Manuel: Africa to feel pain of crisis for years

The global economic crisis is stifling investment into Africa and will put strain on the region for at least another five years, Finance Minister Trevor Manuel said on Friday.

He said trade finance was drying up, budget revenue was more difficult to raise and some investments were being scrapped, resulting in job losses.

“The current economic pressures are not of short duration, we are looking at a number of years, at least five years or so,” Manuel said in an interview on the sidelines of a meeting of African policymakers to find ways to deal with the crisis.

“If the conditions are as constrained over five years as they are now, then everything will go backwards.”

Major developed countries are in recession, stung partly by a credit squeeze, and growth is slowing in emerging economies as commodity prices fall and capital inflows decrease.

Manuel said an International Monetary Fund report next week should give more details of its impact but it was clear that access to trade finance, which tended to be in dollars or other hard currency, was difficult to come by and interest rates, when finance was available, were high.

Much-needed investment was also at risk, while aid flows were falling.

“We are also seeing FDI [foreign direct investment] termination, where there were latent investments in sectors such as mining and so on, we are seeing outflows as these investors try and square their positions back in their home countries.

“The consequence of that is, of course, job losses.”

Emergency fund
The Africa “committee of 10” meeting, which follows talks organised by the African Development Bank in November, aims to formulate a coordinated response to the crisis and push for a greater say for the continent within the G20 group of leading developed and emerging economies.

Currently, only South Africa sits on the G20.

African Development Bank President Donald Kaberuka said the crisis had an international dimension and required a collective response.

“This is what is being discussed in the G20 process and that’s why we think it is important that Africa is present in the process,” he said.

“This is not simply a financial crisis, it is not a narrow financial crisis. It comes on top of the food crisis, volatility in the energy markets and also deepening poverty in Africa.”

Kaberuka said the development bank was setting up two funds totalling up to $2,5-billion to help African countries deal with the impact of the economic slowdown.

An emergency liquidity fund of between $1,2-billion and $1,5-billion would pump money into countries—on a first-come, first-served basis—to ensure planned development projects did not falter.

A trade finance fund would help companies better access credit lines.

Manuel earlier said in a speech that African countries were experiencing capital outflows as a result of the global downturn.

“African states are encountering significant fiscal pressures as our revenue sources dry up, as expenditures rise to meet the most elementary levels of service provision and as we battle to retain expenditure levels in the face of significantly reduced GDP growth,” he said.

“We are witnessing that the export markets, developed with enormous sacrifice, are suddenly closed to imports from our countries, as a result of falling consumer demand and increased protectionism.”—Reuters

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