unctad.org | On the occasion of Africa Day
Statement by Mr. Petko Draganov, Deputy Secretary-General of UNCTAD
On the occasion of Africa Day

26 May 2009

"How best can Africa come out of the crisis?"

Distinguished Participants,
Ladies and Gentlemen:

Thank you very much for inviting UNCTAD to participate in today´s celebration of Africa. UNCTAD Secretary-General Supachai Panitchpakdi would have liked to be here in person, given the importance he has attached to UNCTAD´s work on Africa, but unfortunately he had a longstanding commitment to travel abroad.

As you know, UNCTAD provides assistance to African countries in many areas, ranging from trade facilitation, multilateral trade negotiations and service-sector development to debt management support, technology transfer and capacity-building for investment, enterprise development and insurance, to name just a few. In fact, on 30 June, a special Executive Session of the Trade and Development Board will be devoted to reviewing our activities in support of Africa, and will also consider the food security problem on the continent at a special high-level segment. I understand that the main documents prepared for that session are actually available here.

Over a year ago, when we were preparing for UNCTAD´s 12th Ministerial Conference in Accra, Ghana, the economic outlook for the continent was quite bright. Most sub-Saharan African countries had been exhibiting 6%-to-8% growth over the past decade, on a par with the rest of the developing world, except China and India. Even if we exclude the oil-producing countries, the rest of Africa enjoyed an average 5.5% GDP growth rate, a rate not seen since the mid-1970s. All of this resulted in some reduction in poverty, improvements in infrastructure, health and education, and the strengthening of the financial position of many African countries. With the rise in commodity prices that began in 2002, it became very common to see African countries with surpluses and strengthened financial balance sheets.

These economic success stories were not just a matter of luck. Rather, the establishment of a sound macroeconomic environment across Africa was an important factor, as was the favourable external market environment and increased external support in the form of ODA, debt relief and higher investment inflows. Even more importantly, the successes were the result of committed reforms, hard work and the skilful management of African economies by a new generation of leaders who had to make difficult policy choices.

Over the course of the past year, however, the continent´s growth prospects have slowed. The most immediate cause was the food and fuel crises, which weakened the balance of payments and accelerated inflation in many net food- and fuel-importing African countries. This was rapidly followed by the eruption of the financial crisis in developed countries, which initially appeared to have little impact on many African countries, especially those least integrated into the international financial system. This was at first seen as a blessing. But soon it became clear that the crisis was truly global in scope - and that as such, Africa was not immune. As the financial crisis began to affect the real economy, including trade, more and more countries succumbed to the contagion.

Trade and financial flows have been the two main transmission channels for spreading the crisis. Where trade is concerned, with the deepening recession and the decline in global demand, fewer and fewer African products are finding markets. Not surprisingly, export earnings are down in most developing countries overall, although in some African countries the rate of decline in trade flows is lower than in other parts of the developing world.

On the financial side, the most immediate impact of the crisis is being felt through declining trade credit. With the G20´s decision to provide $250 billion for trade finance, that impact will hopefully be softened. But UNCTAD is forecasting that FDI flows to developing countries - including Africa - are likely to fall this year by 20%-to-30%. This is especially unfortunate for Africa, where flows had recently been increasing rapidly, climbing from $29.5 billion in 2005 to about $72 billion last year, according to UNCTAD estimates.

The crisis is also likely to have a dramatic impact on ODA flows, on which Africa is heavily dependent. UNCTAD research has found that past financial crises were followed by a substantial decline in foreign aid, ranging from 10%-to-60%. And if ODA takes as long to recover from today´s turmoil as it did previously - say, in three to four years´ time, just when world markets are starting to pick up again - African developing countries could be caught short, lacking the resources needed to get back into exporting. Not only should current ODA pledges be kept, but they should be increased - substantially.

Another form of financial flows that has emerged as increasingly important for developing countries, including in Africa, is remittances, which go direct to the beneficiaries and contribute significantly to poverty reduction. Unfortunately, remittances are also expected to suffer badly from the crisis, with migrant workers losing jobs or taking a cut in earnings as developed countries and emerging markets tackle the recession.

Ladies and Gentlemen:

In responding to the crisis, it is encouraging that the G20 has recognized it as a global problem requiring inclusive global solutions. The attention paid by the G20 to the needs of the most vulnerable economies is equally heartening.

UNCTAD is fully engaged in the international efforts to find solutions. We believe there are lessons emerging from the crisis that must be taken into account in any exit strategy.

Foremost among these lessons is that last year´s food crisis was a wake-up call, reflecting an underlying crisis of development. More than 300 million people in Africa survive on just one meal a day. Many African countries that were net food exporters in the 1970s are now net food importers and dependent on food aid. They import some 25% of their food, with an annual food bill of $15 billion.

We at UNCTAD are concerned that the food crisis that hit Africa the hardest is being overshadowed by the current financial and economic crisis. We believe that tackling the food security problem in Africa will require concerted global efforts over the long term. The solutions must directly address the greatest challenges facing the continent, namely: declining agricultural productivity; declining investment (both public and private) in agriculture; declining ODA in agriculture; and lack of the public and institutional support needed to facilitate smallholders´ access to capital, seeds and extension services.

In addition, in the medium to long term, African countries - especially the net food importers and the more vulnerable economies - will have to adjust their agriculture and development policies to overcome past failures. Our view is that agricultural development is not just about inputs, but also involves a much more integrated approach. This includes land reform and investment in rural infrastructure, enhancing extension services, creating greater awareness and promoting farmers´ cooperatives.

Another lesson relates to energy security. We must not let down our guard just because the price of oil has come down. It would be a mistake to assume that prices will never again reach their peak of last year. For oil-exporting African countries, the price rise was a bonus. For their oil-importing counterparts, however, the $160-barrel was a major drain on hard-earned export earnings, moving many of them from surplus to deficit. It is therefore urgent to explore ways of generating energy from alternative and affordable sources, such as biofuels and wind, hydro and solar energy.

Yet another lesson is about the external debt burden of the African countries. UNCTAD research has found that for most of the least developed countries - 33 of which are in Africa - that burden is now an average 40% of gross national income. In half of the LDCs, it is between 50% and 100%. This is clearly unsustainable - and yet it can only get worse over the next few years, as countries struggle to pay for the countercyclical expansionary policies that offer the best way out of depression. The potential exists for a new debt crisis just as the world is emerging from the current downturn.

This is why UNCTAD believes that some bold measures are required at this stage, before matters get out of hand. Crisis prevention is a much-preferred option to crisis management. We are convinced that the measures taken in response to the 2005 tsunami and Hurricane Mitch can serve as a model here. Countries hard-hit by those disasters were allowed a temporary debt moratorium of one to three years. We cannot see any reason why a similar relief measure could not - and indeed should not - be applied today for African and other heavily indebted developing countries.

Distinguished Participants,

Regional integration serves as a stepping-stone for building markets and developing strong economies. In this regard Africa can perhaps learn a lesson from such regions as Asia and Europe, where 50%-to-60% of trade is conducted within the region. In Africa, by contrast, the figure is less than 10%. We at UNCTAD attach great importance to the role of regional integration, and have thus devoted our Economic Development in Africa Report 2009 to exploring how Africa can enhance its regional integration. The report will be launched on 25 June.

Earlier I referred to Africa´s remarkable recent growth. Much of this can be attributed to the global commodities boom, driven largely by Asian demand for raw materials. Although prices are lower than they were, we expect that once global recovery sets in, commodity prices will rise again in the foreseeable future, in keeping with the historical cycle. There are two lessons here: first, that regardless of commodity price trends, African countries must continue their efforts to diversify their economies; and second, that the windfall revenues from commodity booms should be used for investments that ensure long-term sustainable growth. This should include investment in productive capacity, infrastructure, rural development and education.

In closing, let me stress that despite the current downward trend and the challenges ahead, we at UNCTAD are confident that the African economies have the resilience needed to resume their growth path and achieve some if not all of the Millennium Development Goals.

UNCTAD will continue to provide support to this process through targeted technical assistance, research and policy advice and by serving as a forum to address the challenges facing African countries. Last year we signed an MoU with the African Union with a view to undertaking a number of joint activities, ranging from advising African countries on their accession to the WTO and investment policy formulation to customs automation, debt management, enterprise development and training of farmers engaged in commodity exports. At UNCTAD XII in Accra last year, we created a cluster of 13 UN organizations aimed at helping developing countries to build their trade and productive capacities, and we intend to use this cluster to coordinate joint activities in support of African countries.

Thank you.


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