Recovery from Recovery from the Global the Global
Crisis: Crisis: Implications for Implications for
SADC and SADC and Development Development
FinanceFinance
Keith JefferisKeith JefferisMay 2010May 2010
Remember early 2009 Remember early 2009 ….….
World EconomyWorld Economy Financial crisisFinancial crisis Freezing of credit marketsFreezing of credit markets Sudden plunge into deep Sudden plunge into deep
recessionrecession Collapsing commodity Collapsing commodity
pricesprices Concern about prolonged Concern about prolonged
depressiondepression Rising unemploymentRising unemployment Bank rescues and fiscal Bank rescues and fiscal
injectionsinjections
SADC/SSASADC/SSA No financial crisis, but No financial crisis, but
concern about knock-concern about knock-on effects of global on effects of global crisis, viacrisis, via TradeTrade Capital/financial flowsCapital/financial flows Risk aversionRisk aversion
Macroeconomic Macroeconomic concernsconcerns Growth slowdownGrowth slowdown BoP BoP Fiscal problemsFiscal problems PovertyPoverty
Global growth Global growth slowdown ... and slowdown ... and
recoveryrecovery Depths of recession – Depths of recession –
4Q2008 and 1Q20094Q2008 and 1Q2009 Recession was deep, Recession was deep,
but recovery has been but recovery has been robustrobust
Fears of prolonged Fears of prolonged depression not realisedepression not realise
Global growth Global growth projected to settle in projected to settle in 3% - 4% range in 2010-3% - 4% range in 2010-1111
Emerging markets Emerging markets leading the recoveryleading the recovery
Recovery has been Recovery has been driven by emerging driven by emerging marketsmarkets Faster emergence from Faster emergence from
recessionrecession Higher growth during Higher growth during
recoveryrecovery Less affected by financial Less affected by financial
crisis and debt problems crisis and debt problems – more resilience– more resilience
Developed economies – Developed economies – sluggish recovery:sluggish recovery: Fiscal/debt problemsFiscal/debt problems UnemploymentUnemployment Euro-zone crisisEuro-zone crisis
South Africa lagging South Africa lagging other EMs, but recoveringother EMs, but recovering
South Africa’s South Africa’s recession has been recession has been comparable in depth comparable in depth to Emerging Markets to Emerging Markets generally, but:generally, but: SA lagging general EM SA lagging general EM
recoveryrecovery SA growth expected to SA growth expected to
be reasonably robust in be reasonably robust in 2010, due partly to 2010, due partly to World Cup effectWorld Cup effect
Growth projected to Growth projected to weaken going into 2011weaken going into 2011
Signs of recovery ... Signs of recovery ... minerals pricesminerals prices
CopperCopper NickelNickel
… … and oil pricesand oil prices
Economic Developments Economic Developments in Sub-Saharan Africain Sub-Saharan Africa
SSA Economic OutturnSSA Economic Outturn Greater resilience than Greater resilience than
expectedexpected Growth slowdown Growth slowdown
relatively modestrelatively modest Quick recovery expectedQuick recovery expected Macroeconomic stress Macroeconomic stress
manageablemanageable Greater impact on Greater impact on
middle income middle income countries, more countries, more integrated into global integrated into global marketsmarkets
Source: IMF REO SSA April 2010
Why such a modest Why such a modest economic impact on SSA? economic impact on SSA?
InternationalInternational Quick and robust global Quick and robust global
recovery in growth, trade recovery in growth, trade & commodity prices& commodity prices
SSA growth slowdown SSA growth slowdown driven by reduced driven by reduced demand, not banking demand, not banking crisescrises
Emerging market growth -Emerging market growth -> commodity prices> commodity prices
Recovery in financial flowsRecovery in financial flows
DomesticDomestic Prior reforms and Prior reforms and
restructuring -> many restructuring -> many countries started from countries started from strong macroeconomic strong macroeconomic positionposition
Prior fiscal reforms Prior fiscal reforms enabled fiscal stimulusenabled fiscal stimulus
Appropriate monetary Appropriate monetary policy response – inflation policy response – inflation not a major concernnot a major concern
Resilient financial systemsResilient financial systems Contrast with previous Contrast with previous
crisescrises
Finance & Capital Finance & Capital MarketsMarkets
Central to economic Central to economic problems in developed problems in developed markets – and markets – and transmission of those transmission of those problems around the problems around the worldworld Credit crunchCredit crunch Risk aversionRisk aversion Market collapsesMarket collapses
Impact short-livedImpact short-lived Only small decline in Only small decline in
remittance inflowsremittance inflows Development assistance: Development assistance:
overall flows held up, overall flows held up, especially with boost especially with boost from MFIsfrom MFIs
Recovery of risk appetiteRecovery of risk appetite Resurgence of portfolio Resurgence of portfolio
flows to EMs – low returns flows to EMs – low returns in major marketsin major markets
SSA role of FDI – less SSA role of FDI – less volatile than short-term volatile than short-term flowsflows
But of course there are But of course there are problems…problems…
Fiscal & Debt conditionsFiscal & Debt conditions Limited fiscal space Limited fiscal space Needs to be carefully managedNeeds to be carefully managed
Partial but not full recovery in global demandPartial but not full recovery in global demand Well below trendWell below trend
Employment & IncomesEmployment & Incomes Rising unemploymentRising unemployment Household income squeezeHousehold income squeeze
Poverty alleviation/MDGsPoverty alleviation/MDGs Setbacks/delayed achievementSetbacks/delayed achievement
Fragile statesFragile states Especially vulnerableEspecially vulnerable
Economic Outlook - Economic Outlook - SADCSADC
Inflation: much reduced, not a Inflation: much reduced, not a major concern, allows monetary major concern, allows monetary
policy easingpolicy easing
Source: IMF REO for SSA (April 2010)
46%
Real GDP growth – recession Real GDP growth – recession mostly avoided in 2009, strong mostly avoided in 2009, strong
recovery projected for 2010recovery projected for 2010
Source: IMF Regional Economic Outlook, April 2010
Fiscal balance: some large Fiscal balance: some large deficits, esp. in SACU, but deficits, esp. in SACU, but
generally manageablegenerally manageable
Current account: some large Current account: some large deficits, and dependence on deficits, and dependence on
capital inflowscapital inflows
Source: IMF Regional Economic Outlook, April 2010
Reserves: some declines, but Reserves: some declines, but still comfortable in most still comfortable in most
countriescountries
Source: IMF Regional Economic Outlook, April 2010
Outlook & risks – world Outlook & risks – world economyeconomy
More positive than a More positive than a year agoyear ago Worst fears of Worst fears of
depression appear not depression appear not to be realisedto be realised
International recovery International recovery under wayunder way
Recovery in financial Recovery in financial and commodity and commodity marketsmarkets
BUT volatility and BUT volatility and uncertainty still uncertainty still apparent in currencies, apparent in currencies, commodity marketscommodity markets
““Double –dip” Double –dip” recession cannot be recession cannot be ruled outruled out
Medium-term outlook Medium-term outlook still uncertainstill uncertain End of inventory-End of inventory-
driven upturndriven upturn Duration of impact of Duration of impact of
fiscal stimulusfiscal stimulus Consumer confidenceConsumer confidence Lagging impact of Lagging impact of
rising unemploymentrising unemployment Financial sector Financial sector
uncertainty – re-uncertainty – re-regulationregulation
De-leveragingDe-leveraging Rising long-term Rising long-term
interest rates & interest rates & crowding out of private crowding out of private investmentinvestment
Outlook & risks …. Outlook & risks …. SADCSADC
PositivePositive Africa growth should Africa growth should
resume pre-crisis resume pre-crisis trajectory – helped by trajectory – helped by higher global growthhigher global growth
Resource rich – benefit Resource rich – benefit from resumption of from resumption of commodities boom commodities boom
Focus can now change – Focus can now change – from short-term output from short-term output stabilisation to medium-stabilisation to medium-term development term development challenges challenges
NegativeNegative Slow growth in Europe – Slow growth in Europe –
major export marketmajor export market Global growth – still Global growth – still
vulnerablevulnerable Limited growth of donor Limited growth of donor
resources, especially resources, especially bilateralbilateral
Commodity price volatilityCommodity price volatility Slow progress on regional Slow progress on regional
integrationintegration Energy shortagesEnergy shortages
Implications for DFIsImplications for DFIs Finance is at the centre of Finance is at the centre of
attentionattention SADC financial systems SADC financial systems
generally stable generally stable Recognition that markets Recognition that markets
and commercial FIs cannot and commercial FIs cannot achieve everything achieve everything
Many African countries still Many African countries still by-passed by commercial by-passed by commercial flowsflows
Banks still cautiousBanks still cautious Recognition that particular Recognition that particular
development gaps exist – development gaps exist – infrastructure, SMMEs, infrastructure, SMMEs, agriculture, unbanked – agriculture, unbanked – that may have to be filled that may have to be filled by DFIsby DFIs
Scope for more stable Scope for more stable view of riskview of risk
Improving domestic Improving domestic bond marketsbond markets
AfDB – AFMIAfDB – AFMI Government resources Government resources
constrainedconstrained More resources from More resources from
MFIsMFIs Opportunities in new Opportunities in new
technologies & technologies & partnerships (MFIs, partnerships (MFIs, telcos, donors)telcos, donors)
Regulation?Regulation?
Thank YouThank You
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