Countries with fiscal space must consider stimulus to starve off the crisis
Diversify to minimize the impact of decline in commodity prices
Developed countries must honor earlier aid pledges
WASHINGTON, April 28, 2009: Ministers of finance from Africa have called upon international finance institutions to subject rich countries to the same rigor of surveillance and conditionalities for preserving microeconomic stability, which they impose on developing countries.
Speaking during a press conference at the World Bank-International Monetary Fund Spring Meetings, three ministers – from Zambia, Cote d’Ivoire and Tanzania – decried the set-back Africa has suffered as a result of the crisis, but reiterated their countries’ resolve to move past it.
The African finance chiefs chastised international credit rating agencies for failing to forecast the crisis and challenged international financial institutions to do a better job of monitoring the global economy and of holding rich and developing countries accountable in the same way.
“This crisis has come when African governments have taken broad based measures to reform their economies, followed by significant achievements,” said Mustafa Mkulo, Tanzania’s Minister for Finance and Economic Affairs, urging rich countries to do everything possible to ensure that the world avoids a protracted crisis with devastating consequences on the world’s poorest region. “It is now threatening to wipe out our gains of the past ten years and disrupt all our plans for further progress”.
Zambia’s Minister for Finance, Situmbeko Musokotwane, said that, unlike the rich countries, Zambia has less room for a stimulus package to save its private sector, especially the mining industry which has been hard-hit after the price of copper fell.
“A stimulus package can, however, be seen from the expenditure side and tax cuts, especially in the mining sector and agriculture, to help keep jobs and ensure food sufficiency,” Musokotwane explained. “We have to creatively provide stimulus through domestic borrowing, which we have applied to education, health, agriculture, and creating a basis for private sector investment,” he added.
Crisis Affecting Commodity Exports
Charles Koffy Diby, Cote d’Ivoire’s Minister of Finance, outlined three areas in which the crisis is affecting African economies: the restructuring of the global demand, the collapse of the price of commodities and the scarcity of foreign direct investments, funds and various flows towards Africa. He urged that last April’s G20 resolutions be expedited.
“The measures decided in April by the G20 should provide some assistance to African countries trying to contain the impact of the crisis,” Diby said. “The idea is to make sure that the modalities of implementation of the G20 measures are done in the best possible time so that the cost of the impact does not increase too drastically since our countries have vulnerable economies.”
The Ministers outlined, in tandem, areas of greatest set back in their respective economies, painting a picture reminiscent of the unfolding scenario in the rest of Africa.
Tanzania’s cotton, coffee and sisal industries have been hardest hit, in addition to flower exports and tourism revenue, according to Minister Mkulo. Cotton prices have nose-dived as the demand declines, causing huge losses and loan defaults, thereby negatively impacting the financial sector. In the sisal industry alone, 2.1 million people have been adversely affected.
In Cote d’Ivoire, according to Minister Diby, except cocoa, production of exports has declined sharply. The cashew nut industry, for example, has experienced a 52.1 percent reduction in exports. Exports of pineapple and banana have also declined. Other sectors affected are wood, construction and wood processing industries in which production is frozen due to lack of orders from abroad. The housing crisis is negatively impacted as a result, such that 10 percent of companies in this sector are struggling. Many already are bankrupt. The result is that close to 7,400 persons lost employment in the sector.
Zambia’s Musokotwane explained that the biggest pain Zambia has suffered is in the mining industry due to labor shedding and loss of tax revenue resulting from lower prices. He said that Zambia has lost 12,000 jobs directly in the mining sector, which creates social and economic problems.
The Ministers urged developed countries to honor their official development assistance pledges. They appealed to rich countries to direct a portion of their stimulus resources to developing countries to enable these countries to deal with the economic threat.
The Ministers also called on rich countries to provide additional resources to the International Financial Institutions to enable the IFI to increase its responsive capacity to the current economic challenges, and asked rich countries to broaden market access for exports from developing countries.