financial crisis africa

Right analysis, wrong conclusion?

During my recent seminar in Geneva, where I was also meeting with the Africa Progress Panel, a couple of members of the audience (which consisted of ambassadors, U.N. staff, civil society and academics) said, “I liked your analysis, but not your conclusions.”

The seminar summarized many of the points I have been making on this blog:

For the decade before 2008, Africa was experiencing sustained and widespread economic growth, thanks to aid, debt relief, private capital flows, high primary commodity prices, and improved macroeconomic policies
Despite being the least integrated region, Africa was perhaps the worst hit by the global crisis
Contrary to some people’s fears, African governments continued to pursue prudent economic policies during the crisis—even though the visible payoffs to these policies (growth and poverty reduction) had suddenly diminished
Conclusion: Economic policy in Africa, which had been improving before the crisis, and either stayed on course or improved during the crisis, has never been better.
Since my conclusion followed directly from the analysis, I had three possible explanations for the reaction mentioned above:

Despite being pummeled by the global crisis--diamond production and exports contracted by 50 percent in 2009--Botswana was in the enviable position of being able to cushion its people and the economy, thanks to large savings accumulated over the years and access to inexpensive financing.

But it may have overdone the cushioning. The fiscal deficit for the 2009/10 budget year is projected at 14 percent of GDP.

Although diamond prices are expected to rebound, production and exports will remain below pre-crisis levels, and another double-digit deficit is expected in 2010/11. Not even Botswana can maintain double-digit deficits for long without jeopardizing its fiscal sustainability, especially given the specter of a rapid fall in diamond production--and eventual depletion of known reserves--in a few decades.

At the same time, cutting spending is particularly painful in a country like Botswana where government expenditures are pivotal to economic activity and to sustaining non-mining private sector.

Some tough choices ahead for one of Africa's best-managed economies.

Not a day passes without somebody asking me about the impact of the global financial crisis on Africa's poverty reduction efforts. So I thought I would share this interview I recently did for Deutsche Welle radio.

I have also written extensively about what the crisis may mean for Africa on this blog. You can see those entries here.

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Given its massive development deficits and the effects of the global economic crisis, many observers, included me, are calling for increased aid to Africa. Most of these appeals are based on Africa’s need for more resources. But there is a different argument.

Aid to Africa is today as productive as it has ever been.

Craig Burnside and David Dollar identified a group of policies (including fiscal stability and low trade barriers) that strengthened the link between foreign aid and per capita income growth. These are the very policies that African governments have been improving over the past decade.

Even after the onset of the global economic crisis, and despite the fears that these

financial crisis africa

Right analysis, wrong conclusion?

Hard Choices in Botswana

Impact of the Global Financial Crisis

Another Reason Why Aid to Africa Must Increase