PRESENTATION BY H.E. MR. E.E.E. MTANGO,AMBASSADOR OF TANZANIA AND DEAN OF THE
AFRICAN DIPLOMATIC CORPS IN JAPAN AT
GRIPS-ODI-JICA JOINT SEMINAR: AFRICANGROWTH IN THE CHANGING GLOBAL ECONOMY

Topic: African Growth, Financial Crisisand Implications for TICAD IVOUTLINE
1．Anatomy of African Growth, pre-crisis period
2. Global Financial Crisis and its effects on:- African Economy and Trade- Foreign Direct Investments- Capital and Equity Markets- Banking System- ODA- Tourism Industry- Remittances from Africans in Diaspora- Foreign Reserves- Achievement of MDGs
3. Implications on TICAD IV
4．What to do.

AFRICAN GROWTH(Pre-Financial Crisis Period)- Africa has enjoyed 10 years of sustained growth averaging 5% GDP
growth per annum.
- Early 2008 average GDP forecast at 6.5% p.a.
- Growth due to strong demand for Africa’s exports, high commodity
prices, widened markets into Asia (China, India, South Korea),diversified sources of finance (investments from China, India,Middle East), and remittances from Africans in diaspora.
- Many African countries spent decades gearing economic growth toattract more private capital to dispel the reputation of unreliable
investment destination.

GLOBAL FINANCIAL CRISIS
2.1. General Observations-The financial crisis came as African economies were turning
the corner.
- Effect of global financial crisis is already being felt;
e.g. – Tanzania downgraded growth forecast to 7.5% downfrom 7.8%. AfDB forecast average growth of 5% down from6.5%.
- However, the effect is to the Economies of African countries,
in general. African Banks are not suffering from credit crisis as
such since they are less exposed to the global credit system.

GLOBAL FINANCIAL CRISIS
2.2. Effect on African Economy and Trade:If factories and supermarkets close in U.S.A., Europe, etc., thiswill lead to less demand for goods from Africa and consequently,- Commodity prices fall, exports decline and many exporters losemarkets (e.g. markets for garments for South Africa, Mauritius,Kenya, Swaziland, etc.)- Foreign currency income slump due to reduced demand and lowprices.
- Factories may close down, jobs lost resulting to unemploymentincrease.
- The health of banking sectors will be affected and defaulters buildup.
- Economic slow down inevitable consequence.
- Balance of payments will be negatively affected.
- Importers would rush to hoard foreign currency leading to free
fall of local currency.

GLOBAL FINANCIAL CRISIS
2.3. Effect on Foreign Direct Investments- Fall of inward investments affecting important sectors such asagriculture, infrastructure development, health and education.
- Banks including World Bank (especially the commercial arm ofIFC) will fail to raise capital from the Stock Exchange or fromother banks to invest in Africa,- Reduced or reversed portfolio inflows as investors flee to safer
assets; Investors will sell securities causing local currencies todepreciate,

GLOBAL FINANCIAL CRISIS

2.3. Effect on Foreign Direct Investments- Roads, energy and utility projects which need foreign capitalwill be affected,- Money will be moved out of new projects to shore up balance
sheets,- Trade finance that is essential to export reliant countries may
dry up,- Planned issue of infrastructure bonds by African countries (e.g.
Kenya, Tanzania) in international markets will have to bedelayed as risk has become very high.

GLOBAL FINANCIAL CRISIS
2.4. Effect on Capital Markets/Equity Markets- Countries with liberalized capital accounts (Nigeria, S.
Africa and Kenya) will be the first to suffer due to thetendency for investors to withdraw to safer markets.
- Lower portfolio inflows and lower FDI inflows,- Reverse portfolio inflows as investors flee to safermarkets,- Equity markets may fall sharply,- Investors may sell securities and depreciate localcurrencies (already happening in Uganda, Zambia).

GLOBAL FINANCIAL CRISIS

2.5. Effect on Banking System- Decline of quality of Banks’ credit portfolios- Losses in other financial assets (e.g. those deposited withforeign correspondent banks),- Capital repatriation by private banks (which are usuallyforeign-owned).

GLOBAL FINANCIAL CRISIS
2.6. Effects on ODA- Due to recession, rich countries may be tempted to cut
down on ODA,
- Concessional loans may be reduced,- Transaction costs are likely to rise,- Roads, energy and utility projects will be affected,- Countries usually receiving larger share of ODA (Uganda,Ghana, Tanzania) likely to suffer.

GLOBAL FINANCIAL CRISIS
2.7. Effects on Tourism Industry- African tourism industry depends mainly on arrivals fromoverseas, As people’s savings decline, there is little
money to spend on luxury; some want to stay put to see
how the credit crisis will go,-Tourism industry, transport companies, tour operators,
hoteliers will feel the pinch (in Tanzania, reservations
from U.S.A., Europe cancelled. Some hotels suffered
60% of cancellations in October 2008!)

GLOBAL FINANCIAL CRISIS

2.8. Effect on remittances from Africans in diaspora:-Due to economic recession in USA, Europe, Japan,remittances from diaspora will decline.

GLOBAL FINANCIAL CRISIS
2.9. Effect on Foreign Reserves- Countries’ foreign reserves usually invested abroad will
most likely be affected.
- Banks with high foreign currency exposure will beaffected.

GLOBAL FINANCIAL CRISIS
2.10. Effect on Achievement of Millennium Development
Goals (MDGs)- Slow down of economic growth, foreign currency incomeslump, unemployment increase, reduced ODA,depreciation of local currency, etc.
will result in a setback in achieving the MDGs.

IMPLICATIONS IN TICAD IV
3.1. TICAD IV is considered a great success because of:- Enhanced focus on economic growth,- Focus on infrastructure and agricultural development,- Support, encouragement or incentivization for Japanese private
sector to look more seriously at trade and investment opportunities
in Africa- Funding support mechanisms which GOJ promised to put in place(for infrastructure development and private sector support,- Insurance cover against political risk to be extended by NEXI,- Doubling of ODA in 5 years,- Various interventions in Health, Education and support to achieve
MDGs.

IMPLICATIONS IN TICAD IV

3.2. The Global Financial Crisis endangers the implementationof all above commitments.

WHAT TO DO.

- Donor countries should honour their commitments on ODA toAfrica.
- International Financial Institutions (IMF, WB, AfDB, etc.) should
adopt remedial measures to mitigate the risks to African countries.
- Central Banks should exercise prudential regulation and supervisionand have early warning system.
- African Governments should exercise strict control of money
laundering and insider trading.

WHAT TO DO.
- Central Banks should regulate issue of foreign exchange tocompanies during this time of crisis.
- Non-bank financial sector such as Pension Funds should also beregulated.
- African countries should strengthen domestic and regional markets
and boost intra-african trade.
- It is important to promote domestic tourism.
- There is a need for new stability of the global financial system inwhich the voice of every nation, every continent is heard and theirconcerns taken into account.