In Washington, African finance ministers on the sidelines of the annual meetings of the World Bank and International Monetary Fund (IMF) began assessing the impact of economic rescue measures unveiled over the weekend. During urgent weekend meetings in Paris and Washington, the leading European, American, and Japanese industrial powers pledged to pour more than a trillion dollars into imperiled banks across the globe to help extend loans and investment and resuscitate a shattered credit market. As the recovery package started to calm world financial anxieties on Monday, African countries indirectly, but clearly impacted by the imminent financial collapse started to evaluate how best to shore up international organization support and donor government pledges in the wake of the crisis. World Bank communications director for Africa Herbert Boh explains what priorities developing countries must salvage from the shaky climate.
“The key thing that was on the line, especially for countries in Africa, was the need for African countries, many of which are not as exposed, given that most banks in Africa hold their loans on their balance sheets. They do not have a derivative market, and they also have a small secondary financial market. So because of this, the attention was being drawn to African countries to make sure that they continue to work on their macro-economic stability issues and continue to work on inflation issues and ensure that growth continues to benefit the poor,” he said.
Last year, African migrant workers employed in Europe and elsewhere sent home some $20 billion in earnings to help their Africa-based relatives escape poverty at home. This year, African countries face prospects of dwindling foreign derived investments on the continent and a possibility of diminishing income remittances from migrants working overseas, who are in greater jeopardy of losing their jobs because of the downturn. Boh says Africans need to protect themselves against falling back into deeper levels of poverty that could be precipitated by a falloff of foreign income finding its way into Africa.
“To the extent that these migrant workers were to lose their jobs in rich countries, it could very negatively impact the poor, not necessarily banks, because the money just transits through banks,” said Boh.
The World Bank official notes that the world crisis could have greater impact on African economic giants like Nigeria and South Africa, which are more actively engaged in international finance. He says those two powers account for 54 percent of the continent’s total Gross Domestic Product (GDP). But he also says that the commitment of industrial powers to bail out major globally oriented banks and lenders sends a positive sign to other African countries not likely to be as hard hit by the current crisis.
“Those countries, (Nigeria and South Africa), given their links to the international markets, were going to be badly hit. The rest of Africa is not so much connected with international hits. But the fact that things have happened well and that the bailout package, or the rescue package, seems to be working well, it’s a lot of good news for countries that are dependent on aid, and many of them are dependent on aid for more than one-half of their budgets,” he noted.
On Sunday, World Bank President Robert Zoellick told reporters that the global economic crisis should not be allowed to lower offers of humanitarian aid to poor countries already being strapped with rising food and fuel costs. Africa communications director Herbert Boh says World Bank officials are striving to emphasize that recent economic gains negotiated by developing countries with G8 nations at major power summits set a humanitarian priority that should not be sacrificed because of growing financial pressures.
“In a region where, since 1995, the number of the poor has almost doubled again in spite of support. So the World Bank has been very insistent on countries honoring their Gleneagles promises to provide at least $50 billion in aid to Africa every year,” he said.
To help Africa cope with rising food prices, the World Bank has created a $1.2 billion fund. It is designed to ease feeding populations at risk by helping boost agricultural production, improve irrigation and other farming methods, facilitate the transport of food to markets, and reform land ownership practices.
There is also a $2.7 billion energy fund being drawn up to help African countries plagued by power shortages and weak infrastructures get their economies moving. In addition, the World Bank voted yesterday to open up a third director position on its executive board to members from Africa and other emerging economies, effectively raising the number of board members from 24 to 25. Herbert Boh says the move is in response to requests to extend a greater voice for African interests and voting representation on the bank’s prestigious decision-making panel.