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African Observers Cautiously Optimistic About G20 Efforts

Last week, the G-20 group of the world's largest economies came up with a package aimed at ending the world financial crisis, and helping to restore economic growth. The deal includes over one trillion dollars in loans and guarantees that will, among other things, help developing nations boost trade with improved access to credit. From Washington, reporter William Eagle spoke to two development experts about the potential impact of the summit on Africa.

For many months, some in the African media suggested the continent might avoid much of the global market meltdown. Despite progress in recent years, the continent remains among the regions of the world least integrated into the global trading system.

That's changing. A drop in consumer demand in the industrialized world has hit African exports – including flowers and produce prompted by trade deals like the US Africa Growth and Opportunity Act. The continent's stock markets have dropped by half. African migrants in the West have had to cut the remittances they send to families back home – a vital part of the continent's safety net.

For Africa development experts, the G-20 moves may help, at least in the short term, to cushion the blow.

The summit promised to crack down on tax havens, which account for the loss of billions of dollars in revenues per year to Africa – the equivalent of about seven percent of Africa's gross domestic product, according to the OECD.

Elizabeth Donnelly is the Africa program manager at the Royal Institute of International Affairs at Chatham House in London.

"Capital flight from Africa is considerable," she says. "More money left Africa in 2008 than was invested in 2007. For those countries where corruption is a big problem, clamping down on tax havens is really important."

The G-20 also announced it will infuse the International Monetary Fund with one trillion dollars for loans and guarantees. The plan includes $300 billion over three years to multilateral development institutions such as the Africa Development Bank that extend loans to developing countries.

The summit deal also provides $250 billion for financing credit to help boost world trade, which according to the World Trade Organization, is expected to contract by 9 percent this year.

Joel Kibazo is an associate fellow with the Africa program at Chatham House with a background in economics and finance.

"There are countries and businesses that wanted to continue exporting and trading [but could not]," he says, "because there were no lines of credit to finance the trade. So however legitimate the business is, if there is no [financing], it makes things difficult for many countries."

Yet, there are also concerns about the summit decisions. The anti-debt group Jubilee 2000 notes that the resources from the G-20 come as loans, rather than grants. The group is concerned that the scheme could add millions of dollars in African debt, now pegged at about $300 million dollars..

Donnelly agrees:

"We don't know about interest rates attached to the loans and repayments," she says. "You would hope that the developed world would have learned its lessons, and if the point of this was to support the poorest nations in the world, take note of that. "

Some economists say that African nations might be able to compensate for the drop off in trade with the West by increasing commerce among themselves. They suggest that Africa might also boost trade with other nations of the southern hemisphere and Asia, including Brazil, India and China. which in 2007 represented over 30 percent of Africa's total trade.

But Donnelly says much of the continent still lacks the roads and other infrastructure to boost intra-African trade. And, she says most African trade is still with the West.

Yet, Kibazo says President Obama's suggestion that the US may not return to being the world's largest consumer of goods – and among the last in savings – will pressure Africans to reconsider their markets:

"What you see," he says, "is confirmation of a paradigm shift that says the US is not the only economic engine of growth in the world. We've seen the power of China and [growing demand for imports in] of India. So we may be looking at a world in which China, India and some of Asian countries also account for some of the demand for some of the goods that Africa produces."

Kibazo says he's concerned that the industrialized world may reduce the bi-lateral aid and commitments made for example to meet the UN Millennium Development Goals, which include reducing poverty by half by 2015. The UN Millennium Development Campaign estimates assistance will be reduced by at least $4.5 billion as a result of the economic crisis.

Donnelly says with regard to the world economy, many African nations are "at the back of the airplane – where the turbulence is worse." She says despite G-20 support, and debates over stimulus packages and maintaining aid, it's ultimately up to African governments to manage their way through the crisis.