Friday, January 16, 2009

Africa Facing Capital Outflow, Decline in Exports

By Nasreen Seria, Jan. 16 (Bloomberg)

African economies are facing “significant outflows” of foreign capital, declining exports and a drop in aid as the global financial crisis worsens, South African Finance Minister Trevor Manuel said.

Many governments on the continent are facing “fiscal pressures” as exports decline, Manuel said at a conference in Cape Town today.

The worst financial crisis since the Great Depression has slashed demand for commodities, undermining economic growth in countries such as Nigeria, Africa’s biggest oil producer, and Zambia, the continent’s largest copper producer. Growth on the continent probably won’t reach 5 percent this year, down from 6.4 percent in 2008, according to the African Development Bank.

“The export markets developed with enormous sacrifice are suddenly closed to imports from our countries, as a result of falling consumer demand and increased protectionism,” Manuel said.

The African Development Bank, which provides loans for infrastructure projects on the continent, will create a $1.2 billion fund to give loans to countries that are most affected by the global crisis, Donald Kaberuka, the bank’s president said.

Multilateral lenders, such as the AfDB, should play a “countercyclical role” in the current environment, he said at the conference in Cape Town. The bank will give loans of about $150 million to countries on a “first come, first serve” basis, he said.

Growth Outlook

Growth in Sub-Saharan Africa probably slowed to 6 percent last year from 6.5 percent in 2007, and risks to the economic outlook have worsened, the International Monetary Fund said in October.

“We’ll be extremely lucky even if we reach 5 percent,” Kaberuka told reporters. “We are looking at a period that is quite difficult over the next 24 to 36 months.”

Donor aid to African countries is drying up, making it more difficult for governments to meet goals to reduce poverty, Manuel said.

Rich nations, such as the U.S., Britain, Japan and Germany have missed pledges made at the Group of Eight summit in Gleneagles in 2005 to double aid to developing countries to $50 billion a year.

“Already there is a cumulative shortfall of $240 billion on the Gleneagles commitments,” Manuel said. “The question has to arise whether these countries are likely to continue with donor aid flows” given their domestic economic conditions.