Over just one year, a series of events ranging from the Arab Spring to the European debt crisis and growing food insecurity, particularly in the Horn of Africa has focused attention on the fragility of the global economic system.
An awareness of risk, and risk management, is now increasingly viewed as a prerequisite for sustainable and inclusive growth. Indeed, inaction on these and other long-term risks such as climate change could not only derail the long-term sustainability of global economies but also weaken their capacity to meet future challenges.
This first edition of the Emerging Issues Series contains three articles: "Africa's Performance and Mid-term Prospects"; "The Impact of the US Credit Rating Downgrade and European Debt Crisis on Africa"; and "Managing Food Price Volatility for Improved Food Security in Africa."
The first article notes that while Africa is expected to continue on its recovery path, there are a number of internal and external factors which could adversely affect its performance. A key internal factor is the risk of disruption from social unrest. External risks include possible contagion from the uncertain global economic environment, as well as high fuel and food prices. On the other hand, increased engagement by African countries with China and India could help to cushion adverse effects from a downturn in OECD countries.
The second article emphasizes that trade is the main transmission channel through which Africa is likely to be affected by the current global economic uncertainty. Recession in OECD countries would lower Africa's exports and trade revenues. Other factors include higher costs of finance, shrinking fiscal space which can compromise fiscal, social and political stability and lower financial flows.
The third article notes that over the past five years we have entered into a new era of persistent food price volatility, especially for rice, wheat, maize and soybeans. The current famine in the Horn of Africa demonstrates Africa's acute vulnerability to this development. Food price volatility threatens not just the long-term welfare of African households, but also macroeconomic instability and increased political and social unrest.
African countries have applied a variety of strategies to tackling food price volatility, but with limited success. The more promising strategies include developing and using new risk management instruments; developing early warning mechanisms and contingency plans; supporting the provision of timely and accurate information on stock holdings and market prices, to guide market interventions; and improving local supply by addressing barriers across the entire value chain.
