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