Sub-Saharan Africa was largely insulated from the initial stages of the financial crisis as the majority of the countries in the region are de-linked from the international financial markets. However, with the worsening of the global financial and economic crisis, the region as a whole has now been exposed to the downturn, and growth estimates have been continually lowered from 5 percent in 2008 to 1.7 percent in April 2009.
In addition to financial shocks, Sub-Saharan Africa is also reeling from the food and fuel price shocks of 2007-08. Many countries in the region are already making unsatisfactory progress in their efforts to achieve the Millennium Development Goals; this “triple jeopardy” has thrown millions of households into poverty and will further hinder progress.
- Although Sub-Saharan Africa is the least integrated region, it could actually be the worst hit. With the worsening of the global financial crisis, the region as a whole has now been exposed to the downturn and given that Africa is already the most conflict-ridden continent in the world, an exacerbation of resource scarcity could increase conflict across the region.
- The impact of the financial crisis is likely to vary between and within countries. At a country level, the crisis will manifest itself according to levels of openness, aid and remittance dependency, financial integration, economic and trade structures, and institutions. The impact of the crisis at a local level is dependent upon household wealth, demographics, education attainments and location.
- The combination of decreases in real wages, unemployment and decelerating remittances are putting a severe strain on poor households who are affected by the increased cost of living. Some household coping strategies may be detrimental to children, causing long-term and possibly intergenerational consequences.
- The risks are accentuated in fragile states because of their inherent vulnerability to exogenous shocks such as financial crisis and their exceptionally poor performance in all the core aspects of state functioning. In fragile states, violence, criminality public unrest stemming from increased unemployment, rising costs of living, increased government repressiveness and the inability of governments to provide basic goods and services could lead to a further eroding of confidence in already weak governments. This could instigate a vicious cycle of instability leading to public unrest, fuelling further instability and impeding economic growth.
- Step up aid commitments and coordination: The worst possible set of actions would involve donors just pulling out. Close collaboration between donors and national governments should continue but this will only be effective if donors harmonise amongst themselves rather than providing conflicting goals and aims to national governments.
- Social budgeting and protection: Fragile countries are likely to have less fiscal space to expand government spending on social protection, especially at a time when this type of spending is needed most by the poorest. In fact, past experience shows that it is often the types of public spending that tend to benefit non-poor people which are protected at such times, with the brunt of the adjustment borne by the poor. Whilst interventions in social welfare areas are important, they are unsustainable if there is no investment in governance or security to support local populations.
- Invest in research including monitoring and evaluation systems: Reliable and up-to-date data is crucial for assessing the impacts and the effectiveness of policy responses. Investment is needed in early warning poverty and vulnerability systems for the rapid release of indicators, particularly for fragile countries. Further in-depth monitoring is needed to assess trends in the values of trade, migrants? remittances, overseas development assistance budgets and foreign reserve levels in fragile states.
- Support businesses and promote diversification: It is important to support smaller business, particularly in rural areas suffering as a result of reduced demand for exports. The development of linkages to the global economy to reduce the marginalisation of many African countries is also important.
- Focus on flash-points but do not ignore regional dynamics: Fragility and conflict do not respect borders. The flash-points identified in this report are regional and it is therefore important to look beyond the national and to consider robust and carefully considered integrated regional approaches. Regional approaches thus far have consisted of collections of national approaches – and some of this needs to stay – but in the Horn of Africa in particular, the issue of boundaries and the non-enforcement of boundaries by governments means that a regional approach is required to deal with this national „leakage?. Donors should therefore think about focusing on specific regions and work with regional organisations and institutions where donor interventions could have a multiplier effect.
- Target vulnerable groups such as women and children who are adversely affected by shocks: Programs to invest in children to protect them during periods of crisis provide strong social and economic returns. The gains will come from better human development outcomes and lifetime earnings reclaimed from the individual, as well as from enhanced long-term growth benefits. Investments in early childhood development programmes generate high returns to families and individuals plus cost savings and benefits for governments and society in the long-run.
- Prevention is far cheaper than post-conflict reconstruction: The losses in human development during economic decelerations outweigh any gains made during economic acceleration. In addition, the costs of preventing a war are cheaper than intervening afterwards.