Things could have been worse

Most sub-Saharan countries have coped better with the recent global financial crisis than was initially expected. In many cases growth rates did not fall as sharply as was feared and they recovered more quickly than they did after earlier crises. The high level of expansion rates in 2007 was not yet reached again. The trend in sub-Saharan Africa was on the whole consistent with the global trend, albeit at a higher level.

The crisis affected middle-income African countries particularly hard, as they are the most integrated in international trade. The downturn in exports in 2009 was accompanied by lower growth in real domestic demand and domestic investments (IMF, 2010a, p. 6). However, the macroeconomic data alone do not give a full picture of the social consequences which are generally more serious in poor countries than in countries where there are social safety nets.

Rapid recovery

There are both external and internal reasons for the relatively fast rebound in sub-Saharan Africa. The main reason is the relatively quick recovery of the entire global economy and of global trade, the volume of which fell by 12.5 per cent last year, but which could rise again this year by about six per cent (OECD, 2010, p. 9). Most commodity prices have also rallied again since early-mid 2009.

A significant internal reason for the rapid recovery was the predominantly solid economic ­policy ahead of the crisis. Many countries had conducted a stability-oriented fiscal and monetary policy and at the start of the crisis displayed only small budget deficits or even budget surpluses. Consequently there was leeway for their governments to follow an anti-cyclical fiscal policy. Relatively low inflation rates and relatively high foreign reserves were other contributing factors (IMF, 2010a and 2010b).

The reorientation of trade towards China and other newly industrialising countries in Asia and Latin America also proved favourable (IMF, 2010b). The emerging markets have, as a rule, recovered more quickly from the global financial crisis than Europe, North America and Japan.
The flipside of this coin, however, is that budgetary positions have on average considerably worsened, particularly in the oil-exporting countries. In general, public revenue was adversely affected by the lower economic activity, while public expenditure increased. In 2008, oil-exporting nations in sub-Saharan Africa showed budget surpluses averaging 5.9 % of their economic performance (GDP). In contrast, deficits of ­7.8 % were recorded in 2009. In middle-income countries, budget deficits increased from an average of 0.5 % of GDP in 2008 to 5.5 % in 2009 (IMF, 2010b, p. 80).

The crisis had less effect on the private inflow of capital south of the Sahara than in other regions of the world. This mainly resulted from relatively weakly developed African financial markets and, consequently, they are not attractive for portfolio investors with short-term plans. The dominant type of investment in these countries is long-term direct investment which cannot be withdrawn at short notice.

Total private capital inflows in countries south of the Sahara decreased by 57 % between 2007 and 2009. However, this is relatively low compared to the fall of 72 % for all developing and newly industrialising countries. It was also positive that remittances in 2009 were only 3 % under the previous year’s ­level. Experts had feared a greater fall (IMF, 2010a, p. 48-51).

Social implications of the crisis

Despite the relatively positive macro-economic situ­ation, the social implications of the crisis should not be under-estimated. Earlier crises have basically shown that social indicators rapidly worsen in times of recession and only slowly begin to recover again in boom phases. There are two reasons in particular for this: weak institutions, which do not implement social measures efficiently and effectively, and lower social spending in recessions (IMF/World Bank, 2010a, p. 29).

According to estimates by the World Bank and the IMF (2010b, p. 14-15), the poverty rate in the region will now be 38 % in 2015, instead of the 35.9 % expected before the crisis. This corresponds to an additional 20 million people who will have to survive on less than the purchasing power of $ 1.25.

However, this forecast should be treated with scepticism because it is too early to assess the full implications of the crisis on the MDG agenda. The data required has not yet been fully collected, and many of the effects will only become apparent over the course of time. Poor nutrition today, for example, will result in higher child and maternal mortality. Similarly, failing to attend school today leads to lower graduation rates and thus to worse earning opportunities in the future (IMF/WB, 2010a).

Recent estimates by the World Bank and the IMF showed that the number of malnourished people throughout the world increased by 63 million as a result of the 2008 food crisis and by 41.3 million as a result of the global financial crisis. Furthermore, there are likely to have been an additional 30,000 to 50,000 cases of child mortality in southern Africa as a result of the financial crisis.

It is very difficult to collect exact unemployment figures, mainly because of the great significance of the informal sector south of the Sahara. Unemployment figures can only be collected in the formal sector. At the same time, it is clear that the global turbulence has had considerable effects on employment. About 900,000 jobs were slashed in 2009 in South Africa alone.

The implications of job losses in the informal sector are even more severe. The people who are affected by this generally have no social security other than ­assistance from neighbours and family (IMF, 2010a, p. 4).

Cash transfer programmes for poorer sections of the population in particular were successful south of the Sahara before the crisis. They take effect quickly and can be applied in a targeted manner at short notice. Angola and South Africa are among the growing number of countries with programmes of this kind. They are generally not very extensive, however, and are often only pilot programmes (IMF, 2010a).

It therefore remains necessary to develop further the social security systems in sub-Saharan Africa. This region has limited ability to absorb external shocks such as financial crises or great fluctuations in food and commodity prices on the world market.

Enduring risks

It should not be overlooked either that the economic recovery south of the Sahara is associated with internal and external economic risks. There is a risk of the global economic condition worsening again (double-dip recession), which would also slow down recovery again in Africa. The financial markets in some industrial nations still continue to be fragile and, at the same time, growth in many wealthy nations still remains very weak. Furthermore, commodity prices on the global market are still very volatile. There are risks involved in this for African national economies.

The high level of budget deficit in most industrial nations is also problematic. However, if governments introduce austerity policy to consolidate national budgets too soon, this can drive many national economies further into recession and further delay recovery by their trading partners, or perhaps even stall it completely. Many countries south of the Sahara would be hard hit by cutbacks in development aid in the course of the austerity policy, because they are particularly dependent on these funds.

Among the internal economic risks in African countries are the increased deficits in national ­budgets, which in many cases are already ominously high again. However, austerity policy for budget consolidation would lessen the economic upturn. In addition, some experts are unsettled by the prospect of elections in 17 out of a total of 44 nations in sub-Saharan Africa. Although it is difficult to prove systematic political business cycles, it is clear that significant fiscal policy consolidation measures in one or an­other country could be postponed (IMF, 2010b).

There is no doubt that further diversification of exports is necessary in the long-term so that exogenous shocks, such as falling commodity prices, do not have a unilateral effect on these countries. It would also be wrong to regard underdeveloped financial systems as a strength, simply because the poorest countries in Africa were relatively less affected by fluctuating capital inflows. The flipside of this is that these countries have to manage without the positive economic effects of a strong financial sector. In other words, they basically live at a noticeably poorer level than middle-­income countries.