Caleb M Fundanga: The effects of the crisis on Africa
Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the African
Economic Research Consortium Senior Policy Seminar (SPS XI), Lusaka, 6 April 2009.
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The Executive Director, African Economic Research Consortium;
Government and Central Bank Officials present;
Distinguished Participants;
Members of the Africa Economic Research Consortium;
Ladies and Gentlemen.
It is with great joy and gratitude that I welcome you all to Zambia and to this seminar. I wish
to extend a warm welcome to all the international participants. I hope you will have a good
stay in our beautiful and friendly city of Lusaka. I feel particularly honoured and grateful to
officiate at this important seminar organized by the Institution I am proud to be associated
with, the Africa Economic Research Consortium (AERC).
Chairperson, let me begin by thanking you and AERC for choosing Zambia to host this
important seminar. I am aware that since its establishment in 1988, the AERC has played a
pivotal role in developing and harnessing resources in Africa both informational and human
capital. Research, workshops and seminars such as this one have helped to strengthen the
capacity of undertaking policy-relevant research into the problems facing the management of
economies in sub-Saharan Africa. It has, through these interventions, undoubtedly
contributed to the positive strides African economies have scored in the last decade with
regard to economic governance and development.
AERC's devotion to advanced policy research and training in the field of economics in
Africahas built capacity in many institutions of economic management and academia in many
of our countries. Today, there is no major economic and financial institution in Africa that
does not boast of an AERC alumni. This could not have been possible if individual
institutions across Africa were to pursue training on their own accord. This goes to show how
important collaboration is in leveraging capabilities and realising the set objectives for African
countries.
Once again AERC is showing its valuable existence by bringing together a panel of experts
from all over the world to come and share ideas on how to address the causes of the global
financial crisis, short, medium and long term consequences for the global economy, the
impact of the crisis on African economies, implications for growth and development of the
continent's financial sector as well as policy options.
Ladies and Gentlemen, this seminar could not have come at a more opportune time than
when all our economies are faced with the challenges emanating from the impact of the
global financial and economic crisis. This seminar is unique in the sense that it has been
organised to specifically address the effects of the crisis. We feel particularly honoured to
host this important event.
Chairperson, the ongoing economic crisis is not of Africa's making but arose from advanced
economies like the United States of America and United Kingdom. However, there is a risk
that African countries could become the biggest casualties of a crisis they did not create. The
impact is already severe and has dealt a huge shock to our continent while posing a great
threat of reversal to the hard earned social and economic gains that most of our economies
had achieved in the recent past.
Ladies and Gentlemen, for more than a decade, most African countries had continued to
register unprecedented economic growth rates averaging 5% and above. We saw a rise in
income levels and a reduction in poverty among our peoples with improved education,
health, water and infrastructure development. The continent also experienced a surge in
investment flows in many sectors including mining, manufacturing, tourism, transport and
construction. Progress in governance and accountability had also been noted in most African
countries.
Mr Chairman, allow me without pre-empting the deliberations to mention some problems the
global financial crisis has created for most African economies. Commodity exporting
countries have experienced a decline in their export receipts. This has been due to the
decline in commodity prices reflecting the weak demand of such commodities arising from
the scaled down output in industrialised and emerging market countries. The declining export
earnings as well as changing investor sentiment toward investing in emerging markets, which
has been reflected in the reversal of investment flows, have been exerting pressure on the
exchange rates. The depreciation of the local currencies is creating additional inflationary
pressures while fiscal operations have not been spared as the tax revenue from export
earnings has been adversely affected.
Furthermore, the effects have quickly extended to the real economy, with serious
consequences on jobs. In particular, manufacturing has been adversely affected because of
its support to the primary industries on the continent. As extractive industries on the continent
face depressed commodity prices, the demand for manufactured goods will continue to
decline. This is expected to negatively affect Africa's manufacturing sector. The decline in the
demand for finished goods in the advanced economies is also adversely affecting exports of
our manufactured goods and thereby slowing down the manufacturing sector on our
continent. Tourism is also adversely affected as many foreign tourists postpone or
reschedule their visits to our continent as they grapple with severe economic conditions in
their home countries.
Chairperson, an additional adverse effect of the global financial crisis on our economies has
been on direct foreign investment s as many projects have either been suspended or
cancelled. This has been due to a failure by many investors to raise funds as a result of
unfavourable conditions in international financial markets. Other investors are pulling out
their interests from Africa in a bid to save money and improve their liquidity for working
capital purposes back home where liquidity has been a serious issue.
In Zambia, the effects of the global financial crisis have been generally felt in our mining
industry, securities market, and the external sector of the economy. The drop in copper
prices has led some mines closing while other have been placed on care and maintenance
with massive job losses while the mining subsectors and mining related industries have also
seen loss of jobs. The tourism industry is adversely affected with low occupancy rates while
the horticulture industry has also recorded losses due to low export volumes as result of low
demand and low commodity prices of vegetables and fresh flowers in European markets.
The exchange rate has also come under severe pressure as foreign exchange inflows
declined reflecting the deterioration in the balance of payments position. This is partly a
consequence of reduced earnings from copper exports arising from the fall in copper prices.
Further, the weakness of the local currency is a consequence of increased risk aversion to
emerging and developing economy financial assets.
Chairperson, the challenges arising from the global financial and economic crisis are huge
but surmountable. Major economies of the world are putting in place various stimulus
packages, which are expected to take the world economy out of the crisis. Without doubt,
these measures will benefit emerging and developing economies as well, provided that were
main committed to pursuing strong socio-economic policies. I urge all of us here present to
be part of the solution and contribute to the economic recovery and prosperity of this
continent. It is also important that we incorporate policy issues arising from this seminar in
our domestic policy processes and thereby enrich such processes by taking into
consideration regional perspectives.
The challenge going forward is how to maintain and sustain the economic gains and
macroeconomic stability in our countries. There is need to encourage diversification and
enhance competitiveness by increasing expenditure on infrastructure and social services.
We need to continue to encourage investment in our economies that will lead to a diversified
export base and a greater local value addition. For monetary authorities, there is need to
continue to closely monitor global developments and always stand ready to take appropriate
measures in the local financial markets to ensure that confidence in the financial systems is
maintained and any systemic risk is avoided. Such actions will facilitate maintenance of the
macroeconomic gains achieved thus far. This is a necessary ingredient for economic growth
and poverty alleviation, even against the unfolding adverse effects of the global financial
crisis.
Ladies and Gentlemen, let me end by urging all of us present here today to deliberate on
issues that will help us face the future in a much more confident way. Let us use this unique
opportunity to have a discourse on how to protect and sustain the recent achievements of
higher income levels and reduced poverty. African countries need to find ways and means of
coming up with a response framework to reverse the effects of the crisis. Our financial
systems regulatory frameworks should be enhanced to ensure that what has happened else
where does not visit us in the near future.
Thank you and I wish you successful deliberations.