Working Paper 98 - Africa and the Global Economic Crisis: Strategies for Preserving the Foundations of Long-Term Growth

The global economic crisis has definitelycaused a growth crisis in African economies.Growth rates have plummeted, withsome countries even experiencingcontraction. The crisis is hitting the keydrivers of growth, especially trade flows,capital inflows, natural resource sectors(oil and minerals) and agricultural exports.And the worst may be yet to come. Eventhe growth rate of 2.8 percent projectedfor 2009 in February appears to havebeen optimistic. The revised forecasts putAfrica’s growth at 2.3 percent for 2009(Table1). This implies that for the firsttime since 1994, per capita income willcontract in 2009 in several countries andfor the continent as a whole. Indeed agrowth crisis has set in.The biggest concern is that the growth crisismay degenerate into a developmentcrisis as the recession deepens. The crisisconstitutes a major threat to the continent’spoverty reduction agenda. Formany African countries, especially thosethat started with weak macroeconomicand structural conditions, the recoverymay be painful and prolonged. The globalattention to the crisis thus far has focusedon minimizing its impact. For Africancountries to avoid a protracted recessionand a long and painful recovery, it isimperative now to strike a balance betweenshort-tem crisis response strategiesand measures to address structuralconstraints to long-term growth. There isa risk that resources may be shiftedtowards crisis response to the detrimentof long-term development programs.Effective crisis response requires a scalingup of resources in addition to deliveryof planned development aid.This paper reviews the evidence on theimpact of the crisis on the continent, withemphasis on the differential effects acrosssectors and countries. It especially highlightsthe plight of the poor and the setback on the progress towards the MDGs.It examines strategies for positioning thecontinent favorably to take advantage of aglobal economic recovery in the mediumterm. It closes with a discussion of theimplied role of the Bank and other developmentpartners.