Global meltdown hits sub-Saharan Africa financing

Sub-Saharan African (SSA) countries have seen a shortfall of $134 billion or $2.5 billion per country in financing due to the meltdown as international financiers and investors kept away.

According to forecasts, 10 African countries are experiencing a decline in real gross domestic product (GDP) by as much as five per cent compared to forecasts made before the crisis.

The countries are Botswana, Angola, Seychelles, Equatorial Guinea, Madagascar, Gabon, Democratic Republic of Congo, Lesotho, South Africa and Nigeria. Kenya, Tanzania and Uganda.

GDP figures for 2009 differed with the forecast by about four, 2.5 and one per cent, respectively.

This emerged from a paper by Dirk Willem te Velde, the director of programmes and research fellow at the UK’s Overseas Development Institute (ODI), presented at the ongoing conference on “Rethinking African Policies” called by the African Economic Research Consortium.

“Recently, it has become clear that SSA has been affected also by financial contagion. International bank lending increased at unsustainably fast rates until September 2008, but has since decreased significantly, by around 10 per cent in the case of Africa,” said Dr Velde.

The shortfall in funding for SSA countries came about through such channels as trade, overseas bank lending, remittances, portfolio flows and foreign direct investment (FDI).

Besides the 10 African countries experiencing declines in real GDP of more than five per cent in 2009, 11 others were seeing a decline of between three and five per cent while 19 others had a decline of between one and three per cent compared to the forecasts before the crisis.

He said: “We note that there are still some useful messages for African countries: There needs to be more debate on the appropriateness of the fiscal stance in African countries in times of crisis (and) there needs to be more emphasis on building flexible institutions to ensure that taskforces work.”

Further, he said, there needs to be a more active approach to openness and trade and finance diversification, not only because of general development concerns but also to make growth more crisis resilient and to reduce exposure to external shocks and promote domestic resource mobilisation.

Already this latter has begun with Kenya government and some state-linked firms going increasingly for infrastructure bonds to fund some major projects.

This followed failure to raise money through the sovereign bond after the global financial crisis.

Other analysts saw it as ironic that the global financial crisis occurred just at the time that many African economies had begun to see better economic performance, after many years of poor policies and outcomes.

Net private capital flows increased to $81 billion (Sh6 trillion) in 2007 from $17.1 billion (Sh1.3 trillion) in 2002.

“Indeed, until the emergence of the economic meltdown, most African economies had enjoyed robust economic growth for close to a decade. Beginning in 2000, Africa’s average growth rate of real output was always above five per cent and inflation rate had declined to a single digit in a number of countries,” wrote Ernest Aryeetey and Charles Ackah of the Institute of Statistical, Social and Economic Research at the University of Ghana in a paper titled “The Global Financial Crisis and African Economies: Impact and Transmission Channels.”