WASHINGTON, October 13, 2008 -- The concerns of Africa’s middle-income countries (MICs) and emerging MICs were the subject of a breakfast hosted by World Bank Africa Region Vice President Obiageli Ezekwesili on Monday, October 13. Ministers of finance, deputy prime ministers, and other high-level representatives from Botswana, Cape Verde, Gabon, Lesotho, Mauritius, Namibia, Seychelles, and Swaziland came together to discuss the implications of the global financial crisis for their economies, and the kinds of assistance they need from the World Bank Group.
In her opening remarks, Ezekwesili noted the prospect of Africa emerging as a growth pole over the next 15 years, and stressed the importance of the MICs as drivers of regional growth. She presented the African MIC Action Plan, aimed at improving the World Bank’s ability to be more responsive to the needs of Sub-Saharan African MICs, and stressed that the Action Plan is a living document that will continue to be updated to take account of different perspectives and a rapidly changing global environment. She also said the Bank Group stands ready to support the countries’ response to the financial crisis through its analytical services and financial products and instruments, in the context of the Africa MIC Action Plan.
Africa Region Chief Economic Shanta Devarajan told the group that the turmoil in global financial markets could have a particularly significant impact on Africa’s MICs for two reasons.
“First, some of the MICs, such as South Africa and Mauritius, are more integrated with global markets, so that the risk of contagion is higher,” he said. “Second, a significant number of African MICs are oil exporters. If, as is forecast, oil prices start falling, these countries will be affected.”
Marilou Uy, World Bank sector director for Finance and Private Sector Development, added that with the global financial turmoil, access to international credit and capital markets by enterprises and countries in Africa will be further constrained. “And,” she said, “there is need to pay attention to the availability of trade finance. There is also the potential for second-round effects on the real sector through lower demand for African exports and dampening of commodity prices.”
In responding to their remarks, the Vice Prime Minister of Mauritius Rama Sithanen said “our biggest fear is the second round effects of the financial crisis,” particularly on export earnings and tourism. Sithanen also noted that trade and current account deficits are essentially FDI-funded. If this dries up, it could be quite problematic.” He said his country’s major challenges are investment in infrastructure and investment in people, for which Mauritius needs World Bank support.
The representative from Namibia said his country needs the Bank’s help to reach out to other financial institutions, and to develop the agriculture sector and the Government’s green scheme.
The representative from Lesotho, whose economy is based mainly on textiles exports to the United States, noted that his country is going to be hard hit on the trade side because “the orders have stopped coming in.” He said, however, that “we are ready to find out how we can take advantage of IBRD products” to help diversify the economy.
Cape Verde’s minister of finance said her country is highly dependent on tourism and remittances, both of which will be affected by the crisis. She stressed the need for flexibility in the Bank Group’s instruments to address emerging problems. She also mentioned the importance of a South-South exchange of experience and ideas.
The principal secretary from the Ministry of Finance in Swaziland said that his country is likely to be affected by the crisis if South Africa is affected, given the tight links between the two economies. He also said that he was encouraged by the Bank’s view that development plans are dynamic. “We don’t want to be locked in any one model” of development,” he noted.
From the World Bank Group, Inger Anderson, sector manager for Sustainable Development, noted that the Bank has recently mobilized significant resources, such as climate investment funds, that can be used to provide flexible support to MICs. “We understand that you often need ‘just-in-time advice,” she said, and “we can be nimble” in responding to MICs’ needs.
Gloria Grandolini, director of Banking and Debt Management, said that “the World Bank has evolved from a purely lending institution to one that provides a full range of financial and risk management instruments and services for governments and public sector entities.” These include loans, contingent financing, credit enhancement, hedging products, catastrophic risk management, asset-liability management, capital market access strategy and implementation, transaction processing, and information technology.
Sudhir Shetty, sector director for Poverty and Economic Management, said that the Bank Group can help MICs with second-round effects of the financial crisis by providing analytical work and technical assistance. “The MICs can use this timeframe to take stock,” he noted, so that when the markets thaw, the MICs will be ready to go back to the markets.
The International Finance Corporation’s James Emery told the group that the IFC can “play a counter-cyclical role” in the case of protracted credit contraction, by providing “a range of financial, transactional, and advisory services.” Between IFC and the World Bank, he noted, “we have an entire suite of products. IBRD can help you with policy and sector issues, and IFC is well placed to help with financing for infrastructure projects – hospitals, port facilities, universities.”
Michel Wormser, director of Operations and Strategy in the World Bank’s Africa Region noted that the effects of the financial crisis on African MICs is likely deeper than people expected, and promised that the Bank would have an “intense dialogue” with country directors to ensure that countries’ infrastructure needs, as well as other needs, are being addressed.
In closing the meeting, Ezekwesili called on Africa’s middle-income countries to let the Bank Group know what they need, and to inform the Bank about new opportunities they see for Bank Group assistance. “We need the perspective you bring,” she told the ministers. “I am very serious about the MIC agenda.”
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