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African Development Bank (AfDB) Group President, Donald Kaberuka, has commended Belgian development cooperation in Africa. Speaking in Brussels on May 6, 2009, during the “Assises de la Coopération belge au développement”, Mr. Kaberuka said in large parts of Africa, Belgian cooperation had distinguished itself, especially in the domains of agriculture, health and governance. He however called for a rethink of the methods that are being used to deliver support to the continent in order to protect achievements of the past.
“However, the current turmoil in the global economy and its impact on developing countries means that we have all to rethink how we deliver our support to protect the achievements and prevent a situation where poor countries slide back. I therefore thank you Minister for this initiative,” he said.
He pointed out that “The 1970s and 1980s were very difficult years for a majority of African economies. It is true that Africa is a diverse continent of 53 countries, large, small, islands, land-locked, well endowed, poorly endowed etc. But generically speaking, many countries were characterized by chronic balance of payments difficulties and unsustainable macro-economic imbalances, which, combined with poor governance led to what was termed a “lost decade” for Africa, afro pessimism and the rest.”
“But this was part of the larger, well known story of Africa which is thirty years of episodic growth periods, usually commodity boom driven, followed by setbacks and stagnation following commodity booms and bursts. There were of course many external factors, especially the impact of the cold war on the African theatre. But you could almost always explain the economic setbacks by internal factors; governance, instability, frequent policy reversals, inability or unwillingness to see through the reforms. In the last decade however, Africa began to turn a corner, witnessing a period of sustained growth of over 5 per cent. The twin deficits had largely disappeared, inflation had been brought under control and many countries began experience growth higher than population increase. A number of social indicators had started improving, even though at a slower pace, given the low starting point and in come cases, demographic pressures. Countries started taking advantage of the improved economic environment to tap into international private capital resources to support development financing. We were optimistic that as many countries as possible could at least achieve some MDGs, even though halving poverty level by 2015 remained quite distant,” he said.
He stressed that “…the landscape has dramatically changed. The setback is entirely externally driven. This time around the macroeconomic fundamentals have been eroded by factors external to Africa. The impact varies across countries with mineral exporting countries most hit. But in general, the entire continent is adversely affected by the economic downturn in developed countries, through any number of channels, particularly exports and investment flows. And what is most worrying is that what took Africa a decade to build has been wiped off in a matter of months. It took Africa a decade to transit from stagnation to 7% growth in real GDP. Now, it is now most likely that some countries will return to the negative growth per capita. This is what is implied by the continent’s projected growth rate of less than 3% for 2009. And in all probabilities, whenever the global economy recovers, the African recovery will be slower.”
“I must add two caveats: first, for many low income countries, the crisis is probably at its beginning and we don’t know if the worst is yet to come. Secondly, as I just observed, even when the global slowdown eases, it is not evident that Africa will recover as fast. But at this point, macro-economic aggregates are already deteriorating as the crisis hit the key drivers of growth, trade, capital inflows, and exports and the risks of twin deficits, inflation and de-globalization are real. Export revenue is expected to fall by more than US$ 250 billion in 2009. Consequently, the continent will also suffer a shortfall in trade tax revenue to the tune of US$ 15 billion, representing 1 per cent of GDP and 4.6 per cent of government revenue,” he said.
The AfDB forecasts a budget deficit of 5.4 per cent of GDP for 2009 for the continent as a whole, down from a surplus of 2.8 per cent of GDP in 2008. The current account balance will deteriorate from a surplus of 2.7 per cent of GDP in 2008 to a deficit of 4.3 per cent of GDP in 2009. Not surprising, the oil and mineral exporting countries are among the most severely affected with both export and fiscal receipts contracting significantly. Middle income countries with a large manufacturing sector such as South Africa have equally been affected as are those that depend on tourism and migrant transfers, he said.
Regarding recovery from the crisis, Mr. Kaberuka suggested that “our first challenge is to strike a balance between short-term crisis response strategies while remaining focused on addressing structural constraints on Africa’s long-term growth. The first and immediate short-term crisis response is (a) to prevent macro-economic deterioration; (b) second to provide safety nets for the poor; (c) thirdly to protect the achievements especially on those MDGs such as UPE where considerable progress has been made.”
In these difficult times, governments in Africa are doing their best but they face declining revenues and shrinking capital inflows. This makes it difficult to meet rising demands for public investment, including in social sectors. The Bank estimates that just to achieve the pre-crisis growth rates, African countries would need US$ 50 billion to finance the investment-savings gap. In other words, US$ 117 billion if the 7 per cent growth rate that is required to meet the MDGs is to be achieved, he said.
He said the AfDB was supporting its regional member countries through numerous initiatives. First, taking advantage of its convening power, the AfDB had brought together African economic leaders in Tunis, supported the creation of the Committee of Ten African Ministers of Finance and Governors of Central Banks to monitor the crisis, and advise African heads of state and government on a concerted African response. Internally, the Bank has also taken measures to enhance support to its African member countries during the current crisis. “But we have had to think hard at how to respond to our countries problems in their diversity. Our first concern has been to try and limit damage as projects are cancelled, trade finance dries up,” he stressed.
He said the AfDB had developed a new set of crisis instruments, including a US$1.5 billion Emergency Liquidity Facility and a US$ 1 billion Trade Finance Initiative. He added that that did not really address the problems of the poorest countries. The AfDB, he said, had decided on an Accelerated Resource Transfer to African Development Fund countries by accelerating the use of, and front loading currently available concessional resources. “We are fully aware that we will need to innovate and stretch our resource base and we are discussing with our shareholders how best to do so,” he stressed.
He called for renewed partnerships among donors, saying “In this context, renewed partnership of the donor community and the Accra Agenda for Action is more urgent than ever. This is the appeal I would like to make today. Selectivity and complimentarity in such areas as Health, Governance, Agriculture and Rural Development has always been the hallmark of Belgian cooperation. How can we compliment each other’s action at this time? I would like, in particular, to make a special appeal for fragile states and those emerging from conflicts. Belgium and the Bank are strong advocates for those states. How can we coalesce support around these countries to avoid slippage?”