IMF Survey: Africa Conference Debates Way Forward Amid Crisis
March 13, 2009
- African policymakers task IMF with presenting their views to G-20 summit
- Donor aid is crucial, but innovative financing solutions also needed
- Multilaterals must adapt to new era and give greater voice to Africa
The international donor community must honor its commitments to Africa, but the continent can also do more to live up to its growth potential and strengthen its resilience, concluded participants at a two-day conference on Africa’s economy in Dar es Salaam, Tanzania.
The “Changes” conference covered a wide range of topics, from coping with the effects of the commodity price slump and the international financial crisis to building a stronger partnership between Africa and the IMF.
“We understand that we need to change the way we work with Africa,” IMF Managing Director Dominique Strauss-Kahn said at the March 10-11 meeting, which brought together African business leaders, policymakers, civil society representatives, academics, and other well-known international figures.
African Finance Ministers and Governors tasked Strauss-Kahn to take their views forward to the Group of Twenty (G-20) summit in London in early April, when leading industrial and emerging market economies will discuss possible solutions to the global economic crisis. African leaders have said that it is vitally important that African concerns are taken into account at the summit.
Weathering the turmoil
In a series of panel discussions, conference participants representing a broad range of viewpoints debated how Africa could forge a path out of the current global economic crisis into a new period of sustained growth.
Participants reached broad agreement on the severity of the global crisis and the main channels of transmission to the continent—decreased trade, lower foreign direct investment, lower export and tourism receipts, and weaker remittances. A number of panelists emphasized the importance of having the IMF and other international financial institutions form a united front to urge donors to honor their commitments—particularly the one made at Gleneagles to double aid to Africa in real terms by 2010. “My continent is hurting,” said Ngozi Okonjo-Iweala, World Bank Managing Director.
Benno Ndulu, Governor of the Bank of Tanzania, expressed skepticism that aid would be immediately forthcoming, but stressed the importance of stepping up pressure on donors—while at the same time emphasizing the need for African countries to mobilize domestic resources. Ndulu also noted that African leaders must look beyond the current crisis and invest in the capacity for future growth—in particular, through infrastructure.
Another panel discussion focused on how to sustain intrastructure creation in today’s difficult environment. Traditional ways of financing infrastructure are no longer sustainable in the current financial crisis, observed panelists Abdoulaye Bio-Tchane, Manuel Change, Abdoulaye Diop, Michael Joseph, and Antoinette Sayeh.
Public-private partnerships might be the answer, some suggested, since Africa should still be in a position to attract liquidity for such arrangements. Panelists pointed to successful cases of regional public-private partnerships—for example, with railways and pipelines in southern Africa. But such partnerships require a stable political and macroeconomic environment, panelists stated.
Managing commodity price shocks
Effective management of commodity export revenues in good times is key to minimizing the effects of a sudden fall in prices, noted participants in another session.
Linah Moholo, Governor of the Central Bank of Botswana, spoke of her country’s experience in successfully harnessing the revenues from commodity exports for growth. Countries must save during times of commodity price booms, she said, to allow a smoothing out of government expenditure and a buildup of international reserves. Transparency and good governance in the extractive activities—an area of success in Bostwana, particularly for operations related to the diamond industry—are vital to attracting investment, she said.
But increasing the predictability of aid to commodity-exporting countries is also key, noted Jean-Michel Severino, Chief Executive Officer of the Agence Française du Développement. To help countries cope with commodity price shocks, donors should reduce aid volatility and play a countercyclical role.
Africa’s financial sector
Another session focused on Africa’s banking sector, which has not yet suffered as much as financial sectors in other parts of the world. Bank are still sound and their balance sheets are clear of toxic assets, participants noted.
In Morocco, for example, net profits in the banking sector are expected to grow at around 15 percent this year, said Mohamed Benchaaboun, CEO of Morocco’s Banque Centrale Populaire.
But participants warned against complacency: the financial sector may have escaped the turmoil, but the continent is beginning to feel the impact of the global recession. In Morocco, Benchaaboun said, the recession is slowing demand in such vital sectors as tourism, and remittances are also falling. In sum, panelists concluded, African policymakers will need to be vigilant to the effects of the global economic crisis, which are as yet uncertain.
Globalization’s shifting tides
In a session on globalization, Moroccan Finance Minister Salaheddine Mezouar noted that the problem is not globalization per se, but rather the governance of globalization.
Globalization has brought about numerous benefits in many countries, including Morocco, he said; the key is learning how to harvest the advantages it brings. Mesouar also said that policymakers needed to be more optimistic about African prospects. Africa’s growth is still strong compared to that of the rest of the world; the debate should be around sustaining growth rather than reviving it.
Valentine Rugwabiza, Deputy Director General of the World Trade Organization, agreed with Mezouar that globalization itself is not in question, but rather how to better achieve regulation, transparency, and supervision in a globalized world.
Trade is a victim of the current crisis, Rugwabiza continued, underlining that global trade is down sharply. Boosting international trade is fundamental to recovery, she stressed, and protectionism in all its forms—tariffs, nontariff barriers, and noncompetitive practices—should be avoided.
Participants had a broad range of ideas for how the international community should work with Africa going forward, some of them related to the reform of the IMF and other multilateral organizations.
Columbia University’s Jeffrey Sachs put it starkly, saying that the world is failing and Bretton Woods institutions need to prove themselves or disappear. South African Finance Minister Trevor Manuel also called for a coordinated global response to the crisis and the reform of international institutions.
In the conference’s concluding roundtable, Strauss-Kahn acknowledged that change was needed, including greater flexibility in the IMF’s lending facilities and a stronger voice for Africa in the Fund. It is time for the IMF to adapt to a new era—time for a new kind of partnership with Africa, he said.
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