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Africa: Least integrated but worst hit by the crisis

Submitted by Shanta on Mon, 2009-04-20 09:33

Even though it is the least integrated with the global economy, Africa may be the worst hit region by the global economic crisis. Each of the four channels through which the crisis is affecting Africa has a particularly nefarious impact. 

  • Private capital flows, which in 2007 had surged to $53 billion—for the first time exceeding foreign aid to the continent—are declining.  Since last year, African stock markets have fallen by an average of 40 percent, with some such as Nigeria's falling by over 60 percent.  Ghana and Kenya have postponed sovereign bond offerings worth over $800 million, delaying the construction of toll-roads and gas pipelines.  The Democratic Republic of Congo has lowered its expected foreign direct investment by $1.8 billion. These flows were financing much-needed infrastructure and commodity-based investments. More importantly, the surge in capital inflows had raised expectations that African economies had “turned the corner”—only to have those expectations deflated for reasons that are not remotely the fault of Africans.
  • Remittances, which had peaked at about $20 billion a year in 2008, are expected to decline by 4.4 percent this year.  Typically, remittances are counter-cyclical: when your family is having difficulties, you send them more money. But this time the crisis is in the remittance-sending countries. Over 77 percent of Africa's remittances come from the U.S.

A fiscal stimulus for Africa?

Submitted by Shanta on Mon, 2009-03-09 10:42

There is no question that the global financial and economic crisis is affecting Africa’s economic performance. The IMF’s World Economic Outlook forecasts a GDP growth rate for Africa of 3.5 percent, which is 1.6 percentage points lower than the previous forecast, and 1.9 percentage points below the 2008 growth rate. The growth forecast for primary commodity exporters is even lower; Angola, for instance, is projecting nominal GDP to be 17 percent lower in 2009 compared to 2008.  A growth slowdown in Africa can have serious long-term consequences.
In light of these developments and evidence, and given that the United States, Western Europe and China are all considering a major fiscal expansion (of the order of trillions of dollars), a natural question to ask is: “Should African countries also introduce a fiscal stimulus?” 

The answer is: “It depends.”

Angola's economic prospects (revised)

Submitted by Shanta on Thu, 2009-01-29 17:25

In his earlier post on this blog, Ricardo Gazel forecast a 10% decline in Angola’s GDP. This was based on the country’s 2009 budget, which was elaborated before the deepening of the financial crisis and its spillover to the real economy. He now writes:

Since then, OPEC agreed to two production cuts, amounting to a reduction of 244,000 barrels per day or a 13% production cut for Angola. Given the current composition of GDP, if the oil sector shrinks by 13%, the non-oil sector would need to grow at around 22% in order for total GDP to stay flat in 2009. As the non-oil sector depends strongly on public expenditures, and given the dramatic decline in oil revenues expected for 2009, adjustments of the budget are likely to result in a slowdown of the non-oil sector, resulting in a negative growth rate of GDP as a whole in 2009. In nominal terms, with the oil price around $50 a barrel and non-oil sector growing around 10%, GDP would be around 17% lower in 2009 compared to 2008. At $40 a barrel, the decline in nominal GDP comes to 23%.

Angola: Perspectives on the Financial Crisis

Submitted by Ricardo Gazel on Thu, 2008-12-11 10:17

The impact of the current global crisis on Angola’s economy can be divided into three parts. First, a marginal impact on the financial sector: no stock exchange, very small inter-banking credit markets, limited transaction flows with international markets (except via Portuguese Bank), low level of banking services, low ratio of loans to deposits, etc. Nonetheless, there was a decline of around 20% in demand deposits in foreign currency in November. 

Second, a favorable impact is expected on the inflation rate due to the decline in import prices, especially food and construction materials, and an appreciation of the Kwanza vis-à-vis the Euro. 

Third, a large negative impact on the real economy is expected as oil prices decline to very low levels. Despite positive real growth, nominal GDP in billion of dollars would decline from 85.5 in 2008 to 77.3 in 2009. Lower government revenue implies lower government expenditures, the main source of demand for the non-oil sector. The proposed budget for 2009 includes: oil at US$55 per barrel; the lowest growth rate in expenditures in the last years; a negative real rate of growth for current expenditures; and a budget deficit of 7.7% of GDP in 2009.