Africa and the Crisis: Defending the MDGs and Participating in the Recovery John Page The Brookings Institution, Washington, DC DANIDA DEVELOPMENT DAYS 9 June 2009

A Perfect Storm? The global recession is likely to be longer and more severe than predicted Global trade has fallen hard Developing countries success in manufacturing has made them vulnerable

The Good News: Africa may fare better than most regions The region had minimal exposure to global financial markets and banks are relatively sound Terms of trade shocks (oil, minerals, food and other commodities) cut both ways Africa is a marginal player in global manufacturing trade (in contrast to East Asia)

The Bad News: Africa will not escape the crisis Commodity prices and demand are down Direct foreign investment flows have fallen Aid is under pressure Migrant remittances have fallen

Three Reasons to Really Worry The MDGs will come under increasing pressure Africa is the least prepared region to benefit from a global recovery Aid may hurt, not help

1. Defending the MDGs Recent research has shown that human development indicators fall rapidly when African economies experience growth collapses (Arbache and Page, 2007; 2009) But they do not rise significantly when growth accelerates This asymmetry means that if human development outcomes are not protected during the crisis, progress toward the MDGs may be seriously in danger.

Defending the MDGs: In a crisis infant mortality rises Infant Mortality (per 1000)

Defending the MDGs: In a crisis children–mainly girls-drop out of school Primary Completion Rate

Defending the MDGs: In a crisis the gender gap grows Ratio of Female to Male Enrollments

2. Participating in the Recovery Africa’s isolation from the global economy in modern agriculture, manufacturing and services is NOT good news. Africa’s growth recovery was driven by natural resources and domestic demand (Arbache and Page, 2009); it was fragile before the crisis. Lack of diversity and sophistication in economic activity constrains growth (UNIDO, 2009) Africa is the developing region least likely to participate fully in the economic recovery.

Participating in the Recovery: Africa lacks industrial dynamism Country TypeManufacturing Value Added (MVA) Per capita Share of Manufacturing in GDP Share of Manufacturing in Total Exports Share of Medium and High Technology in Total MVA Share of Medium and High Technology in Manufactured Exports Resource-rich Economies Non Resource- rich Economies Excluding South Africa East Asia

Participating in the Recovery: Constraints to competitiveness The infrastructure gap remains large Poor trade logistics raise costs New skills are needed Africa lacks industrial clusters Regional Integration is fundamental

3. Aid May Not Help Aid in Africa rises during good economic times and falls during bad times Declines in aid are strongly correlated with growth collapses Aid reinforces rather than offsets growth cycles

Aid May Not Help: ODA per capita falls in economic collapses ODA per capita during growth episodes,

Riding out the storm: Africa must help itself Good macro economic management is critical for avoiding growth collapses. Beyond macro stability structural reforms are critical and “costless”: –Managing natural resource revenues better –Improving the investment climate –Improving institutions affecting agriculture (land tenure) –Rethinking the role of skills Getting serious about regional agreements will pay dividends.

Riding out the storm: More aid is needed Better macro economic management by African governments will mean hard choices for budget priorities The twin challenges of defending the MDGs and participating in the recovery need more not fewer resources The vast majority of African economies do not have access to global capital markets – aid is indispensable Despite the G-20 communiqué aid is under pressure The Gleneagles commitments must be met

Riding out the storm: Enhance market access The crisis has given protectionism a new lease on life –Since the crisis began 78 trade measures have been introduced world wide: 66 are protectionist –17 of the G-20 countries are involved Beyond resisting protectionism the G-20 could provide modest, transparent and liberal preferences for the “Least Developed Manufacturing Countries” most of which are in Africa.

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