Summary Report on AERC Senior Policy Seminar XI
Lusaka, Zambia, 6–8 April 2009

The Global Financial Crisis and Its Implications for African Economies

A recent gathering of African senior policy makers and advisors in Lusaka, Zambia, on 6–8 April to deliberate on one of the world’s most pressing issues – the global financial crisis was tremendously successful. The occasion was the eleventh Senior Policy Seminar (SPS XI) convened by the Nairobi-based African Economic Research Consortium (AERC). Three days of intense discussions focused on the global financial crisis and its implications for African economies.

This region-wide seminar brought together 92 participants, primarily African policy makers and advisors drawn from the highest levels of government representing over 24 countries on the continent. Dr. Caleb Fundanga, Governor of the Bank of Zambia, gave the keynote address. The cluster of senior government officials included three ministers, six governors of central banks and nominees, three permanent secretaries, and several special advisors, as well as parliamentarians. Other participants included senior scholars and directors of various research institutes, plus observers.

From the crisis in America’s toxic subprime mortgage portfolios, to the virtual freezing of credit around the world, plunging stock markets and a sustained slowdown in consumer spending, the financial meltdown shows little sign of let up. Initially underestimated in some quarters, the crisis has since brought about worrisome reductions in the relatively decent growth rates experienced by a majority of sub-Saharan African countries since the beginning of this millennium.

The financial crisis thus poses the risk of reversing the modest achievements in poverty reduction in Africa just as it reinforces the already serious doubts about the prospects of achieving the Millennium Development Goals (MDGs). It also threatens the sustainability of the progress made in economic policy reforms and the associated improvement in investment climate necessary to enhance the attractiveness of the continent to domestic and foreign investors. It has triggered rapid depreciation of currencies against the US dollar, thereby threatening Africa’s international competitiveness, and caused major declines in stock market prices with the associated negative effects on the wealth of the nascent middle class of Africa.
Unlike in the developed world, African governments lack the resources to mount effective stimulus packages to ameliorate the impact of the financial crisis on output, employment and income. A question on everyone’s lips is, how much worse will the situation get before it gets better? Will it get better? What is the future of self-regulated free market and capitalism itself? What are the appropriate roles and responsibilities of governments under the circumstance? These are among the many questions on the minds of citizens, policy makers and other stakeholders, questions that fully engaged the attention of the policy makers and scholars at the eleventh Senior Policy Seminar.

The Seminar
The AERC Senior Policy Seminar series provides a forum for the candid exchange of ideas and experiences predicated on syntheses of relevant research findings presented by senior scholars. This one was no exception. Each session featured succinct presentations followed by frank and animated floor discussion during which policy makers themselves made contributions and shared experiences. Among the presenters were Prof. Touna Mama, Special Adviser at the Prime Minister’s Office, Cameroon, Prof. Lemma W. Senbet, Professor of Finance at the University of Maryland, USA, Prof. Victor Murinde, Head of Finance Subject Group, Birmingham Business School, University of Birmingham, UK, and David Cowan, Director, African Economist, Citibank. Dr. Dominique Njinkeu, Executive Director, International Lawyers and Economists against Poverty (ILEAP) also presented a paper on behalf of Prof. T. Ademola Oyejide, Professor of Economics, University of Ibadan, Nigeria.
Wrapping up the debates were working sessions during which participants identified additional key areas of research they would like to see to assist them in policy formulation and debates. Thus the outcomes of the consultations serve as inputs into AERC’s policy research agenda and improve the prospects for cooperative policy research between policy makers and researchers.

The Issues
During the discussions, participants addressed the major aspects of the financial crisis, among them the causes and channels of transmission of the crisis to African economies, the impact of the crisis on the economies, policy responses and resolution of the crisis, long-term policy reforms, and a supportive research agenda. In the breakaway sessions, the groups identified major transmission channels and discussed impacts as well as policy responses in the context of a number of issues, including the effects on stock markets, banking systems, fiscal concerns, exchange rates, foreign aid, trade flows and remittances.

They noted, for example, that remittances have already fallen considerably and efforts to raise money internationally by issuing bonds have been cancelled in some countries. Job losses and lower government revenues are among the consequences of declining commodity prices. Just as in developed countries the financial crisis is likely to erode confidence in SSA stock markets because of inadequate regulation, leading to questionable behaviour of some stock brokers.

So far no country represented by the participants has gone into a banking crisis, but they cautioned that it should be anticipated that this could happen. First of all, the failure of foreign banks could impose a contagion effect on domestic subsidiaries. Thus, foreign bank bailouts for the mother bank should be encouraged since their health largely affects the subsidiaries. Moreover, foreign exchange reserves in most countries had declined even before the crisis because of fuel prices; this will likely continue as foreign currencies depreciate. And finally, the stressed real sector could have a significant impact on the performance of the banking sector.

On the positive side, the G20 meeting’s declaration that “the era of banking secrecy is over” is expected to serve as a deterrent against the temptation to stash funds into secret bank accounts abroad. But it was also observed that recovery of funds already stashed away may be protracted and less successful according to recent experience with odious debt in Africa.

Trade has also been seriously affected. Many SSA economies rely on a limited number of commodities, and as the crisis has continued to bite, commodity prices have fallen, often drastically. One consequence is that it makes it difficult for countries to service their debt as exchange rates depreciate. In countries with strong controls on the exchange rate, drawing down on the reserves is not a sustainable policy.
The reliability and availability of official development assistance (ODA) was a major concern, as major donor countries move to protect their own economies. The flow of aid to NGOs has already declined because of the crisis. On the other hand, participants said that African countries have to change their attitudes by improving their governance, enhancing their capacity to absorb aid.

Regarding the aid pledged in the G20 meetings, it was noted that It could be delayed, it could have some kind of conditionality, it might not come at all. Aid disbursement rarely equals the pledges. SSA countries need to change the language of aid to convince the donors that they are investing in Africa to make it a partner in growth. Participants also called for restructuring international financial institutions like the International Monetary Fund and the World Bank so that the voices of low income countries are heard.

Media Coverage
The AERC Secretariat made considerable effort to ensure that the seminar drew extensive media coverage, with the result that leading local newspapers, as well as television and FM radio stations allocated considerable space and time to enlighten the Zambians on the event. The Daily Mail, The Times of Zambia and The Post all had stories about the seminar. The Zambia National Broadcasting Corporation (ZNBC), a national television station with a massive reach also had slots in between their programmes for the event. Radio Four and Radio Phoenix broadcast shows that included interviews with some of the seminar participants. Prof. Victor Murinde, for instance, was interviewed on ZNBC radio. The AERC executive director, Prof. William Lyakurwa was also interviewed on the Cultural Remodelling Programme, an Economic Exchange Forum sponsored by the Ministry of Finance and the Bank of Zambia. This interview was apportioned almost a full hour’s show on ZNBC-TV.