African Development Bank Marshals African Response to Global Economic and Financial Crisis
The current financial and economic crisis has deepened Africa’s development challenges. It has slowed the drivers of economic growth, including prices and demand for primary commodities, capital flows, foreign direct investment and regional integration, especially in low-income countries and fragile states.
Countries dependent on natural resources, including copper, cobalt, oil, timber, and diamonds have taken a particularly hard hit. While mining, textile and other enterprises are closing in some states, many are cutting back on vital infrastructure projects, compromising important gains made in the fight against poverty over the last decade as well as future economic growth and well-being.
Growth forecasts for 2009 have been revised downwards, from 5.9 per cent in November 2008 to a low 2.8 per cent in February 2009. Export growth in 2009 is expected to drop by a steep 7 percent while import growth will decline by 4.7 per cent, resulting in a decline in the balance of trade for most African countries.
As the continent’s premier development finance institution, the African Development Bank (AfDB) Group is playing a critical role in rallying African states to better respond to the current crisis. While responding to the immediate challenge of revitalizing capital flows, the Bank believes that the long-term challenge of economic diversification to reduce dependence on primary commodities remains key.
In a timely response to the global financial downturn, the AfDB, together with the African Union Commission (AUC) and the United Nations Economic Commission for Africa (ECA), organized a conference of African Ministers of Finance and Central Bank Governors in November 2008.
In their communiqué released at the conference, held in Tunis, Tunisia, the ministers and governors stated that:
“We note that this crisis could not have come at a worse time for the African continent; it constitutes a major setback at a time when African economies were turning the corner. It is undermining significant progress made over the last ten (10) years and, further exacerbates the impact of the recent sharp increase in food prices and volatility in the oil markets.
“Climate change will also impose additional costs on African economies. Together, these will particularly impact on the millions of poor in Africa; we are facing a human as well as financial crisis. We are therefore gravely concerned that the prospects for reducing poverty and attaining the Millennium Development Goals will be reduced. “
The conference took stock of the impact of the financial crisis on Africa and explored the possibilities of a concerted African response. It also created a Committee of Ten African Ministers of Finance and Governors of Central Banks to appropriately monitor the crisis and advise African heads of state and government. The committee was also tasked with building a case for reform in the world’s multilateral economic institutions to ensure greater African participation in their governance.
An important result of the process launched by the Tunis conference, in which the African Development Bank played a leading role, was the adoption of some specific African proposals at the G-20 Summit in London in April 2009. These included the G-20 Summit’s agreement to provide additional resources from “agreed sales” of IMF gold to finance developing states during the current economic crisis and the establishment of a new debt sustainability framework for developing countries. The Bank led the production of the position paper for Africa presented to the G-20 Summit.
Internally, the Bank has also taken measures to enhance support to its African member countries during the current crisis. It has committed itself to revitalizing important capital flows to regional member countries through front-loading, fast-tracked disbursements and portfolio restructuring. It is stepping into several projects to provide additional funding and mobilizing existing programmatic instruments to support all its member countries, especially fragile states.
The AfDB has also developed a new set of crisis instruments, including an Emergency Liquidity Facility of US$ 1.5 billion and a Trade Finance Initiative of US$ 1 billion.
The multi-purpose Emergency Liquidity Facility is designed to provide financial support to eligible member countries and non-sovereign operations in all the institution’s Regional Member Countries (RMCs) dealing with financial constraints due to the global financial crisis. This flexible instrument also covers a broad range of beneficiaries, including Medium Income Countries (MICs) and/or their central banks, public and private finance institutions as well as corporations in all the Bank’s RMCs.
The Trade Finance Initiative will provide lines of credit that will allow African commercial banks and Development Finance Institutions to use Bank resources to support trade finance operations.
The AfDB has also embarked on an Accelerated Resource Transfer to African Development Fund countries that will support the Bank’s low-income, concessional borrowers through an accelerated use of currently available concessional resources. Critical areas identified include budget support, infrastructure and private sector development.
Further, in the face of the current crisis, the Bank is strengthening and scaling up its advocacy role by enhancing its analytical capacity, intensifying detailed information gathering at the country, sector and regional levels, strengthening collaboration and partnerships with other Multilateral Development Banks and other institutions and generating suggestions for policies tailored to country-specific circumstances.
The Bank is raising its knowledge and information flows to its regional member countries to enable them better equip themselves to weather the crisis, adapt their development strategies, sustain economic growth and alleviate poverty.
To this end, a Bank-wide Financial Crisis Monitoring Group has been established to closely monitor the impact of the financial crisis on African economies. Country offices and national research institutes throughout the region have been enlisted to collect and analyze detailed information at the country, sector, and regional levels on a consistent basis. The Bank has also encouraging debate around Africa on the global financial crisis in key international and regional conferences, including the recent G-20 Summit in London.