‘The Global Economic Crisis and its Impact on Africa’

Thank you, Mr Wagener, for your kind introduction.

I am delighted to be here in Luxembourg – both in the beautiful Philarmonie and in the company of Dexia Bank.

You have hosted some very notable statesmen in the past at your events, and it is a very real privilege to be with you tonight.

I know that Dexia Bank, as Luxembourg’s oldest, enjoys an illustrious history and has played a major role in the country’s development and prosperity.

In your distinguished 150 year , you have weathered many storms as well as contributed to many successes.

But few financial or economic tempests have matched the intensity or damaging impact of the storm that has hit us in recent months.

The world economy is now expected to contract this year for the first time since the Second World War.

A crisis which began in the mortgage markets of America has brought the world’s financial system close to collapse and fed into the wider world economy.

Stock markets have slumped, World trade is falling. Unemployment is rising.

Families, communities and countries in every continent are feeling the impact.

We now understand, perhaps better than ever, the true meaning of globalisation – that, wherever we live or do, we are linked much more closely than ever.

We are living in a global community. And like every community, it needs shared values and rules to help it function well.

I fear that the last few months have demonstrated that collectively, if not individually, we have become detached from these common and decent values.

We have to work hard to re-assert them and ensure they shape how we behave and decide our priorities.

So I want to discuss tonight how we can do this by talking about the impact of the present economic turmoil on Africa and the poor and vulnerable of our planet.

Impact on Africa

When the global meltdown was seen as primarily financial, many experts thought Africa might be spared the worst of its impact.

But as the crisis deepened, it has become increasingly clear that the least developed countries are among the biggest casualties.

Africa is now on the front line and facing the economic equivalent of a tsunami.

It threatens to undo the progress in recent years across the continent.

Demand for commodities has slumped, exports have fallen, credit has dried up, and construction and other projects are being postponed or scrapped.

The International Finance Corporation estimates that 450 investment commitments in African infrastructure were cancelled in 2008.

Financial flows to developing countries are shrinking, whether foreign direct investment, loans, or remittances, as Africans in the Diaspora tighten their belts or become unemployed.

Estimates vary, but the World Bank says that net capital flows to developing countries will roughly halve this year.

The Institute of International Finance forecasts a bigger drop, of more than 80%.

The International Monetary Fund estimates that sub Saharan Africa will lose $50 billion income over 2008-09.

The ability of governments to pay for basic public services is decreasing.

Household incomes are dwindling as jobs and wages are lost.  

The UK’s Department for International Development estimates that as a result of the crisis, 90 million people will be added to those living on less that $1.25 per day.

Africans, of course, do not have a safety net of social security.

Poor people spend 50-70% of their income on food. Reduced income rapidly translates into sale of personal assets, pressure on children to work rather than go to school, and additional burdens on women as mothers, wives and unpaid labourers.

The result will not just be increased poverty and despair. It seems certain to lead to increased loss of life.

Food and nutrition security is worsening and disease prevalence increasing. The UN foresees annual infant deaths increasing by as much as 400,000.

The risk that some African countries will simply not be able to cope with these widespread effects of the economic crisis is real.   

Recent progress

What makes this doubly tragic is that this crisis is exploding against the background of a more positive, if largely untold, story about Africa.

It is one of aggregate economic growth rates and poverty reduction.

In 2007, over 25 African countries grew by over 5%. They are the ‘African cheetahs’, which were on their way to becoming the equivalent of the ‘Asian tigers’.  

Despite rapid population growth, the number of people living in poverty has leveled off.

News coverage of high profile conflicts should not blot out remarkable stories of reconciliation and recovery, from Angola to Liberia, Mozambique to Sierra Leone.

Out of the headlines, the trend in Africa has been less conflict, more accountability, and the march of democracy.   

Civil society is becoming more assertive.

Business is demanding that government create conditions in which investments are protected and entrepreneurship can flourish.

It is true that progress has been uneven. The picture remains far from perfect.

There are still too many countries with authoritarian and corrupt leaders who refuse to accept the result of elections and confuse their own interests with those of their people.

There are too many conflicts, too much suffering.

But these are now the exceptions and not the rule.  

And that is why the global economic crisis is such a body blow to Africa.

Efforts to achieve the Millennium Development Goals will be affected and progress reversed.

From my recent visits, I can tell you that Africans are confused and angry by what they see happening.

Why?  Two main reasons stand out:

First, African countries – like other less developed nations in the world – are victims of a crisis they played no part in creating.

They are not responsible for the lack of oversight, institutional recklessness and over-consumption that is behind this turmoil.  

The blame lies firmly in failures across the developed world.

Second, they have watched the developed world  find incredible sums, at short notice, to deal with the impact of the economic crisis in their own countries.    

Trillions of dollars have been committed in the last few months for bail out and stimulus packages.  

This is, of course, necessary and essential. Africa understands the critical importance of kick-starting the motors of the global economy.

But they would not be human if they did not compare these vast sums of money with the total of $100 billion a year in development aid.

More than that has been spent rescuing one US company.   

This undermines the credibility of past claims that much more modest sums of money can’t be found for the fight against global poverty.

It has become clearer than ever that the real barrier is a lack of political will.

What can be done?

Africans do not want to stand on the sidelines of the economic crisis and feel sorry for themselves.  They want to be part of the solution.

But to play this role they need the support and full engagement of partners outside of the continent.

So what can be done?  I would like to highlight three key areas.  

First, the world should recognise that Africa can be part of the solution to the global economic crisis

African economies must be included in a global economic stimulus plan.

We need to recognise that investment in Africa can be part of a virtuous circle, benefiting both African economies and those of the industrialised world.

Africa’s infrastructure was designed to serve former rulers rather than its own people. It is often easier to trade with Europe than with near neighbours.  

The scope for investment in the continent’s real economy is vast – roads, rail, ports, telecommunications and clean energy.

The benefits in terms of jobs, income and business generation could be huge, both for Africa and the world.

We need to fast forward efforts to create and sustain public – private partnerships around major intra-regional infrastructure projects.

These should be prioritized on the basis of their readiness, and their potential to generate work and public goods.

Investment in health, education and agriculture could yield social and economic dividends for the continent and the world.

Much more needs to be done to engage Africa’s newer partners, such as Brazil, China and India, with its traditional donors to provide concerted support.

The crisis could in fact be an opportunity to address some of the blockages that have been constraining growth, trade, food and nutrition security.

As any of you have visited Africa will know, there is no shortage of entrepreneurial talent on the continent.

But this potential lies unrealized through lack of support and opportunity.

Businesses, though the investments they make and the markets they create, have a crucial role to play in unlocking entrepreneurial talent.

That is one of the reasons why I am pleased to see so many representatives of business gathered here this evening.

Second, the industrialised nations and institutions need to honour their commitments to Africa

Recent years have seen unprecedented commitments to support Africa.

The crisis has brought into sharp focus the importance of honouring these.  

As I mentioned earlier, financial flows to Africa are plunging. Immediate measures are needed to allow Africa to access a large increase in financial assistance.

Failure to compensate for loss of revenues to maintain essential public services could result in extraordinary human suffering.

As ever, it will be women and children who are most vulnerable.

So it would be a disgrace if the economic crisis led to promises being broken to the poorest of the world.

Instead, there must be an insistence, as I am glad to see the G20 summit recognised, that pledges on aid flows are met.

We need a dramatic increase, too, in concessional lending and temporary financial support.

A renewed commitment to international cooperation on strengthening tax systems, fiscal cooperation, and ending illicit financial flows.

Innovative ways from OECD countries to reduce the cost and, therefore, increase the scale of remittances from the Diaspora back home.

Agreement on how Africa can access new sources of finance and technology to mitigate and, critically, to adapt to climate change.

And investment in helping Africa to tackle food security which is a long-term problem for the only continent which can not feed itself.

We also need to see, at last, a level playing field on trade and the removal of subsidies that penalise Africa.

The London summit reaffirmed its commitment to resist protectionism. But we have to insist these words are turned into action with the Doha negotiations re-energised.  

Whatever Governments say, we know the the economic crisis has led a deeply worrying growth in protectionist sentiment.

What was hopeful from the G20 meeting was that the major economies did raise their sights from their own problems and recognised both that the developing world was suffering badly and must be part of the solution.

Reneging on promises – on aid and trade – would be a breach of trust.

It would also dash hopes that the crisis has seen globally a re-emergence of the values of justice, fairness and solidarity vital for our world.

Third, Africa must be fully represented in the new global architecture

These values must also be reflected in a reshaped international financial and political architecture.

Africa needs and deserves a proper seat at the table.

It is not good enough being occasional guests at exclusive meetings.

This is vital for the political legitimacy of the International Financial Institutions and the effectiveness of its solutions.

It must address both the weight of large emerging economies – on which there is progress – and also the needs of the least developed countries.

This is the soundest basis for a strong partnership between Africa and the IFIs to meet human development and growth challenges.

Africa, more than any other region, could benefit from the technical support, policy advice and financial resources that the Bretton Woods institutions have to offer.

But many developing countries have not always been happy with the role that the World Bank and the International Monetary Fund have played over the last decades.

Policy conditionality and macro-economic and fiscal prescriptions have been controversial, and often resented. Their impact on growth and human development is also disputed.

But Africa must also live up to its side of the bargain. They include its commitments to good governance, respect for human rights, the rule of law, aid effectiveness, transparency and accountability.

Insisting that partners keep their promises while failing to keep our own won’t work.

More importantly, it will badly let down their own citizens and hold back progress.

Africans want and deserve good, honest and accountable government.

The private sector needs an enabling environment to start businesses, get permits, rent property, access services and have recourse to the law.

Conclusion

Big questions are rightly being asked about how we have all found ourselves in this deep crisis.

A fair, effective and lasting response must be underpinned in the new global community by values common to all successful communities. .

Fairness and justice  can no longer be an afterthought.

No one’s stability, security and prosperity can be guaranteed unless we strive to tackle the gross inequality of wealth, opportunity and influence in our world.

As Rahm Emanuel, the Chief of Staff of President Obama said:  “You never want a serious crisis to go to waste.”

He is right. Out of this gloom, we have a once in a generation chance to reshape our world. We must not waste it.