Crisis in the International
System and Africa’s
Development
Benno Ndulu
Bank of Tanzania
Global Development Paradigms and
Changing African Development
Strategies
Changing attitudes towards roles of
• Market, State, and Private sector, and Institutions
– 1960s -70s –predominant concern with market and coordination
failure - state to proactively mitigatie them - Dirigisme
– 1980s –mid1990s – dominant concern with government failure –
liberalization and minimalist state role
– 1990- onset of crisis - state support functioning of markets esp.
in emerging economies
• Cross border flow s of goods, services and capital
– 1960s-1970s - inward looking – import substitution strategies
– 1980s-onset of crisis – Globalization of production , trade and
capital - openness and outward oriented straregies
Greater Global Interdependence –
Influential for Design of Development
Strategies
• Economies have become much more interdependent
– Production in a giant globalized factory
– Trade grown faster than production
– International fin. flows dwarfed national savings & fin
intermediation
• Economic and fin. Actors unconstrained by borders
significantly weakening role of nation states
– Multinational have economically dwarfed host states
– Home states often powerless to control actions of
multinationals abroad
• Contagion has become a powerful tool for propagating
booms and crises across borders
– Systemically important economies are most influential
– African countries largely victims of crises starting from these
A Decade of Sustained Growth
• 15 countries grew at more than 5.3
percent over the last decade
• 21 countries grew at over 5 percent in the
last 5 years
• Recent pressures aside, 2007 inflation in
single digits in 2/3 of SSA countries
(spirals of 1973 and 1979 so far avoided)
• Significant build up of international
reserves from the boom in exports
African Vulnerabilities to Global
Enterdependence Enhanced by
• The extent of exposure of domestic production to
external demand in turn dependence on primary
commodities and natural resources
• The degree of dependence on foreign savings for
financing investment (FDI and ODA)
• The extent of dependence on imports for
domestic production – primary and manufactured
products
• Weaknesses from acting individually as small
countries and markets, when the rest of the world
is forming defensive blocs through integration.
There is an Upside from the
Globalization
• Countries in Asia exploited interdependence to
record unprecedented growth and Poverty
Reduction
• African Economies have also benefited greatly
– 15 countries grew at more than 5.3 percent over the last
–
–
–
–
–
–
decade
21 countries grew at over 5 percent in the last 5 years
Recent pressures aside, 2007 inflation in single digits in 2/3 of
SSA countries (spirals of 1973 and 1979 avoided) and Avoided
A Spiral in 2008
Significant build up of international reserves from the boom in
exports
More than 2/3 of SSA countries have investment rates
exceeding 20% of GDP
FDI rose from $11b in 2000 to $53b in 2007
Revenue to GDP ratio increased
But the Propagation of the Crisis
Threatens the Gains Made
• Weakening demand for commodities with global
•
•
recession - vulnerabilities
Slowdown in capital flows (FDI) and ODA widen
the financing gap
Reduced access to credit
– sovereign issuance
– Credibility of rating agencies
• Inflation threatening Growth
• High cost of finance with intensified financial
risks
• Foreign reserves outflow from LICs
Main Concerns From the Crisis
• Fall out from the Crisis will setback the steady
progress made in the last decade
– Endanger sustainability of growth (repeat of 1980s and
1990s – post Second oil shock and world recession )
– Undermine macro stability achieved last decade with
emergence of resource gap pressures
– Erosion of progress in social well being - education,
health as countries face large fiscal gaps
– Deterioration in the stock of infrastructure
• Push achievement of MDGs further away
• A threat to social and political stability if safety
nets against vulnerabilities - jobs and food – not
provided
Major Challenges In the
Short run
Short term – Weathering the Storm
• Protecting jobs mainly in the exporting sectors
•
•
•
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and those linked to them
Ensuring availability of food at affordable prices –
food security
Protecting Life- saving programs that have shown
results – e.g. HIV/AIDS, malaria , tuberculosis
Sustaining macro stability - balance of payments
support and managing resource gap pressures
Protecting the banking system from client
distress
Global Responses Important
• Aware that the recovery of systemically important
economies is crucial for revamping demand and prices
as well as FDI
• Bail out schemes underway will be helpful for
recovery of the global economy and to unlock the
financial disintermediation
• But these should avoid protectionism which will hurt
trade
• Preemptive measures should focus on correcting
regulatory failures - effective surveillance ;
strengthening of global regulatory institutions to
oversee systemically important countries and players
(incl hedge funds &r ating agencies
Global Responses cont’d---• Commit to an early conclusion of an ambitious and
•
•
development oriented Doha Round.
Shareholders need to agree to increase financing
capacity of the BWIs and regional development banks
to provide trade finance facilities.
Development Partners encouraged to provide
technical, financial and political support to the Aid for
Trade Initiative.
Is De- Globalization an option for
Africa ?
The Answer is NO
• Very strong statistical relationship
between African and Trading
partners’ growth
• Africa’s strong natural Resource base
makes it world market dependent
• But we can change the terms of
engagement over time
But African Countries must Build
Further Resilience To Shocks
• Diversification of our economies and reduced
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•
•
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reliance on primary commodities
Better integration of our production and
consumption processes – including adding value
Reduction in aid dependence and domestic
savings mobilization
Diversifying our sources of foreign savings
building on our recently achieved creditworthiness
More effective regional integration to enhance
the connectedness of our economies and enhance
our global influence as a bloc.