Africa and the Financial Crisis: An Agenda for Action Razia Khan Regional Head of Research, Africa...
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Africa and the Financial Crisis: An Agenda for Action Razia Khan Regional Head of Research, Africa [email protected] May 12th, 2009 AfDB Annual Meetings, Dakar, Senegal
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Transcript of Africa and the Financial Crisis: An Agenda for Action Razia Khan Regional Head of Research, Africa...
Africa and the Financial Crisis:
An Agenda for Action
Razia KhanRegional Head of Research, Africa
May 12th, 2009
AfDB Annual Meetings, Dakar, Senegal
2
Africa: The past
Source: IMF
Gross National Savings as % of GDP
Commodities boom fuelled interest in Africa
Commodities boom fuelled interest in Africa
Average inflation moved lowerAverage inflation moved lower
Debt relief added to the attractiveness of African economies
Debt relief added to the attractiveness of African economies
Fiscal Policy had improvedFiscal Policy had improved
0
5
10
15
20
25
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07f0
10
20
3040
50
60
70
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06e 07f
Inflation, Annual % change, SSA
10
20
30
40
50
60
70
80
090 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07f
100
150
200
250
300
350
400
450
0
50
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07f
CRB commodities index External Debt as % of GDP, SSA
3
91 Day T-bill yields, selected markets91 Day T-bill yields, selected markets
Reform, yield curve extension, widening of investor base – lower rates stimulated private sector growth
0
10
20
30
40
50
60
Jan
-00
Jul-0
0
Jan
-01
Jul-0
1
Jan
-02
Jul-0
2
Jan
-03
Jul-0
3
Jan
-04
Jul-0
4
Jan
-05
Jul-0
5
Jan
-06
Jul-0
6
Jan
-07
Jul-0
7
Jan
-08
Ghana Zambia Kenya Uganda
Source: Datastream, SCB Global Research
4
05
101520
253035
4045
19
96
19
98
20
00
20
02
20
04
20
06
20
08
% y
/y
0
100
200
300
400
500
600
700
19
99
20
01
20
03
20
05
20
07
20
09
Africa: The new challenges
0
2
4
6
8
10
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
f
20
10
f
% y
/y
Source:IIF
Source : IMF Source : Reuters
Source : IMF
Even SSA economies are headed for a downturn (Real GDP growth %)Even SSA economies are headed for a downturn (Real GDP growth %)
Last year’s food & fuel shock is still adding to pressure (CPI % y/y)
Last year’s food & fuel shock is still adding to pressure (CPI % y/y)
Commodity prices have plummeted (CRB index)
Commodity prices have plummeted (CRB index)
…and capital flows to all EMs will decline. SSA frontier markets will be hardest hit
…and capital flows to all EMs will decline. SSA frontier markets will be hardest hit
-100
0
100
200
300
400
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
f
US
D b
n Portfolio equity investment, net Commercial banks, net Other private creditors, net
5
Source: IMF
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
f
World Sub Saharan Africa
Real GDP Growth % y/yReal GDP Growth % y/y
African growth may dip less than global growth…but the region still has important long standing vulnerabilities
6
Exports will contract, resulting in lower FX inflows
Sources: IMF, SCB Global Research estimates and forecast
125,650118,914 124,583
151,733
191,224
242,818
287,439
333,668
402,000
281,400
0
60,000
120,000
180,000
240,000
300,000
360,000
420,000
2000 2001 2002 2003 2004 2005 2006 2007 2008(e) 2009(f)
USDmnUSDmn
7
Sources: SCB Global Research, IMF, WB OECD
-15,000
0
15,000
30,000
45,000
2001 2002 2003 2004 2005 2006 2007 2008
FDI Portfolio flows Remittances* ODA
USDmnUSDmn
All sources of capital inflows – public and private – are likely to decline
8
US, 31%
Western Europe, 44%
GCC, 8%
Other high income, 8%
Developing, 10%
Sources: World Bank, Nov 08, Migration and Development Brief No. 8
With rising unemployment in source countries, remittances unlikely to hold up
Remittances to Sub Saharan Africa – by sourceRemittances to Sub Saharan Africa – by source
The Impact on Africa’s Financial Sector
10
African FX – Depreciation trend resumes, return of risk appetite is selectiveAfrican FX – Depreciation trend resumes, return of risk appetite is selective
Impact of investor withdrawal on African FX ratesAfrican currencies, rebased with Jan 08 as starting point. Rate v. USD
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
Jan
-08
Fe
b-0
8
Ma
r-0
8
Ap
r-0
8
Ma
y-0
8
Jun
-08
Jul-0
8
Au
g-0
8
Se
p-0
8
Oct
-08
No
v-0
8
De
c-0
8
Jan
-09
Fe
b-0
9
Ind
ex
(J
an
08
=1
00
)
GHS ZMK UGX NGN KES
11
Estimated loan-to-deposit ratios, FIs not overly reliant on wholesale fundingEstimated loan-to-deposit ratios, FIs not overly reliant on wholesale funding
Low reliance on wholesale funding
Source: Various national central bank sources, 2008, SCB Global Research
12
Asia ex-Japan, 39.8
Sub-Saharan Africa, 2.8
MENA, 12.2
LatAm, 15.5
Emerging Europe, 29.8
Sources: BIS Q4 08, SCB Global Research
Although Africa’s reliance on cross-border lending is not great…
BIS Lending to Developing Economies – % share of totalBIS Lending to Developing Economies – % share of total
13
Cross border claims – from mid-08 peak to end-08 troughCross border claims – from mid-08 peak to end-08 trough
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%S
ub
Sa
ha
ran
Afr
ica
La
tAm
Asi
a
Em
erg
ing
Eu
rop
e
Decline in cross-border claims from mid-08 peak to Q4 08
Source: BIS, SCB Global Research
…Africa saw the largest % withdrawal of foreign credit in Q4
Focus on Trade Finance
Big picture clarity required
15
Africa-China trade y/y 3mmaAfrica-China trade y/y 3mma
Trade finance – the evidence?
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
Ma
r-0
1
Se
p-0
1
Ma
r-0
2
Se
p-0
2
Ma
r-0
3
Se
p-0
3
Ma
r-0
4
Se
p-0
4
Ma
r-0
5
Se
p-0
5
Ma
r-0
6
Se
p-0
6
Ma
r-0
7
Se
p-0
7
Ma
r-0
8
Se
p-0
8
Ma
r-0
9
African exports to China Africa imports from China
Source: CEIC, SCB Global Research
16
Africa-US trade y/y 3mmaAfrica-US trade y/y 3mma
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
Jan
-00
Jul-0
0
Jan
-01
Jul-0
1
Jan
-02
Jul-0
2
Jan
-03
Jul-0
3
Jan
-04
Jul-0
4
Jan
-05
Jul-0
5
Jan
-06
Jul-0
6
Jan
-07
Jul-0
7
Jan
-08
Jul-0
8
Jan
-09
Imports from the US Exports to the US
Source: BIS, SCB Global Research
ii) Africa- US
17
Africa-Germany trade y/y 3mmaAfrica-Germany trade y/y 3mma
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Jan
-00
Jul-0
0
Jan
-01
Jul-0
1
Jan
-02
Jul-0
2
Jan
-03
Jul-0
3
Jan
-04
Jul-0
4
Jan
-05
Jul-0
5
Jan
-06
Jul-0
6
Jan
-07
Jul-0
7
Jan
-08
Jul-0
8
Jan
-09
Africa imports from Germany Africa exports to Germany
Source: BIS, SCB Global Research
iii) Africa- Germany
Financial Intermediation in Africa – the big picture
19
0
10
20
30
40
50
60
1980 1984 1988 1992 1996 2000 2004 2008
Developing Asia
Sub-Saharan AfricaFinancially Developing
Sub-Saharan Africa
DevelopingEurope
Sub-Saharan AfricaFrontier Markets
Bank Deposits to GDPBank Deposits to GDP
Source: IMF, International Financial Statistics and World Economic Outlook, SCB Global Research
Low level of financial intermediation an important constraint
20
Africa – still, essentially a cash economy
M1 to M2 RatioM1 to M2 Ratio
Source: IMF, International Financial Statistics and World Economic Outlook, SCB Global Research
20
30
40
50
60
70
80
90
1980 1984 1988 1992 1996 2000 2004 2008
Sub-Saharan Africa
Developing Asia
DevelopingEurope
Sub-Saharan AfricaFinancially Developing
Sub-Saharan AfricaFrontier Markets
21
10
30
50
70
90
110
130
1980 1984 1988 1992 1996 2000 2004 2008
Developing Asia
DevelopingEurope
Sub-Saharan Africa
Sub-Saharan AfricaFrontier MarketsSub-Saharan Africa
Financially Developing
Focus on what’s needed
M2 to GDPM2 to GDP
Source: IMF, International Financial Statistics and World Economic Outlook, SCB Global Research
22
0
10
20
30
40
50
60
1980 1984 1988 1992 1996 2000 2004 2008
Developing Asia
Sub-Saharan Africa
DevelopingEurope
Sub-Saharan AfricaFrontier Markets Sub-Saharan Africa
Financially Developing
Important that recent gains are not reversed
Private Credit by Deposit Money Banks to GDPPrivate Credit by Deposit Money Banks to GDP
Source: IMF, International Financial Statistics and World Economic Outlook, SCB Global Research
Financial sector reforms – case studies
24
Tanzanian Monetary Aggregates TZS 000 bnTanzanian Monetary Aggregates TZS 000 bn
Case Study 1: Tanzania – too informal an economy?
0
1000
2000
3000
4000
5000
6000
7000
8000
Jan-
00
Jul-
00
Jan-
01
Jul-
01
Jan-
02
Jul-
02
Jan-
03
Jul-
03
Jan-
04
Jul-
04
Jan-
05
Jul-
05
Jan-
06
Jul-
06
Jan-
07
Jul-
07
Jan-
08
Jul-
08
M1 M2 M3
Source: IFS, Bank of Tanzania, SCB Global Research
25
Case Study 2: Botswana – what borrowing constraint?
Pools of liquidity that can be tapped to finance borrowing, BWP bnPools of liquidity that can be tapped to finance borrowing, BWP bn
Source: Bank of Botswana, SCB Global Research
26
Case Study 3: Nigeria – financial sector regulation key to confidence
30
50
70
90
110
130
150
Jan
-08
Jan
-08
Fe
b-0
8
Ma
r-0
8
Ma
r-0
8
Ap
r-0
8
Ma
y-0
8
Ma
y-0
8
Jun
-08
Jul-0
8
Jul-0
8
Au
g-0
8
Se
p-0
8
Se
p-0
8
Oct
-08
No
v-0
8
De
c-0
8
De
c-0
8
Jan
-09
Fe
b-0
9
Fe
b-0
9
Ma
r-0
9
110
115
120
125
130
135
140
145
150
155
160
Oil price NGN (inverted scale, rhs)
NG
N/U
SD
(in
vert
ed s
cal
e)
Oil
pri
ce
(Bo
nn
y, U
SD
pb
)
Oil Price vs NGN (inverted Scale, RHS)Oil Price vs NGN (inverted Scale, RHS)
27
Financial Sector Reforms
Recommendations are not new
But there is now a greater urgency to reform
Bank the unbanked
Develop capital markets
Improve financial sector regulation
28
http://research.standardchartered.com
Standard Chartered website for African, EM, and Global Research
29
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Data available as of 12th May 2009 GMT 0600.
This presentation was first presented at 1030 GMT 12th May 2009.
