全球經濟危機對非洲的影響assignment

 

撒哈拉以南非洲地區由44個成分混雜的國家組成，他們有不同國別的經濟和政治條件并且暴露于危機中。因此,全球信貸危機和經濟衰退對每個國家造成的影響也不同。全球經濟衰退的影響程度在每個國家基本上取決于幾個因素,其中包括:經濟的開放,與全球金融市場的集成,暴露在復雜的金融手段,銀行流動性,對外國資金的依賴程度,和在金融機構中影響力的程度。擁有新興市場和高水平能與全球金融市場一體化的國家首先面臨著危機的影響。然而,隨著危機的持續和擴大,危機的損害開始蔓延到其他國家。
 

“如果非洲經濟沒有增長如此之快，全球經濟危機對非洲的影響會更強……”——奧爾布萊特資本的董事總經理兼首席經濟學家，亨利·布蘭德。

在過去的十年里非洲撒哈拉沙漠以南地區取得了很大的進步,取得了強勁的經濟擴張。GDP的穩定增長,通脹的顯著減少,外匯儲備的積累,可持續的債務水平,推進貿易自由化和推進結構性改革反映了引人注目的增長并且實現了經濟穩定增長。
 

Impact Of Global Economic Crisis On Africa

 

INTRODUCTION:

 

Sub-Saharan Africa consists of 44 heterogeneous countries with different country-specific economic and political conditions and exposure to the crisis. Thus the impact of the global credit crisis and recession on each country varied from one another. The degree of the effect of the global recession on each country essentially depended on several factors, among them: the openness of the economy, integration with global financial markets, exposure to complex financial instruments, bank liquidity, the level of reliance on foreign funding, and the extent of the leverage in financial institutions. Countries with emerging market and high level of integration with global financial markets faced the impacts of the crisis first. However, as the crisis endured and expanded, the damage of the crisis commenced spreading to other countries.

 

“Impact of global economic crisis on Africa would have been stronger if African economies had not been growing so fast...” - Henry Broadman, Managing Director and Chief Economist, Albright Capital.

 

Over the past decade sub-Saharan Africa has made a significant progress and achieved a robust economic expansion. A steady growth in GDP, the significant reduction of inflation, accumulation of reserves, sustainable debt levels and progress with liberalizing trade and structural reforms reflect remarkable gains in advancing growth and achieving economic stability. Hence, policy makers are concerned about preserving hard-won economic improvement and avoiding adverse impact of the global recession on economic growth and poverty.#p#分頁標題#e#

 

The IMF (Spillovers from the Rest of the World into sub-Saharan African Countries, 2009) conducted a regression analysis to determine the correlation between the world growth and the growth in sub-Saharan Africa. It turned out that these two variables are positively correlated. That is, the world growth has statistically significant effect on growth of sub-Saharan Africa. Furthermore, the analysis revealed that a 1 percentage decline in world growth is accompanied with 0.4 to 0.5 percentage decrease in growth within the following two years.

 

GDP

 

In order to assess the impact of the recession on the sub-Saharan Africa, the definition of the recession should be clarified.

 

“A period of general economic decline; typically defined as a decline in GDP for two or more consecutive quarters. A recession is typically accompanied by a drop in the stock market, an increase in unemployment, and a decline in the housing market.” (http://www.investorwords.com/4086/recession.html accessed on 10 may).

 

The adverse effect of the global downturn can be reflected in decline of the key economic indicator, GDP. IMF (Regional Economic Outlook, October 2009, Chapter 1) reports that the sub-Saharan Africa's annual output expanded by around 6 1/2 percentages in the period 2002-2007. It is the highest rate in more than 30 years. Nonetheless, as a result of the global economic downturn, many countries' growth rate decelerated. The region's growth rate dropped from 6 1/2 to 5 1/2 in 2008. Now, countries need to adjust to lower demand for African exports, significant fluctuations in the terms of trade, and tight financial conditions. IMF (2009) Regional Economic Outlook: sub-Saharan Africa Weathering the Storm, Washington, D.C.: IMF

 

Table 1 illustrates the Real GDP of sub-Saharan Africa in the period before and after the onset of the recession. After the first sustained growth in the sub-Saharan Africa for decades, the food and fuel price shock of 2007-2008 which initiated global financial crisis, dampened growth prospects. The pre-crisis increase in GDP, shown in the table, verifies the robust economic growth of the region, whereas the significant decline in oil-exporters demonstrate that these countries were the hardest hit by the recession. Nevertheless, the remarkable decline in the variables can partly be the result of the decline in oil production. The diminishing output and lower prices could influence the countries' fiscal and current account balance. The low-income and fragile countries are least influenced by the recession by reason of low integration with the global markets.

 

The change in GDP can be explained by the influence of other economic indicators.Since GDP equation is Y= C + I + NE+ G and all the regressors have explanatory power on the regressond, the change in these variables can interpret the decline in GDP. The growth of the majority of the countries' referred to the region were badly affected mainly due to the declining demand for African exports and a fall in commodity prices (Figure 1), which in turn influenced the export revenues and the external current account (Table 2). Therefore, the diminishing demand for African exports caused the net exports to fall, whereas the fall in investment was caused by the rise in risk aversion. The reduction in investment, increase in unemployment, the decrease of remittances and the tight credit requirements contributed to the diminution of consumption expenses. Although the government revenue lessened, the expenditure of the government increased.#p#分頁標題#e#

 

The IMF (Spillovers from the Rest of the World into sub-Saharan African Countries, 2009) regression analysis discovered that presuming exports of about 40 percent of GDP, a 25 percentage decrease in non-fuel commodity prices would reduce the growth rate by around 1.9 percentages in two years.

 

Channels

 

As shown in Table 1 above, the GDP of oil-exporting and middle-income countries responded to the recession immediately, whereas the decline in low-income and fragile countries occurred by the end of 2008. The reason of the lag in reaction to the global downturn was that the former countries are highly integrated with the global financial markets, while the latter countries are less financially linked to the global markets and therefore are less exposed to the crisis. However, according to the IMF report, as the crisis endured, the unfavourable effects of the global economic recession transmitted to all the other sub-Saharan African countries through the main 3 channels:

 

The global economic slowdown reduced demand for African exports and pushed commodity prices down, which in turn reduced government revenues. The reduction in exports curtailed the flow of remittances from abroad and therefore reduced domestic consumption.

 

The global financial turmoil has caused rise in risk aversion, which in turn reduced foreign direct Investment and reversed portfolio inflows, since investors look for safe assets.

 

Increased risk aversion has contributed to higher spreads for international borrowing and a decrease in capital flows to low-income countries and emerging market economies. The rise in risk aversion can also be dispalyed in the shortening of maturity in the money market.

 

3) Indirect channels like lower foreign demand, reduction in aid and decrease in commodity prices. (Regional Economic Outlook: Sub-Saharan Africa, April 2009)

 

Furthermore, the reduction of trade among sub-Saharan countries also influenced the region's growth. For instance, Lesotho, which is the member of the South African Customs Union (SACU) was hardly hit by the decrease of trade among the Union countries. Due to the member countries' economic slowdown, the trade among these countries diminished, which in turn led to the decline in the SACU revenue. Lesotho's economy, where SACU transfers account for more than 60 percent of revenues, was badly damaged.

 

“A shift in demand for African products - almost 60 percent of African exports go to the U.S. and the EU combined. These are precisely the economies that have been hit by the crisis. There has been a decline in import volumes in 2009 of 2 percent in the U.S. and 5 percent in the EU.”- Henry Broadman, Managing Director and Chief Economist, Albright Capital.

 

However the degree and speed of the transmission of crisis through the above channels somewhat depends on the exposure of the country to the crisis.

 

Exposure to Crisis

 

Each sub-Saharan African country's exposure to the crisis is different from one another. According to the IMF report, the main distinctions are:

 

Connections to global financial markets and institutions.

 

The development of financial market.

 

Preliminary soundness of the financial market.

 

Their ability to respond to shocks.(Regional Economic Outlook:sub-Saharan Africa, April 2009)

 

Countries that were intensely integrating with global financial markets and institutions were the first to be hit by the crisis, whereas regions with less exposure to the financial turmoil were affected later, via the transmission channels stated above.

 

As a result of financial links and cooperation with other regions, countries which have emerging and frontier markets like South Africa, Nigeria, Ghana and Kenya were hit first. The financing for corporations and banks from other regions became rare in South Africa and Nigeria, while Ghana and Kenya had to delay planned borrowing. Essentially, these countries deteriorate on account of falling equity markets, capital flow reversals and pressures on exchange rates.

 

Whereas countries with fragile economies which are reliant on special privileges and concessional financing, like Burundi, Guinea-Bissau and Liberia were affected badly due to the significant decline in the amount of help from donor countries.

 

It is essential to mention that the drop in the sub-Saharan Africa's growth rate from 6 ? to 1 percent, mentioned in the IMF reports (Regional Economic Outlook: sub-Saharan Africa, October 2009), only reflects the average growth rate of the region, and does not demonstrate the actual difference in growth of the countries related to this region.

 

The number showing the region's median countries' growth rate in the pre and post-crisis period is diverse to the growth rate of fragile countries. This demonstrates that the region's richer countries, oil exporting or middle-income countries, have on average been affected more by the global recession which shows that these countries were more exposed to the recession than other countries. Among all the sub-Saharan countries oil and metal exporters have been hit the most due to the reduction in oil prices over 60 percent compared to the peak price which occurred in July 2008.If at that time the rise in the oil price helped the oil exporting countries to achieve fiscal and current account surpluses, the opposite change in the oil price replaced surplus with deficit in 2009. Although the decrease in the price of oil is good for oil importers, the decrease in other commodities' prices like coffee, cocoa or cotton significantly cut profits from export.#p#分頁標題#e#

 

Remittances

 

Another explanation of the Sub-Saharan Africa's vulnerability to the global economic downturn, is the somewhat dependence on the remittances. With about 80 percent of the region's remittances coming from advanced countries, further deterioration in advanced countries economies' will be reflected in the sub-Saharan Africa's economy. Some sub-Saharan countries remittances account for more than 20 percent of GDP. According to the IMF research, a 1 percent decline in host country's growth would initiate a 4 percent decline in remittances (Regional Economic outlook: sub-Saharan Africa, April 2009). Therefore, the effects of the global economic recession on the sub-Saharan Africa may be devastating.

 

“Reallocation of financing flows to Africa - portfolio or passive foreign investment has been curtailed. Remittances will begin to decline as workers who had been employed in developed countries lose their jobs and therefore do not send as much money back in 2009.” - Henry Broadman, Managing Director and Chief Economist, Albright Capital.

 

FINANCIAL SYSTEMS:

 

According to the IMF reports, despite an intense pressure of the crisis on currency, money and capital markets, the financial systems in sub-Saharan Africa have endured to operate normally and have so far been resilient to the global financial turmoil.

 

Although financial sectors in several sub-Saharan African countries have been damaged, the region avoided huge contractions and losses, observed in earlier recessions. The comparative stability in financial systems is on the account of the restricted integration with global financial markets, low level of exposure to complex financial instruments, relatively high bank liquidity, limited reliance on foreign funding, and low influence in financial institutions. Nevertheless, some crisis consequences, like the increased risk aversion, diminishing capital flows, and decrease in global demand and commodity prices could further increase credit risk and reduce liquidity. The reduction both in sub-Saharan African banks' liquidity and external resources could lead to catastrophic consequences in financial systems, as the domestic markets might be unable to meet the demand from both the private sector and the government. This demonstrates that even though previous macroeconomic and financial sector reforms in sub-Saharan African countries have provided their financial systems substantial pliability, no country in the region is immune.

 

In terms of financial market development, countries in sub-Saharan Africa can be classified as:

 

Countries with emerging market

 

Countries with frontier market

 

Financially developing countries

 

As the only country with emerging market, South Africa is more exposed to the global financial crisis than other states due to the relatively high level of incorporation with global financial institutions. The impacts of the crisis on the financial system of the country, is initiating tension in South Africa, which also can spread to other regions, since the country' banks and insurance companies have operations in other regions.

 

Compared to South Africa, frontier market countries are relatively less integrated with the global markets and the nations' financial systems are relatively less developed. Hence, these countries do not feel the tension coming through financial institutions as much as emerging market countries do. Nevertheless, although the percentage of foreign investment in this state is relatively low, the reduction of it had somewhat adverse impact on the debt, equity, currency and money markets.

 

Financial developing countries are not exposed to crisis due to the reasonably small size and narrow range of financial institutions. Furthermore, the lack of access to credit restrains the effects of the crisis. Nonetheless, the crisis transmits to these countries through other channels like diminishing commodity prices and exports.

 

BANKING SECTOR:

 

Although cross-border connections diminished, sub-Saharan Africa did not face banking crisis as witnessed in other regions. The financial institutions and commercial banks managed to maintain stable economic activity due to the minimal linkages with the world financial markets and thus negligible exposure to the distressed financial products. However, according to the IMF study (2009, Impact of the Global Financial Crisis on Sub-Saharan Africa) as the crisis endures, the situation may change as a result of several factors:

 

As a consequence of minimal credit requirements, several countries in Sub-Saharan Africa had rapid credit growth in the pre-crisis period. However, with the onset of the crisis, the individuals and enterprises who borrowed the money, are earning less income and the firms are less profitable. Since income has a significant effect on the debt servicing capability, the prolonged crisis may have severe effects on these countries.

 

Industries such as timber and cotton, which were negatively affected by the crisis as a result of the decrease in demand for the African exports and the decline in the commodity prices, could also damage banking sector via bank portfolios.

 

The banking sector of countries like Kenya, Nigeria and Uganda, where high equity returns has led to borrowing in order to invest in the stock market, is at stake due to the exposure of banking system to market instabilities.

 

The banking system of sub-Saharan Africa could be affected by the crisis through the distressed parent banks. Because of the global market volatility, parent banks could:#p#分頁標題#e#

 

Withdraw capital from the African subsidiaries

 

Recall loans from the African subsidiaries

 

Cease investing local profits into the local subsidiaries

 

Combination of the above factors

 

At the times of rapid economic expansion of sub-Saharan Africa, the credit growth was very fast owing to availability of money to lend and lenient lending standards. However, with the onset of global recession and its impact on the region's economy, the enterprise profits and income level declined, which caused setbacks with the repay of loans. As a result, authorities had to intervene.

 

However, according to October 2009, Regional Economic Outlook, authorities interfered only in some cases. Nigerian central bank intervened in the case of 5 banks, whose assets comprised about a third of country's bank assets. These banks made losses due to the eruption of stock market bubble. When the stock market burst, the stock prices collapsed leading to big losses. While Tanzanian government financially helped only those banks, which had problem loans in affected areas.

 

INFLATION:

 

As a result of a remarkable slump in commodity prices in the second half of 2008, caused by the crisis, inflation declined significantly throughout sub-Saharan Africa. The diminution in inflation occurred in all the sub-Saharan African countries, regardless of different economic structures, exchange rate regimes and degrees of financial development.

 

The remaining inflation pressures reflect the delayed first and second round effects of the 2008 food and fuel price changes. The first -round effect can be described as direct impact of oil and world food prices on the consumer price index and the indirect effect on prices, whereas the second -round effect is defined as long-standing increase in inflation by means of a one-off price shock. The core inflation- a measure of consumer price increases after excluding items that face volatile price movements-is declining in a number of countries.

 

“Several countries that did not fully pass through the earlier increase in fuel prices delayed reducing retail prices after wholesale import prices plunged in order to recoup local distributors' profit margins. For food, insulated, segmented, and self-sufficient domestic markets may also have limited the pass-through”- Regional economic outlook, April 2009, page 8.

 

This explanation appears to be particularly relevant for low-income countries. Nevertheless, even in these countries inflation reached its peak in the third quarter of the 2008 and is currently dropping.

 

The reason for inflationary pressure in Ghana and Nigeria distinguishes from those mentioned above. In Ghana the reason was the expansionary fiscal policy during an election, whereas in Nigeria monetary policy has been relaxed.#p#分頁標題#e#

 

MONETARY AND FISCAL POLICIES.

 

In the first half of 2008, most of the sub-Saharan African countries tightened their monetary policies in response to the increase in global food and fuel prices. In the second half of the same year, half of the countries who tightened their policies in the first half, commenced to reverse their policies. However, countries like Democratic Republic of Congo and Malawi have not changed their policies.

 

The adjustments made in the sub-Saharan Africa's fiscal policy, represents both opportunities and challenges that arose for Africa during the year. The skyrocketing of the oil prices was a great opportunity for the oil exporters, whereas the oil importers fiscal positions came under pressure. As said by the IMF (Regional Economic outlook, April 2009) the overall fiscal balance for the sub-Saharan Africa improved by around 1 percentage, and achieved a surplus of 2 percentage of GDP. In 2008, when the price of 1 barrel of oil was $90, which is 80 percent higher than in 2007, all oil-exporting countries enlarged revenues as a share of GDP. Furthermore, Chad and Republic of Congo more than doubled their fiscal surpluses.

 

Meanwhile, net oil importer responded to the increase in food and fuel prices with various policy instruments, including temporary tax rate decreases and increases in subsidies and transfers. As the result of the fiscal cost of these assistances provided, the fiscal deficit enlarged. As the commodity prices declined, several countries reversed these measures.

 

“The effective use of counter-cyclical macroeconomic tools marks a new era in the policy environment of sub-Saharan Africa,” - Antoinette Sayeh, Director of the IMF's African Department.

 

(http://www.imf.org/external/pubs/ft/survey/so/2009/CAR100309B.htm accessed on 20 April)

 

So far the region seems to have generally prevented its economy from main macroeconomic instabilities that followed in previous global recessions.

 

Effective policies and counter-cyclical measures that were employed in the process of improvement and economic development helped the domestic economies to absorb some of the shocks.

 

On the fiscal side, the prudent policies used in the pre-crisis stage allowed many sub-Saharan countries to activate automatic stabilizers. Moreover, some countries even managed to follow active countercyclical policies.

 

In terms of efficiency and productivity, current policy is superior to the preceding policy mainly owing to the avoidance of protectionist measures and stronger pre-crisis economic positions. The IMF (Regional Economic Outlook: sub-Saharan Africa, October 2009) report also states that although sub-Saharan fiscal balance has fluctuated from a surplus of 1 1/4 percent of GDP in 2008 to anticipated deficit of 4 ? percent in 2009, this decrease in fiscal balance is lower than decline in previous recessions.#p#分頁標題#e#

 

POVERTY

 

The deterioration in sub-Saharan Africa's economic growth may not necessarily be interpreted as a simultaneous upsurge in poverty. The grounds of the economic slowdown are significant factors in determining the impact on the poverty.

 

IMF (Regional Economic Outlook: sub-Saharan Africa, October 2009 ) states that Chen and Ravallion determined that compared to the pre-crisis poverty rate, the global downturn will add 7 million people living below US$1.25 a day. Moreover, the number is projected to rise to 3 million in 2010. The report also utters that sectors with relatively smaller macroeconomic aggregates may influence the poverty more than other sectors. For instance, compared to the unfavorable changes in oil price, a small decline in the terms of trade for a product like coffee may comparatively have higher impact on the poverty. Although, unfavorable oil price changes increase in price for the oil-importers and decrease for the oil-exporters, has as much negative effect on the economic growth of a country as the decline in the terms of trade, the influence on poverty differs due to the fraction of population being effected. The oil sector employs a small segment of the population, whereas majority of poor people trade with coffee. Therefore, the unfavorable changes in oil prices do not involve as much people as the trade of coffee.

 

CONCLUSION:

 

The financial crisis that started in 2007, which was partly generated by the problems in the banking system of the United States, transformed into the greatest recession since 1930s. Countries with better financial linkages to the global capital markets were the first to be hit by the financial crisis. Nonetheless, as the crisis converted into the global recession diminishing demand for export and declining commodity prices triggered the transmission of the global downturn to other sub-Saharan countries.

 

The global credit crisis and recession had rather negative effect on Sub-Saharan Africa. Furthermore the uncertainty about the duration of the ongoing recession is aggravating the economy even more. Policy makers are concerned about not exacerbating the shock in aggregate demand and protecting economic gains earned in recent years. Another reason for the damaging effect of the recession on the Sub-Saharan Africa is that both the credit crisis and recession took place not only in certain countries but happened globally. Consequently, the donor countries, which help developing countries financially, now face economic problems themselves, therefore the ability to help decreased significantly.