News and Analysis • Volume 13 • Number 2 • June 2009

14 - The Global Economic Crisis, the G-20 Summit and Africa

The current global economic crisis, which Africa had no part in creating, is threatening to reverse much of the gains of the last decade, including the reduction of high poverty levels and advancing their Millennium Development Goal targets.

by Faizel Ismail

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African countries grew by an average of over 5 percent between 2002 and 2007. They also made solid progress in strengthening democratic processes and building good governance. Nearly 30 countries signed on to the African Peer Review Mechanism, and the New Partnership for African Development - a socio-economic programme developed by African leaders at the beginning of the decade - was starting to bear fruit.

In 2009, however, average growth in Africa is expected to fall to 2.5 percent, below the rise in population increases. Even South Africa, the continent’s largest economy is projected to grow by less than 2 percent in 2009. The continent is experiencing massive outflows of capital as foreign banks and companies retreat to their home markets, and credit is drying up for their exports and long-term infrastructure projects. The fall in rich country demand has resulted in a drastic reduction in global commodity prices and the consequent closure of mines in several African countries. In addition, growing unemployment levels in developed countries have had a direct negative impact on the flow of the remittances that have become an important part of African incomes in recent years. Revenues from tourism are expected to fall significantly, while overall levels of aid, in decline even before the financial crisis, are projected to slump further.1

What Africa Needs

African countries have called for a three-fold response to the crisis: a stimulus package to support recovery, an inclusive new architecture of global economic governance and a halt to rich countries’ protectionist practices in finance and trade that continue to undermine Africa’s development.

The stimulus package would include more resources for multilateral development agencies such as the IMF, the World Bank and the African Development Bank, as well as relaxing some of these institutions’ current conditionalities and front-loading concessionary finance.

At the 2005 Gleneagles summit, leaders of the G-8 promised that developed countries’ aid to Africa would see an increase of US$25 billion a year by 2010, more than twice the level of 2004. Most donor countries, however, are not on track to meet either their Gleneagles commitments or the UN official development assistance (ODA) target of 0.7 percent of their gross national incomes. African countries, which lack the means to provide social safety nets for the poor, have embraced World Bank President Robert Zoellick’s call for developed countries to allocate 0.7 percent of their stimulus packages to a ‘vulnerability fund’ to support developing countries.

Meeting in Addis Ababa in March, African Union trade ministers expressed concern over developed countries’ growing use of protectionist measures, such as the US Buy American scheme and the EU’s re-introduction of export subsidies for dairy products. The huge bailout packages of rich nations have had negative impacts on African countries, including through crowding out credit for trade finance and infrastructure improvements. African agriculture has suffered for decades from the huge subsidies handed out to developed country farmers. Fulfilling the promise of the Doha Development Agenda to substantially reduce such support would go a long way in addressing Africa’s concerns, especially for the four major cotton producing countries of West Africa (Benin, Burkina Faso, Chad and Mali), the ministers said.

The G-20 Response

The response of the G-20 leaders to the challenges faced by African countries as a result of the current crisis, was a small step in the right direction, but will require a major effort to ensure that the progress made by African countries in the past decade is not wiped out in the next year or two due to negligence on the part of the world to Africa’s plight.

The leaders agreed in London to increase funding to the World Bank and the IMF to support those developing countries most affected by the crisis (see page 11). They also promised:

to take steps to increase the voice and representation of developing countries in the functioning of these institutions;
to maintain their ODA pledges and commitments to meeting the Millennium Development targets, including to Africa; and
to refrain from increasing financial and trade protectionism, and reiterated their commitment to an ‘ambitious and balanced conclusion’ of the Doha Round.

However the US$1.1 trillion package announced at the summit was largely made up of existing commitments with real new money amounting to less than US$100 billion.

The real impact of these pledges will only emerge in the implementation of the many promises made. While in many in developed countries are losing their jobs, rich governments are able respond with stimulus packages and deploy existing social welfare systems. For most African countries, still highly indebted and dependant on aid for their revenues, the continuation and exacerbation of the current crisis will mean increased starvation, poverty and child mortality. The African Union was represented at the London meeting for the first time. At the next proposed G-20 summit, to be held in New York in September, Africa should use its seat to hold rich countries to account for the progress made in delivering on these promises.

Faizel Ismail is Head of the South African Delegation to the WTO in Geneva.

endnote

1 World Bank. March 2009. Swimming against the Tide: How Developing Countries Are Coping With the Global Economic Crisis.