The Global Economic Crisis: Implications for Africa

The Global Economic Crisis:

Implications for Africa

Dr. Lisa D. CookDepartment of EconomicsMichigan State University

Context: Study and Practice Assistant Professor Research on finance and

development Post-doc at Treasury Department

with Tim Geithner and Larry Summers as Senior Advisor on Finance and Development

Advised Governments of Nigeria and Rwanda with Jeffrey Sachs

Working on Gates project on financial crises in Africa

Context: Pre-Crisis Reversal of decades’ long decline

of growth in Africa

Africa’s Recent Economic Performance

Between 1980 and 1989, real GDP per capita in Africa fell by 1.1% on average.

But between 2000 and 2005, real GDP per capita in Africa increased by 2.1% on average.

Africa’s Recent Economic Performance

New article in the American Economic Review

– Cook and Beny (2009) Luck, or significant increases in

commodity prices, and policy reforms are correlated with recent trends in economic growth.

Africa’s Recent Economic Performance

Now that the world’s luck has turned bad…

– …the question is whether the effects of the many crises Africa faced in the last 12 months can be attenuated by policy changes that occurred in the late 1980’s and 1990’s.

Africa’s Recent Economic Performance

IMF World Outlook– Bleak picture released earlier this

week– Predicts decline from 5.25% in 2008

to 2.0% in 2009

Three Global Crises Food, energy Financial Economic (Real)

Three Global Crises Let’s review what has happened in the

last 12 months.

Three Global Crises Food crisis

– March 2007 to March 2008 (Bloomberg): » The world price of Wheat ↑ 130%» Rice ↑ 74%» Corn ↑ 31%

Food Prices Increased dramatically

internationally

Food Prices Corn-based ethanol production

was a factor

Three Global Crises Africa has been the region hardest hit

by these crises.

Food Prices

Three Global Crises Last year this time, the price of

gasoline was at its highest price, a national average or $3.50, in recorded history, even when adjusting for inflation.

Three Global Crises

Since many of the African countries that export oil also import it, the energy crisis would also have a negative effect on African economies.

Financial and Economic Crises

We now know that the global financial crisis followed by the global economic crisis began in the United States.

Financial and Economic Crises

Falling demand and rising unemployment in the U.S. have been followed by falling demand in the rest of the world.

Financial and Economic Crises

Many predicted that Africa was insulated.

– Inside and outside Africa• Financial press, popular press

Financial and Economic Crises

This is not so.

ODA Crisis Gleneagles Commitment

– Rich countries’ promise to double ODA in real terms to Africa from 2005• To meet MDGs• 0.7% of GNI by 2010• Met only by a handful of countries

ODA Crisis Gleneagles Commitment

– ODA more than doubled since 2001• $42 billion in 2001 to $120 billion in

2009– 0.30% of GNI of donor countries

– ODA to Africa also more than doubled between 2001 and 2004

– $10 billion to $26 billion

ODA Crisis Gleneagles Commitment

– Shortfall of $240 billion predicted– Economic crisis will diminish prospects

for meeting these goals as countries turn inward• Global economic growth slowing

ODA Crisis Gleneagles Commitment

– How will they keep these promises?– How will Africa meet the MDGs absent

extra ODA flows?

Concluding Remarks Specific Recommendations

– During Q&A