will register a deficit of
7% and import growth rate will decline by 7.7% of GDP 2008, down from a surplus
4.7%, resulting in a deterioration of com- of more than 5% in 2008. The deficit will
mercial balance. deepen for oil importers as well (from -
1.6% to -2.8%).
In the short run, the financial and econo-
mic crisis is expected to have an impor- From an overall current account surplus
tant negative impact on Foreign Direct position of 3.5% of GDP in 2008, the
Investment (FDI), contributing to a conti- continent will face a deficit of 3.8% of
nuing fall in FDI in 2009. GDP in 2009. The large surplus of 9.8%
of GDP for the group of oil exporters will
Preliminary estimates of private flows to turn into a deficit of 4% of GDP. This is a
Africa are relatively better than for other direct result of the expected decline in oil
regions for several reasons. Among these revenue.
are Africa’s low share of total capital
flows, the limited number of countries For the continent as a whole, inflation was
leveraging funds on international markets higher in 2008 (10.9%) than in 2007
and the limited correlation between (7.4%). The 10.4% inflation was 3 percen-
African and industrialized countries’ finan- tage points above projections made prior
to the financial crisis. In contrast, lower tries. For the first time since the 2000s,
inflation is expected in 2009 (8.7%). oil-importing countries will register higher
However, falling oil prices notwithstan- growth rates (3.4%) than oil-exporting
ding, inflationary pressures will persist in countries (2.4%).
several countries, mainly due to the high
cost of foodstuff and supply bottlenecks. The sectors most affected by the crisis
will be mining, tourism, textile, and manu-
Africa is expected to grow at a low rate of facturing. Enterprise failures, cancella-
2.9% in 2009, down from 5.75 in 2008 tions and postponements of projects are
and 6 % in 2007. Preliminary projections becoming widespread in African countries.
show expected a loss of 4.2% of growth Substantial job losses are registered, with
rate for oil-exporters in 2009 and 1.2% negative effects on household’s standards
decline in growth for oil-importing coun- of living.

Author’s Affiliation :
* Louis Kasekende, Léonce Ndikumana, Taoufik Rajhi - African Development Bank.
8
 TABLE OF CONTENTS

1. INTRODUCTION 1
2. Impact on the banking system 1
3. The Impacts of the financial crisis on markets 4
3.1 The collapse of financial markets 5
3.2 The rise of sovereign debt spreads 5
3.3 Volatility of exchange markets 5
3.4 The fall of commodities prices 7
4. The long and medium term transmission channels 10
4.1 Trade flows 10
4.2 Capital flows 10
5. The economic outlook after the financial crisis 12
5.1 The fall in reserves and government budget 12
5.2 Inflation 13
5.3 Growth Prospects 14
5.4 Sectoral impact 14
6. CONCLUSION 16
10
 1

1. INTRODUCTION ted by the banking crisis (Section 2). It

goes on to discuss the direct impact of the
Prior to July 2008 and despite the sub- crisis on financial markets, foreign exchan-
prime crisis, Africa recorded excellent eco- ge markets and commodity markets
nomic growth. The drivers of strong econo- (Section 3). Section 4 shows that the nega-
mic growth included macroeconomic tive effects will mainly be felt through trade
reforms, a world economic situation that and capital flows, including foreign direct
was characterized by high demand for investment and migrant remittances.
commodities, rising capital inflows and Section 5 discusses the prospects for
China’s strong growth. Analysts were opti- public finance, inflation and growth. A sec-
mistic about the capacity of the continent toral analysis is also carried out, highligh-
and the world economy to generate the ting the impact on tourism and mining.
necessary resources for development and Section 6 concludes by a discussion on
poverty reduction. some policies that could mitigate the impact
Despite early signs of a pending downturn of the crisis.
since 2007, few could have anticipated a 2. Impact on the banking
crisis of the magnitude observed since the system
second half of 2008. Today, the world eco-
nomy is officially in stagnation, industriali- Africa’s low level of financial integration
zed countries are in recession and Africa meant that African economies were relati-
faces serious uncertainties over its growth vely isolated from the direct impact of the
and development prospects. The current financial crisis. Thus, Africa found itself
financial and economic crisis has affected shielded from the impact of the 2007 sub-
Africa’s growth drivers. Demand for and prime and the summer 2008 banking
prices of commodities are falling, capital crises, thereby avoiding the effects of a
inflows are declining and promises of financial crisis that affected the very foun-
increased aid have not materialized yet. dations of international financial markets.
China’s growth has slowed. The only good Compared to emerging countries, Africa’s
news is the easing in inflationary pressures. external financing (bond issue, stocks and
Although the immediate impact of the crisis private borrowing) is low, representing only
were contained, the medium-term effects 4% in 2007 of overall issue for emerging
are likely to be greater. economies. In 2007, bond issues stood at
only USD 6 billion, compared to USD 33
This paper presents a preliminary assess- billion for Asia and USD 19 billion for Latin
ment of the impact of the financial crisis on America. Furthermore, in terms of access
African economies thus far. The paper first to private resources, Africa received only
explains the impact on the banking sector USD 3 billion in 2007, compared to USD 42
and why Africa has not been directly affec- billion for Asia.
2

Africa’s stock market capitalization is still 15 countries of the Euro zone and 15.09%
very low, representing only 2.09% of world for the United States. Africa’s financial glo-
capitalization. Furthermore, African banking balization ratio is comparable to Latin
assets represent only 0.87% of global ban- America’s, at 181.3% and 176.4%, respec-
king assets, compared to 58.15% for the tively, far behind that of Asia at 369.8%

Figure 1 : Financial Globalization Indicators

Emerging Market external financing : Total Emerging Market external financing : Bond
Bonds, Equities and Loans (in % of total) Issurance (in billions of US Dollars)

Asia Asia
2002

2003

2004

2005

2006

2007

7
200

200

200

200

200

200

Emerging Market external financing : Africa external financing : Loan syndication

Equity Issurance (in % of Total) (in billions of US Dollars)

Asia Asia
2002

2003

2004

2005

2006

2007

7
200

200

200

200

200

200

Source: IMF, Global Financial Stability Report, October 2008

 3

The low financial integration indicators Swaziland and Madagascar. The head-
partly explain why Africa escaped both the quarters of these foreign banks are loca-
sub-prime and banking crises. No African ted mainly in France, Portugal and the
country announced a bank rescue plan at United Kingdom, where banking institu-
the scale observed in many developed tions suffered tremendous losses in
countries. Few banks and investment stock capitalization and profit during the
firms in Africa have held derivatives bac- financial crisis.
ked by sub-prime mortgages (or “toxic
assets”). No difficulties have been repor- The financial meltdown suffered by the
ted on African sovereign wealth funds and parent banks following market capitaliza-
the eventual impact on their returns. tion losses was not passed down to their
Generally, African banks have not enga- African subsidiaries. In fact, some subsi-
ged in complex derivative products and diaries of foreign banks saw a conside-
are not heavily dependent on external rable increase in their market capitaliza-
financing. tion. For example, Swaziland Nedbank,
Bank of Africa Benin and Standard Bank
The contagion effects may be amplified of Ghana saw their market capitalization
by foreign bank presence, which is high increase between July 2007 and January
in some countries. The share of foreign 2009. Therefore, the contagion effect of
bank assets reaches 100% in some financial meltdown is weak compared to
countries such as Mozambique, the effect on parent banks.
Table 1: Share of Banking assets held by foreign banks (%)
Share of Banking assets held by Home
Countries Largest Foreign Banks
foreign banks (%) country
Angola 53 Banco BPI Portugal
Barclays Bank UK
Botswana 77
Banco Commercial Portugues Portugal
Mozambique 100 Standard Bank SA
Swaziland 100 NetBank SA
Standard Bank SA
Uganda 80 Barclays Bank UK
Zambia 77 Standard Chartered Bank UK
Standard Chartered Bank UK
Ghana 65 Barclays Bank UK
Cote d’Ivoire 66 Société Génerale France
Calyon France
Madagascar 100
Bank of Africa Benin
Cameroun 63 BFBP France

Source: Global Development Finance, World Bank 2008 and JPMorgan

4

African financial systems are dominated The accumulation of reserves following

by the banking sector, and the role played the commodities boom has supported
by financial markets is weak, or in some the expansion of sovereign wealth funds
cases non-existent. Borrowing from forei- in Nigeria and Botswana and the crea-
gn banks is regulated in the context of tion of new ones in Libya, Algeria, Sao-
exchange control regulations. Off-balance Tome and Principe and Sudan. While
sheet exposure is not widespread in these funds represent only 2% of the
Africa, which is in contrast to industriali- sovereign funds’ global assets, the accu-
zed countries that have complex financial mulated volume amounted to more than
securization instruments such as the ones USD 124 billion, before the 2008 finan-
that triggered the sub-prime crisis. cial crisis.
Table 2 : Sovereign wealth funds by country (billions of US dollars) mid-2008
Country Nonpension % Africa

Libya 50 40 %
Algeria 47 38 %
Nigeria 17 14 %
Botswana 7 6%
Gabon 0.40
Sudan 0.10
São Tomé and Principe 0.02
Africa 124.42 100 %
World 2975.00
Africa, % of World 4.1
Source: Sovereign Wealth Fund Institute, 2008
FN: — not applicable

The sterilization of such reserves and tion in the investment capacity and the
their conversion into foreign assets hel- size of such funds.
ped countries avoid strong exchange rate
appreciation. So far, there is little informa- 3. Impact of the financial crisis
tion on the negative effect of the financial on markets
crisis on African sovereign wealth funds. There are three distinguishable immediate
Nevertheless, sovereign funds profitability effects of the crisis, namely the contagion
is expected to drop, in line with other effects on financial markets, foreign
financial wealth instruments on the global exchange markets and commodity mar-
market. It is certain that the fall in oil kets. These are discussed in the following
prices will contribute to a dramatic reduc- sections.
 5

3.1 Effects on financial markets financial market was hampered by restric-

tive financial requirements. Indeed, faced
Although African banking systems were not with debt spreads estimated at between
directly exposed to the sub-prime crisis, 45 and 50 basis points, Tunisia had to
there were strong indications of increased increase its offer by 25 basis points to
asset price and risk premium volatility on attract entice investors.
African financial markets as early as the
summer of 2008. The contagion and inter- The financial crisis amplified the increase
dependence significantly affected the in the margin applied to loans in the inter-
region’s financial markets. For some national financial markets, especially for
African markets (e.g. Egypt and Nigeria), emerging and African countries. From
the impact was much higher than for mar- October 2008, sovereign debt spreads
kets in developed countries (Table 1). rose by an average of 250 basis points for
emerging countries. The spread of the
Africa’s relatively liquid financial markets JPMorgan emerging countries equity index
not only suffered from the contagious reached its highest level since 2002,
effect but also faced amplification thereof, increasing by 800 basis points in October
possibly attributable to the over-valuation 2008. Spreads increased by 100 basis
of stocks and the outflow of portfolio points for Egypt and rapidly increased to
investments. African investors, in general, above 200 basis points for Tunisia during
and Egyptian and Nigerian investors in the toughest periods of bank failures in the
particular, recorded within six months an United States. The increase in the risk pre-
average loss of more than half the wealth mium forced Kenya, Uganda and Tanzania
invested at the end of July 2008. This is to postpone tapping of international finan-
higher than the losses recorded on cial markets to mobilize long-term
American, French and Japanese markets. resources, turning instead to local markets.

3.2 The rise of sovereign debt 3.3 Volatility of foreign exchange

spreads markets

The costs of external debt for emerging In most countries, the impact of the finan-
countries on international financial mar- cial crisis manifested itself through curren-
kets started to increase in July 2007. The cy fluctuations, especially against the US
spreads remained moderate until the dollar or the Euro. The depreciation of
beginning of the financial crisis. Tunisia some currencies is attributable to the
felt the brunt of the crisis in its attempt to impact of the financial crisis on commodi-
issue bonds on the international financial ty prices and the decline in foreign
markets in July and August 2007. The first exchange reserves. Thus, the 65.8% drop
attempt to raise funds on the Japanese in copper prices, from the highest recor-
6

ded price of July 2008 at USD 8985/metric December 2008, led to a considerable fall
ton to USD 2 902/metric ton at end in Zambia’ foreign reserves.
Table 3: African exchange rates against the US dollar
Value at end of
Benchmark Rate
Region/Country Currency name Week
07/31/2008 of depreciation
(13/02/2009)
Algeria Algerian Dinar 63.0 73.7 -14.5
Angola New Kwanza 75.2 75.2 0.0
Benin CFA Franc 429.2 520.1 -17.5
Botswana Pula 6.5 8.1 -19.8
Burundi Burundi Franc 1,191.5 1,233.5 -3.4
Cape Verde Escudo 71.8 87.1 -17.6
Comores Comoros Franc 316.9 381.9 -17.0
Congo. Dem. Rep. of Congolese Franc 437.0 712.8 -38.7
Djibouti Djibouti Franc 178.7 179.6 -0.5
Egypt Egyptian Pound 5.4 5.6 -4.3
Ethiopia Birr 10.0 11.2 -10.8
Gambia, The Gambian Dalasi 21.5 26.6 -19.3
Ghana New Cedi 1.2 1.4 -15.1
Guinea Guinea Franc 4,653.6 4,868.6 -4.4
Kenya Kenyan Shilling 68.7 83.0 -17.2
Lesotho Loti 7.5 10.1 -25.6
Liberia Liberian Dollar 64.0 65.0 -1.5
Libya Libyan Dinar 1.2 1.3 -8.5
Madagascar Ariary 1,612.9 2,018.6 -20.1
Malawi Kwancha 144.0 143.8 0.2
Mauritania Ouguiya 234.5 263.5 -11.0
Mauritius Mauritius Rupee 27.6 34.2 -19.3
Morocco Dirham 7.4 8.6 -14.5
Mozambique New Metical 24.1 25.6 -5.9
Namibia Namibian Dollar 7.6 10.2 -25.6
Nigeria Naira 118.9 149.1 -20.3
Rwanda Rwandan Franc 556.5 578.4 -3.8
São Tomé & Principe Dobra 14,773.4 14,661.9 0.8
Seychelles Seychelles Rupee 8.0 16.9 -52.4
Sierra Leone Leone 2,997.7 3,093.9 -3.1
Somalia Somali Shilling 1,450.9 1,448.5 0.2
South Africa Rand 7.4 10.0 -26.1
Sudan Sudanese Pound 2.1 2.3 -6.8
Swaziland Lilangeni 7.4 9.9 -25.1
Tanzania Tanzanian Shilling 1,187.6 1,341.6 -11.5
Tunisdia Tunisian Dinar 1.2 1.4 -16.3
Uganda Uganda Shilling 1,671.0 1,978.5 -15.5
Zambia Zambian Kwacha 3,588.9 5,398.6 -33.5
Zimbabwe Zimbabwe Dollar 353,950.0 37,456,777.0 -99.1
OTHERS
Euirope Euro 0.6 0.8 -17.5
Japan Yen 108.1 90.2 19.7
*Benchmark as at 31/07/2008 except for Zimbabwe at 31/08/2008
Sources: AfDB Statistics Department and Oanda, Online Database January 2009
 7

The Zambian Kwacha exchange rate to China has been an important factor of the
the US dollar depreciated sharply in 2008 increase in the prices and demand for
by as much as 50%, although the exchan- commodities. Unfortunately, the financial
ge rate slightly improved at the end of the crisis has had a negative impact on world
year. growth prospects and seriously dampe-
ned expectations on commodity futures
3.4 The fall of commodity prices markets (Table 4), thus inducing falling
prices and demand for most commodities.
Commodity exports have been one of the For instance, the price of crude oil drop-
main drivers of growth in many African ped by 65 percent, from USD 125.73 per
countries. Strong growth in industrialized barrel at the start of the financial crisis to
and emerging countries such as India and USD 43.48 in January 2009.

Table 4 : Forecast of commodity prices

% Change 2000-2005 2006 2007 2008 2009 2010
Energy 13.5 17.3 10.8 45.1 -25 0.9
Oil 13.6 20.4 10.6 42.3 -26.4 1.8
Natural Gaz 10.4 33.9 1 57.2 -10.8 -4.2
Coal 12.7 3.1 33.9 97.8 -23.1 -10
Non energy 8.3 29.1 17 22.4 -23.2 -4.3
Agriculture 6 12.7 20 28.4 -20.9 -1.3
Foods 6 10 25.6 35.2 -23.4 -0.3
Grains 4.8 18.4 26.1 50.9 -27.7 2.6
Raw materials 5 22.7 9 13 14.9 2.7
Metals and minerals 12.3 56.9 12 5 25.5 5.5
Cooper 15.2 82.7 5.9 0.6 -32.2 -4.2

Source: World Bank, Global Economic Prospects 2009: Commodity markets

The crisis has taken a heavy toll on coun- from USD 649 million during the first half
tries that are highly dependent on natural of 2008 to USD 454.5 million during the
resources, especially those relying on second semester of that year.
copper, oil, timber and diamonds. The fall
in copper prices resulted in a significant In Burkina Faso, export growth dropped
drop of export receipts for Zambia and a from 6.9% in 2007 to 3.5% in 2008, follo-
considerable reduction in its foreign wing the fall in cotton production and the
exchange reserves. Since the second half decline in lint cotton export. The balance of
of 2008, the volume of reserves genera- trade sharply deteriorated under the combi-
ted by the mining sector dropped by 30%, ned impact of falling agricultural production
8

and declining lint cotton export (from ment of a number of investments in extra-
CFAF 160 million in 2007 to CFAF 12 mil- ctive industries that are highly dependent
lion in 2008). The current account deficit on foreign direct investment.
is estimated at 12.9% of GDP in 2008, a
3.8 point decline compared to 2007. The effects of the crisis will hit both oil
exporters as well as producers of non-
The adverse impact of the crisis on export energy commodities, namely minerals and
commodity prices and resource inflows agricultural products (Table 5). Agricultural
threatens to reverse the gains from the and food products are following a similar
recent economic performance of African downward trend estimated at around
economies. Key consequences include 20%. The decline in food prices should
declining reserves, non-profitability of mitigate the impact of the economic crisis
some oil fields that have high extraction on African countries, especially on the
costs, reduction in government funding balance of payments and government
capacity and cancellation or postpone- budget.
Table 5: Commodity prices
Value at end of
Commodity Benchmark
Unit Week % Change Index
07/31/2008
(13/02/2009)

Crude Oil (Brent)* US$ per barrel 125.73 44.09 -64.93

Gold US$ per Troy Ounce 918.00 935.50 1.91

Silver US$ per Troy ounce 17.48 13.37 -23.51

Platinum US$ per Troy ounce 1,758.00 1,055.00 -39.99

Cotton, N° 2 Future USd/lb. 49.71 45.22 -9.03

Cocoa beans US$ per tonne 2,908.50 2,682.12 -7.78

Coffee, Arabica US cents per pound 131.10 99.00 -24.49

Coffee, Robusta US cents per pound 115.09 81.75 -28.97

Source: AfDB, February 2009

However, the decrease of primary com- sustained a large deficit on the trade
modity prices will have a positive impact account due to the large oil import bill.
on the external accounts of oil importing These include Burundi, Seychelles, Togo
countries, in particular countries that have and Malawi.
 9

Table 6: Countries vulnerable to commodities prices decrease

Countries dependent Share of nonfuel Countries
Share of oil in
on non-oil primary primary commodities dependent on oil
commodities in exports (%) exports exports (%)

Gambia 97 Libya 98.7

Uganda 91 Algeria 95.7

Ethiopia 84 Nigeria 95.6

Niger 83 Congo. Rep. 92.1

Malawi 82 Angola 92

Rwanda 80 Equatorial Guinea 83.8

Burundi 79 Sudan 74.5

Gabon 71.1
Source: World Economic Situation and Prospects, United Nations, 2009

These countries have large current account current account will need to be financed by
deficits ranging between -37.6% for Burundi a surplus on the capital account, notably
and -18.6% for Malawi (Table 7). The effect aid and private capital inflows. These coun-
will depend on the combined impact of the tries would face significant difficulties if FDI
decrease of energy prices and non-oil pri- and ODA were to decrease due to the
mary commodity prices. The deficit on the effects of the global slowdown.
Table 7: African countries with large oil imbalances, 2007 (% of GDP)
Non-oil
Current Oil Commodities FDI Net ODA
Country commodities
account Balance balance inflows disbursements
balance

Burundi -37.6 -11.6 0.4 -12.0 0.0 46.0

Seychelles -32.7 -36.5 0.7 -35.8 18.8 1.8

Togo -21.9 -8.5 4.6 -4.0 3.5 3.6

Malawi -18.6 -4.3 11.6 7.3 - 21.3

Source: World Economic Situation and Prospects, United Nations, 2009

10

4. The long and medium term 45.4% of its exports value in 2009.
Losses in export growth rates are not
transmission channels
compensated for by decreasing import
growth rates in value terms, implying that
4.1 Trade flows the trade balance may deteriorate.

The global recession will adversely 4.2 Capital flows

impact the flow of goods and services.
World and African trade were part of the 4.2.1 Impact on foreign direct
main drivers of growth between 2000 investment
and 2007. However, signs of a slow-
down have been registered since 2008 The latest global foreign direct invest-
and will likely continue in 2009. The glo- ment estimates show a sharp decline of
21% in 2008 that is likely to worsen in
bal economy has recorded a decrease
2009. Total foreign direct investment in
in volume and value of tradable goods
2008 is estimated at USD 1.4 trillion.
and services. Indeed, world trade in
FDI inflow to Africa are currently steady
volume increased by 6.3% in 2007, by
at a relatively low level at USD 61.9 bil-
4.4% in 2008, and by only 2.1% in 2009.
lion (2008), an increase of 16.8% from
Due to the economic downturn in the
2007. However, there are large discre-
industrialized countries and lower prima-
pancies across countries: whereas
ry commodity prices, global trade is
Egypt and Morocco respectively repor-
expected to contract by 4.4% in value in
ted a decline of -5.6% and -7%, FDI in
2009.
South Africa more than doubled in 2008
(Table 8).
Africa will not be spared from the pessi-
mistic world trade outlook for 2009. In the short term, the financial and eco-
Exports and imports growth rates are nomic crisis is expected to cause FDI to
forecast at 3.6% and 10.5% in 2009, res- fall further in 2009. Africa will not be spa-
pectively compared to 10.6% and 15.2% red, especially if commodity prices conti-
in 2008. As a result, the impact of the nue to fall. This will further increase
crisis on foreign exchange reserves is Africa’s financial marginalization and
expected to be large. Having benefited undermine growth in foreign capital
from the recent primary commodity dependent sectors such as natural
boom, Africa will experience a loss of resources.
 11

Table 8: FDI inflows

FDI inflows (billion of dollar)
2007 2008 Growth rate (%)
World 1833.3 1449.1 -21
Developed economies 1247.6 840.1 -32.7
Developing economies 499.7 517.7 3.6
Africa 53 61.9 16.8
Egypt 11.6 10.9 -5.6
Morocco 2.6 2.4 -7
South Africa 5.7 12 111.2
Latin America 126.3 142.3 12.7
Asia and Occeania 320.5 313.5 -2.2
South East Asia 247.8 256.1 3.3
South-East Europe and the CIS 85.9 91.3 6.2
Source: World Economic Situation and Prospects, United Nations, 2009

4.2.2 Short term private capital flows cial markets. However, no bonds issue in
foreign currency has been registered in
According to last estimates, short term net 2008 for African countries, whereas it had
private capital flows to emerging countries reached 6.5 billion dollars in 2007 compa-
accounted for USD 253 billions in 2007 red to 1.5 billion dollars in 2005. This
and declined to USD 141 billions in 2008. situation raises concerns, as many coun-
Net portfolio inflows to Africa have also tries such as South Africa rely on inflows
deteriorated in 2008 relative to 2007. This
of private capital to cover their current
decrease shows the scarcity of financial
account deficits.
resources, a result of the deteriorating
market conditions and the contraction of
4.2.3 Impact on remittances
the economy in some emerging countries.

Preliminary estimates for capital inflows in Remittances, which have become a major
Africa are not as bad as for other regions source of external financing for African
for a number of reasons. Among these countries, have been adversely affected
are Africa’s low share of total capital by the slowdown in developed countries.
flows, the limited number of countries In some countries, remittances exceed
leveraging funds on international markets official development aid as a source of
and the limited correlation between external financing. The total volume of
African and industrialized countries finan- remittances to Africa stood at USD 38 bil-
12

lion in 2007. Remittances between African countries to acquire considerable fiscal

countries have fallen following job cuts space to undertake major public invest-
and the decline of activity in the mining ment programs and repay foreign debt.
sector. The decline in the volume of remit- Now, some countries that had prepared
tances has a direct negative impact on budgets based on prices averaging USD
the well-being of households since such 70 will be forced to scale down their
transfers – unlike other types of transfers investment plans if the downward price
– are directly used to cover primary needs pressures persist. Forecasts show a bud-
such as food, education and healthcare. get deficit of -7.7% of GDP for oil expor-
ting countries in 2009 against a surplus of
While updated data on emigrant transfers 5.1% of GDP in 2008 and 4% of GDP in
remain incomplete, they tend to show 2007.
signs of a negative impact of the crisis.
Monthly data for December 2008 and Overall, Africa will move from a global
January 2009 indicate some stagnation or budget surplus accounting 2.3% of the
a slight decline worldwide. Surprisingly, GDP in 2008 to a deficit of 5.5% in 2009.
remittances in some countries such as The deficit will deepen for oil importers as
Kenya have increased. Nonetheless, in well (from -1.6% to -2.8%).
the absence of data, it is too early to draw
Under the effect of the crisis, current
a definitive conclusion on the impact of
account deficits have worsened since
the crisis on remittances in Africa.
2008 in twenty-six countries. From an
overall current account surplus position of
5. The economic outlook after
3.5% of GDP in 2008, the continent will
the financial crisis face deficit of -3.8% of GDP in 2009. The
large surplus of 9.8% of GDP for the
5.1 The fall in reserves and group of oil exporters will turn into a defi-
government budget cit of -3.9% of GDP. This is a direct result
of the expected decline in oil revenue.
Rising commodity prices have enabled North-Africa is the only region with a cur-
African countries to accumulate foreign rent account surplus of approximately 3%
exchange. Thus, Africa accumulated USD of GDP, led by Morocco (10.7%) and
369 billion in 2007, USD 110 billion by Algeria (5.6%).
Algeria, compared to USD 79 billion by
Libya and USD 51 billion by Nigeria. In 2009, some countries will face a twin
These receipts enabled oil-exporting deficit (current account and budget defi-
 13

cits). This is because exports will fall fas- pressure on inflation, resulting in lower
ter than imports (causing current account inflation in 2009.
deficit) while governments try to keep up
with expenditure levels in the context of The pattern expected in 2009 is almost
declining revenue. Thus several countries reversed compared to the one observed
face the threat of structural macroecono- in 2008 since some drivers of the rising
mic imbalances in the medium term if the prices became, during the second
crisis persists. semester of 2008, drivers of declining
inflation. As a consequence, the big
5.2 Inflation losers in 2008 are likely to become the
big winners in 2009. In any case, oil-
The inflation estimate for 2008 (10.9%) is importing countries inflation rate will
higher than the 2007 (7.4%), due particu- register a 3.6% decrease, which would
larly to the sharp increase in oil prices bring inflation back to its 2007 level. In
and food during the first half of 2008. The oil-exporting countries, inflation rates will
10.4% inflation in 2008 is 3 percentage remain quite high due to inflation inertia.
points above projections made prior to the For these countries, the expected infla-
financial crisis. However, falling commodi- tion rates for 2009 are similar to the
ty prices should exercise a downward rates observed in 2008.

Table 9 : Rate of Inflation (% annual)

Rate of Inflation
2007(e) 2008(p) 2009(p)

Africa 7.4 10.9 8.7

North Africa (including Sudan) 7.0 8.6 7.7
Sub-Saharan Africa 7.7 12.5 9.4
By oil production
Oil-exporting countries 7.2 10.0 9.1
Oil importing countries 7.7 11.8 8.2
By region
Central Africa 2.9 8.8 7.2
Northern Africa 6.8 8.1 7.6
Southern Africa 9.3 12.4 9.7
Western Africa 5.4 10.6 8.6

Source : African Economic Outlook 2009, Preliminary results

14

5.3 Growth Prospects 5.4 Sectoral impact

Global growth prospects have been revie- Although it is too early to accurately pre-
wed downwards for most regions. Slowing dict the impact of the global financial and
growth worldwide and in all industrialized economic crisis, preliminary evidence
countries was the rule in 2008. For 2009 demonstrates that some key sectors in
growth is expected to be at 0.9% for the African economies have already felt its
world and -0.1% for industrialized coun- adverse effects.
tries. Only China will continue to post a
sustained growth rate of 7%, which was 5.4.1 Tourism
revised downward from 12% at the begin-
ning of 2008. Tourism has suffered a big hit from the
crisis as a result in declining incomes in
Although Africa escaped direct effect of developed and emerging countries, where
the financial crisis, it cannot be shielded most tourist flows originate. Yet tourism
from global recession, even if the degree receipts represent an important share of
of the continent’s trade integration government revenues in many countries.
remains low. Africa’s projected growth Both arrivals and receipt have declined
rate in 2009 (2.9%) is about half that of substantially in many countries. Kenya
announced a 25 % to 30% decline in tou-
2008 level (5.7%) (Table 4). Preliminary
rist arrivals. Kenya Airways posted a
projections show expected losses of 4.4%
62.7% drop in profit for the half-year at
of growth rate for oil-exporters in 2009
the end of September 2008. The decline
and 1.2% decline in growth for oil-impor-
in tourism would have a negative impact
ting countries. For the first time since the on the services sector, which was beco-
2000s, oil-importing countries should ming a key growth engine prior to the cri-
register higher growth rates than oil- sis. This calls for further efforts towards
exporting countries. Middle-income coun- diversification not only of the services
tries will be affected by decreasing foreign sector but also of the entire economy.
demand for manufactured products, textile Egypt also announced a 40% cancellation
and tourism and should suffer growth of hotel reservations. The Seychelles
losses comparable to oil-importing and announced a 10% fall in tourism revenue.
low-income countries. Growth decelera-
tion may compromise Africa’s efforts 5.4.2 Mining Sector
towards reaching the Millennium
Development Goals and poverty reduc- Several projects in the extractive indus-
tion. tries were cancelled or postponed in
 15

DRC, Zambia, South Africa, CAR and If the price of oil and manganese is not
Cameroon. In Zambia, the USD 1.5 billion restored, Gabon will be suffer negative
Kafu Gorge Dam Project was kept in effects on its budget and current account
abeyance following the reticence of seve- balances.
ral investors caused by falling copper
prices. Such mining companies as First The fall in the price of the iron since the
Quantam Minerals, Albidon and Makambo crisis has also affected Senegal and
Copper Mine have given up all new explo- Mauritania. For Senegal this fall delayed
rations. At the same time, Konkola the operational startup of the exploitation
Copper Mines – the largest copper mine in Flémé whose production is envisaged
in Zambia – has ordered a 40% reduction for 2011and the agreement was signed
in all supplier contracts. February 2007 with Arcelor Metal, a
French company. The Mauritanian pro-
In the Democratic Republic of Congo, duction of iron which accounts for 50% of
extraction operations at the open-cast exports was heavily affected by the fall in
mine Tilwezembe and the treatment of ore the price of the iron.
at Kolwezi plant have nearly been brought
to a halt because of the slump in prices of The price of the uranium declined from
cobalt. As many as 70 mining companies USD140 to USD53 per pound between
operating in Kantaga closed. Since the July 2008 and January 2009 will have
end of 2008, Forrest International laid off harmful consequences on the export ear-
650 employees and indicated that the nings of Niger. Uranium accounts for 50%
exploitation of cobalt is not profitable at of these export earnings. Niger counts on
the price of USD9/pound. According to the the increase in production although it may
Ministry of mining in DRC, these closures not compensate for the drop in prices.
would have caused a loss of up to The French company Areva signed a
200000 jobs. contract to exploit the second largest
reserves in Africa.
The fall of the price of manganese by
60% in 2008 had serious repercussions in The fall of the price of bauxite which
Gabon, second world manganese produ- dominates the mining sector of Guinea,
cer. The Comilog company, which has the second largest exporter in the world,
operations in the South-east of the coun- will affect export earnings. The mining
try (Moanda), decided to reduce by half sector accounts for 30% of the public
its production in the first quarter of 2009. revenue and 70% of the export earnings.
16

A project to construct an aluminum facto- rers worldwide. The decline in activity in

ry, gathering three international groups, is the manufacturing sector has caused
likely to be deferred. large job losses with damaging effects on
living standards.
5.4.3 Textile
6. CONCLUSION
Several textile factories were closed in
Madagascar and Lesotho. The latter The global financial crisis will have a
recorded a decline in external textile significant impact on Africa, although
demand from South Africa and the United Africa’s growth outlook is still better com-
States, its major trading partners. In pared to industrialized countries. A 3.2%
Madagascar, recent data shows an 8% to growth rate compared to a decline of 0.1
15% decline in economic activity in % for advanced economies may appear
various sectors. Employment pressures as a good performance. However, compa-
have emerged, attributable to the vulnera- red to 2007, it represents a loss of 3 per-
bility of labor-intensive sectors (tourism centage points. In addition, this level is far
and textile) to the crisis. A local textile from the growth required to reach the
company in the West of the country clo- Millennium Development Goals. The cur-
sed, causing the loss of 4000 jobs. rent economic crisis affects all the drivers
of African growth: prices and demand for
5.4.4 Other sectors primary commodities, capital flows, espe-
cially foreign direct investment. Many
The manufacturing sector has been affec- countries face the risk of twin deficits (cur-
ted by both falling global demand and rent account and budget deficits). If the
rising cost of imports of intermediate crisis was to last, it could even threaten
goods caused partly by currency depre- the gains achieved in the last decade in
ciation. As a result, factories run at low the fight against poverty.
capacity and employment is seriously
threatened. For instance in Uganda, the The major challenge is to mobilize
Uganda Manufacturers Association (UMA) resources to finance growth, develop-
reported that fifteen factories closed in ment, investment in infrastructure and
2008 due to the high cost of doing busi- poverty reduction programs. This will
ness. South Africa announced a signifi- require that aid commitments by donors
cant drop in the sale of new cars, reflec- are met, and that African countries impro-
ting the crisis facing vehicle manufactu- ve their performance in resource mobiliza-
 17

tion at the national and regional level. critical role in assisting African coun-
However, long-term strategies must be tries to devise strategies for preventing
oriented toward building more resilience and mitigating the impact of financial
to the crisis and sustaining growth. crises. In particular, it is important to
evaluate the resource requirements
The following areas will require immediate for assisting countries affected by the
attention from African governments, the crisis.
Bank and the continent’s development
partners. • Ensuring adequate flows of develop-
ment aid: Despite the economic
• Supporting domestic growth drivers: downturn in developed and emerging
Economic policy at the macroeconomic countries, it is important that donors
and sectoral level needs to target honor their aid commitments. Any
support for domestic growth drivers reduction in aid will amplify the nega-
and be tailored to each country’s tive impact of the crisis on African
circumstances. Measures should be economies, which in turn will delay
investigated to support tourism, mining global economic recovery by depres-
and other export oriented activities. sing demand.

• Increasing investment in The Bank will share it analysis of the

infrastructure: It is critically important impact of the financial crisis on different
that African countries keep an adequa- sectors in African economies. The analysis
te level of infrastructure investment to will also serve as input for the Operations
support private sector activity in gene- Departments in the preparation of Country
ral and enhance competitiveness and Assistance Strategies as well as Project
diversification in particular. and Programme Interventions. The Bank
envisages intensified interventions in
• Preparedness and targeted responses RMCs by targeting growth drivers and the
by the Bank: the Bank should play a most affected sectors.
28
 19

References
African Development Bank (2009) International Monetary Fund (2008)
Financial Crisis Monitoring group Weekly Global Financial Stability Report, October
Report, February 2009 2008

Sovereign Wealth Fund Institute, 2008

African Development Bank (2009)
Financial Crisis Monitoring Group Weekly UNCTAD (2008) World Investment Report
Report January 2009 2008

African Economic Outlook 2008/09, United Nations (2009) Department of

Economic and Social Affairs, February
Preliminary results
2009

Global Development Finance, World Bank World Bank (2009) Global Economic
2008 and JPMorgan Prospects 2009: Commodity markets
20

Annex 1: Impact on selected financial markets

Value at end Losses dues
INDEX Benchmark
Region/Country of Week to financial
07/31/2008
Name Code (13/02/2009) crisis (%)

AFRICA

BRVM
Cote d’Ivoire Composite BRVM CI 242.54 169.34 -30.18
Index
CASE 30
Egypt CASE 30 9251.19 3600.79 -61.08
Index
Kenya
Kenya KSE 4868.27 2855.87 -41.34
Stock Index
Mauritius
Mauritius SEMDEX 1735.77 1005.69 -42.06
AllShares
Casa All
Morocco MASI 14134.70 10352.81 -26.76
Share Index
NSE All
Nigeria NSE 52916.66 23814.46 -55.00
Share Index
All Share
South Africa JALSH 27552.65 20650.38 -25.05
Index
Tunis se
Tunisia Tnse Index TUNINDEX 3036.87 3049.6 0.42
STK

OTHERS

USA Dow Jones

DJ Index 11378.02 7,850.41 -31.00
Industrial
CAC 40
France CAC 40 4392.36 2,997.86 -31.75
Index
Nikkei 225
Japan N 225 13376.81 7,779.40 -41.84
Index

Source: AfDB, Statistics Department, January 2009

 21

Annex 2: World and African trade prospects

Loss of Loss of
Rate of Growth Rate of Growth
Growth Growth

2008- 2009- 2008- 2009-

2006 2007 2008 2009 2006 2007 2008 2009
2007 2008 2007 2008

Volume of Exports Value of Exports

World 8.8 6.3 4.4 2.1 -1.9 -2.3 14.9 15.6 18.9 -4.4 3.3 -23.3

Africa 0.2 10.1 10.6 3.6 0.5 -7 18.6 20.1 38.3 -7.1 18.2 -45.4

North Africa 16.5 10.4 14.3 6.6 3.9 -7.7 33.1 19.4 52.7 -5.4 33.3 -58.1

Sub-Saharan
Africa (excluding
Nigeria and South 4.7 8.1 6.1 4.9 -2 -1.2 20.7 21.2 42.1 -22.5 20.9 -64.6
Africa)

Volume of Imports Value of Imports

World 8.8 6.3 4.4 2.1 -1.9 -2.3 14.9 15.6 18.9 -4.4 3.3 -23.3

Africa 11.6 17.6 15.2 10.5 -2.4 -4.7 19.5 25.5 29.1 6.6 3.6 -22.5

North Africa 16 24.9 24.3 17.9 -0.6 -6.4 20.8 33.7 50.8 15.2 17.1 -35.6

Sub-Saharan
Africa (excluding
Nigeria and South 4.7 8.1 6.1 4.9 -2 -1.2 12 18.7 18.2 2.8 -0.5 -15.4
Africa)

Source: World Economic Situation and Prospects, United Nations, 2009

22

Annex 3: Overall fiscal balance and current account balance (% GDP), 2007-2009

Fiscal balance Current account

2007 2008(e) 2009(p) 2007(e) 2008e) 2009(p)

Africa 1.89 1.82 -5.06 2.66 2.72 -4.05

North Africa (including Sudan) 2.90 2.38 -5.79 10.65 10.14 1.75
Sub-Saharan Africa 1.25 1.48 -4.61 -2.37 -1.68 -7.70

By oil production

Oil-exporting countries 3.87 4.32 -7.30 9.11 8.78 -4.00

Oil importing countries -0.41 -1.75 -2.12 -4.79 -5.88 -4.13

By region

Central Africa 5.46 10.73 3.26 -1.47 3.88 -9.39

Northern Africa 3.51 2.98 -6.15 13.05 12.15 3.02

Southern Africa 2.47 2.32 -3.46 -3.34 -3.01 -7.65

Western Africa -0.54 -0.08 -9.00 0.11 0.72 -8.57

Source: African Economic Outlook 2009 (preliminary estimates), AfDB, 2009

 23

Annex 4 : Growth and inflation in Africa, 2007-2009

Inflation Real GDP growth

2007 2008(f) 2009(p) 2007 2008(e) 2009(p)

Africa 7.4 10.9 8.7 6.1 5.7 2.9

North Africa (including Sudan) 7.0 8.6 7.7 5.7 6.0 3.5

Sub-Saharan Africa 7.7 12.5 9.4 6.4 5.5 2.4

By oil production

Oil-exporting countries 7.2 10.0 9.1 6.8 6.6 2.4

Oil importing countries 7.7 11.8 8.2 5.4 4.6 3.4

By region

Central Africa 2.9 8.8 7.2 4.0 5.0 2.8

Eastern Africa 10.1 17.8 10.2 8.8 7.3 5.5

Northern Africa 6.8 8.1 7.6 5.3 5.8 3.3

Southern Africa 9.3 12.4 9.7 7.0 5.3 0.4

Western Africa 5.4 10.6 8.6 5.4 5.4 4.2

Source: African Economic Outlook 2009 (preliminary estimates), AfDB, 2009

25

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