Alan Gelb And Ian Goldin
10 October 2001
Ripple effects after September 11 could kill 20000 children on the continent
Attacks on U.S.A Have Big Impact on Africa byAlan Gelb, Chief Economist for Africa Region and Ian Goldin, Director Development PolicyWorld BankIN TERMS of the effect impact on poverty, subSaharan Africa is likely to suffer more than any other region as a result of the attacks on the US. A.
Like the rest of the world, Africa was facing an uncertain economic outlook even before the attacks. Before September 11, the World Bank expected developing country growth to fall from 5,5% percent last year in 2000 to 2,9% percent this year in 2001 as a result of slowdowns in the US, Japan and Europe, and then rebound to 4,3% percent in 2002.
However, as the attacks will delay the rich countries' recovery, the growth of developing countries could be lower by 0,5 to 0,75 percentage points in 2002. Globally, this would condemn as many as 10-million more people to live in poverty next year.
On average, gross domestic product (GDP) a head has risen little in over the past year. Between 2-million and 3-million people will be stuck in poverty due to slower global growth and lower incomes, and another 2-million people may be condemned to living on less than $1 a day because of the effects of falling commodity prices.
The 300-million poor people in sub-Saharan Africa are especially vulnerable because their countries have weak or no safety nets and poor households have minimal savings.
The bank estimates globally that about 20000 to 40000 children under five years old could die from the economic consequences of the September 11 attack as poverty hampers the fight against malnutrition and various childhood diseases.
About half the additional child deaths are likely to be in Africa, so the attacks on the US USA are expected to lead to 10000-20000 more African children dying.
Attacks depress Commodity Prices further
Commodity prices were already forecast to fall 7,4% percent on average this year, and are now likely to fall even more as a result of reduced global demand. The effect of reduced global demand will differ between nations, but it seems certain many will suffer further decline in the price of commodity exports, adversely affecting living standards, investment and growth, debt sustainability, and macroeconomic stability.
Among the hardest-hit this year will be cotton exporters (Mali, Burkina Faso) and beverage exporters (such as Côte d'Ivoire, Ghana, Uganda and Ethiopia).
In the year ahead, gold, the traditional safe haven for many investors, may be an exception to the pattern of falling nonoil commodity prices and this could mute the effect impact of September11 on some countries, including SA. South Africa.
Oil prices spiked upwards sharply in 19992000 and have recently moderated with lower global demand, but the outlook is uncertain. But the outlook is extremely uncertain, due to uncertainties on regarding the balance between dampened demand because of due to slower world growth and possible risk premiums due to heightened concerns on regarding Gulf supplies. For African countries that import oil, high prices would exacerbate the terms of trade shocks due to falling commodity prices. High fuel and transport costs hit landlocked countries especially hard. The uncertainty makes planning especially difficult for both oil exporters and importers, and they need to set aside currency reserves beyond those in a stable environment.
Non-Traditional Exports and Foreign Investment May Also Be Hit
The effect impact will extend beyond commodities. "Nontraditional" exports and manufactures now account for more than a third of exports in countries such as SA, South Africa, Madagascar, Malawi, Mauritius, Uganda and Ghana.
Emerging industries in these countries must cope with reduced demand, higher insurance and security costs, and customs delays. Some non-traditional exports such as horticulture and flowers depend critically on timely air transport, and disruption and delays already have had immediate impacts.
Travel and tourism, which now represent almost 10% percent of Africa's merchandise exports, are likely to be disrupted. A sharp cutback in air travel and tourist activity would hit a number of African countries hard, including SA, South Africa, Mauritius, the Gambia, Madagascar, Kenya and Tanzania. The current climate will also make it difficult to proceed rapidly with planned airline privatisation.
The effect on foreign investment is uncertain but potentially severe. During the 1990s, foreign direct investment (FDI) in Africa tripled. Much went into mining and oil, but some was attracted by the privatization of major utilities and a growing component went to diversified production and services. The global crisis is likely to dampen these inflows, both because of heightened perceptions of risk and because the fall in commodity prices, other than gold and oil, renders many investments less attractive. Concerns regarding travel are expected to affect tourism impact negatively on tourism and also, if it translates into an extended slowdown in business travel, in lower foreign investments. Slowing global growth affects the whole of Africa through trade and also through reduced remittances. Reductions in migrant labour in the Gulf states may be expected to result in a drop in remittances to Eritrea and to some of the poorest Sahelian countries.
The events of September 11th and the associated heightened perceptions of risk also have been transmitted in emerging markets, by downward pressure on exchange rates, rising domestic interest rates and widening spreads in bond markets and bank lending.
For the better performing emerging markets, such as SA, South Africa, the decline in European and US base rates have somewhat mitigated the effect impact of widening international spreads. For African borrowers seen to be higher risk, the flight to quality however implies sharply higher costs of access to capital markets.
How Africa and the International Community Should Respond
Although Africa cannot shape these external trends, it can determine its response. Many of Africa's most serious problems remain internal, and only Africans can solve them. The New African Initiative identifies the key actions to be taken.
Nothing in the events of September 11 th reduces their relevance on the contrary, reforms which serve to reduce poverty through enhancing peace and security, good governance and sound macroeconomic policies are more vital than ever. Nations with stable governments and sound macroeconomic policies initiating vital reforms may be under pressure to slow the pace of reform, or even reverse course.
For these countries which have been growing faster than the average for Africa - the global crisis and slower trade growth raise the premium on maintaining competitiveness and nurturing a climate conducive to domestic and foreign investment.
The international community must also step up its support. Three actions should be prioritised to minimise the effect impact of recent events on Africa.
First, scale up foreign aid to poor countries that have demonstrated their ability to effectively use increased resources. Aid to Africa fell from $36 a person in 1990 to $20 today. Yet Africa has never been better able to absorb aid effectively, as a growing number of countries have put in place the policies and institutions which enhance aid effectiveness. Rich countries should not deprioritise Africa as they turn their attention to west Asia and the Middle East.
Second, reduce trade barriers. In times of slowdown, protectionist tendencies tend to increase. These, along with the growing costs of trade, resulting from heightened security, rising insurance premiums and rescheduling delays, hurt the weakest economies most.
Now more than ever, the global community needs to go ahead with trade talks, with the forthcoming summit devoted to using trade as a tool for poverty reduction and development.
Substantial trade liberalisation such as this would increase income in developing countries by $1,5-trillion over a decade.
Finally, act internationally on global issues. This includes confronting terrorism and internationalised crime and money laundering, but also combating communicable diseases like AIDS and malaria, building an equitable global trading system, safeguarding financial stability to prevent deep and sudden crises, and safeguarding the natural resources and environment on which so many poor people depend for their livelihoods.
Working together, African countries and the international community can minimise and eventually overcome the economic effect impact of the terrorist attacks on the US on poor people in Africa. In doing so, we are building a more inclusive and secure world.
Gelb is the chief economist for the African region while Goldin is the director of development policy at the World Bank.
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