Africa and the
Financial Crisis:
An Agenda
for Action
Razia Khan
Regional Head of Research, Africa
Razia.Khan@sc.com
May 12th, 2009
AfDB Annual Meetings, Dakar, Senegal
Africa: The past
Fiscal Policy had improved
25
Average inflation moved lower
Gross National Savings as % of GDP
Inflation, Annual % change, SSA
70
60
50
40
30
20
10
0
20
15
10
5
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07f
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06e 07f
Commodities boom fuelled interest in
Africa
450
400
350
300
250
200
150
100
50
0
Debt relief added to the
attractiveness of African economies
CRB commodities index
External Debt as % of GDP, SSA
80
70
60
50
40
30
20
10
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07f
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07f
Source: IMF
2
Reform, yield curve extension, widening of
investor base – lower rates stimulated private
sector growth
91 Day T-bill yields, selected markets
60
50
40
30
20
10
Ghana
Zambia
Kenya
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Jan-02
Jul-01
Jan-01
Jul-00
Jan-00
0
Uganda
Source: Datastream, SCB Global Research
3
Africa: The new challenges
Even SSA economies are headed
for a downturn (Real GDP growth %)
Commodity prices have plummeted
(CRB index)
10
700
600
8
400
4
300
200
2
100
0
Source : IMF
Source : Reuters
…and capital flows to all EMs will decline.
SSA frontier markets will be hardest hit
400
Portfolio equity investment, net
Commercial banks, net
Other private creditors, net
USD bn
300
200
100
0
Source : IMF
2009f
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
2008
2006
2004
2002
2000
1998
-100
1996
% y/y
Last year’s food & fuel shock is still adding
to pressure (CPI % y/y)
45
40
35
30
25
20
15
10
5
0
2009
2007
2005
2003
1999
2010f
2009f
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0
2001
% y/y
500
6
Source:IIF
4
African growth may dip less than global growth
…but the region still has important long standing vulnerabilities
Real GDP Growth % y/y
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
World
2010f
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
-2.0
Sub Saharan Africa
Source: IMF
5
Exports will contract, resulting in lower FX
inflows
USDmn
402,000
420,000
360,000
333,668
281,400
287,439
300,000
242,818
240,000
191,224
180,000
151,733
125,650
118,914 124,583
120,000
60,000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008(e) 2009(f)
Sources: IMF, SCB Global Research estimates and forecast
6
All sources of capital inflows –
public and private – are likely to decline
USDmn
45,000
30,000
15,000
0
-15,000
2001
2002
FDI
2003
2004
Portfolio flows
2005
2006
Remittances*
2007
2008
ODA
Sources: SCB Global Research, IMF, WB OECD
7
With rising unemployment in source countries,
remittances unlikely to hold up
Remittances to Sub Saharan Africa – by source
Developing, 10%
Other high income,
8%
US, 31%
GCC, 8%
Western Europe,
44%
Sources: World Bank, Nov 08, Migration and Development Brief No. 8
8
The Impact on Africa’s
Financial Sector
Impact of investor withdrawal on African FX
rates
African currencies, rebased with Jan 08 as starting point. Rate v. USD
African FX – Depreciation trend resumes, return of risk appetite is selective
1.5
1.3
1.2
1.1
1.0
0.9
GHS
ZMK
UGX
NGN
Feb-09
Jan-09
Dec-08
Nov-08
Oct-08
Sep-08
Aug-08
Jul-08
Jun-08
May-08
Apr-08
Mar-08
Feb-08
0.8
Jan-08
Index (Jan08=100)
1.4
KES
10
Low reliance on wholesale funding
Estimated loan-to-deposit ratios, FIs not overly reliant on wholesale funding
160%
140%
120%
100%
80%
60%
40%
South Africa
Nigeria
Ghana
Uganda
Botswana
Kenya
Tanzania
Zambia
WAEMU
zone
0%
CEMAC
zone
20%
Loan to deposit ratio
Source: Various national central bank sources, 2008, SCB Global Research
11
Although Africa’s reliance on cross-border
lending is not great…
BIS Lending to Developing Economies – % share of total
Emerging Europe,
29.8
Asia ex-Japan, 39.8
LatAm, 15.5
Sub-Saharan Africa,
2.8
MENA, 12.2
Sources: BIS Q4 08, SCB Global Research
12
…Africa saw the largest % withdrawal of foreign credit in
Q4
Cross border claims – from mid-08 peak to end-08 trough
10%
0%
-10%
-20%
-30%
-40%
Emerging
Europe
Asia
LatAm
-60%
Sub
Saharan
Africa
-50%
Decline in cross-border claims from mid-08 peak to Q4 08
Source: BIS, SCB Global Research
13
Focus on Trade Finance
Big picture clarity required
Trade finance – the evidence?
Africa-China trade y/y 3mma
140%
120%
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
African exports to China
Mar-09
Sep-08
Mar-08
Sep-07
Mar-07
Sep-06
Mar-06
Sep-05
Mar-05
Sep-04
Mar-04
Sep-03
Mar-03
Sep-02
Mar-02
Sep-01
Mar-01
-80%
Africa imports from China
Source: CEIC, SCB Global Research
15
ii) Africa- US
Africa-US trade y/y 3mma
100%
80%
60%
40%
20%
0%
-20%
-40%
Imports from the US
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Jan-02
Jul-01
Jan-01
Jul-00
Jan-00
-60%
Exports to the US
Source: BIS, SCB Global Research
16
iii) Africa- Germany
Africa-Germany trade y/y 3mma
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
Africa imports from Germany
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Jan-02
Jul-01
Jan-01
Jul-00
Jan-00
-40%
Africa exports to Germany
Source: BIS, SCB Global Research
17
Financial Intermediation in
Africa – the big picture
Low level of financial intermediation an
important constraint
Bank Deposits to GDP
Source: IMF, International Financial Statistics and World Economic Outlook, SCB Global Research
19
Africa – still, essentially a cash economy
M1 to M2 Ratio
Source: IMF, International Financial Statistics and World Economic Outlook, SCB Global Research
20
Focus on what’s needed
M2 to GDP
Source: IMF, International Financial Statistics and World Economic Outlook, SCB Global Research
21
Important that recent gains are not reversed
Private Credit by Deposit Money Banks to GDP
Source: IMF, International Financial Statistics and World Economic Outlook, SCB Global Research
22
Financial sector reforms –
case studies
Case Study 1: Tanzania – too informal an economy?
Tanzanian Monetary Aggregates TZS 000 bn
8000
7000
6000
5000
4000
3000
2000
1000
M1
M2
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Jan-02
Jul-01
Jan-01
Jul-00
Jan-00
0
M3
Source: IFS, Bank of Tanzania, SCB Global Research
24
Case Study 2: Botswana – what borrowing
constraint?
Pools of liquidity that can be tapped to finance borrowing, BWP bn
40,000
35,000
30,000
25,000
20,000
15,000
10,000
CCY in Circulation
M1
M2
Aug-08
Jan-08
Jun-07
Nov-06
Apr-06
Sep-05
Feb-05
Jul-04
Dec-03
May-03
Oct-02
Mar-02
Aug-01
0
Jan-01
5,000
M3
Source: Bank of Botswana, SCB Global Research
25
Case Study 3: Nigeria – financial sector regulation key
to confidence
Oil Price vs NGN (inverted Scale, RHS)
110
120
130
125
110
130
135
90
140
70
145
150
50
NGN/USD (inverted scale)
115
155
160
Oil price
Mar-09
Feb-09
Feb-09
Jan-09
Dec-08
Dec-08
Nov-08
Oct-08
Sep-08
Sep-08
Aug-08
Jul-08
Jul-08
Jun-08
May-08
May-08
Apr-08
Mar-08
Mar-08
Feb-08
Jan-08
30
Jan-08
Oil price (Bonny, USD pb)
150
NGN (inverted scale, rhs)
26
Financial Sector Reforms

Recommendations are not new

But there is now a greater urgency to reform

Bank the unbanked

Develop capital markets

Improve financial sector regulation
27
Standard Chartered website for African, EM, and
Global Research
http://research.standardchartered.com
28
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Data available as of 12th May 2009 GMT 0600.
This presentation was first presented at 1030 GMT 12th May 2009.
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