New research commissioned by ONE found that investing $50 billion in a stimulus package for Africa would have real benefits both for Africa, and for the rest of the world, increasing global income by $250 billion over the next ten years. This research reinforces our main message to the G20 leaders ahead of their Summit in London next week — that they must include the poorest in any global solution to the current crisis, both because they will be hardest hit, and also because their economic growth can be part of the long term solution. The main findings of the research were:
- As a result of the global financial crisis, sub-Saharan Africa (SSA) will lose approximately $ 40 – 50 billion in 2008-2009.
- A $50 billion stimulus package for SSA will have positive effects on global trade, and would increase world GDP by 0.1% in 2009-2010. This is equivalent to an increase of $44 billion worldwide, and of this, approximately 15% or $ 6 billion benefits the world outside SSA.
- If the $ 50 billion was used for productive investment in SSA infrastructure, world income will increase by $ 250 billion in 10 years, with much of it in sub-Saharan Africa, and around $20 billion in the rest of the world.
- In 2009 alone, US and Chinese exports would increase by about $1.4 billion; German exports would increase by about $1.9 billion and UK exports by $ 0.7 billion.
- A $50 billion stimulus in SSA will offset more than 85% of the impact of global financial crisis on GDP growth in SSA in 2009 and 2010
- If this stimulus is spent on consumption like income transfers and social safety net programs like cash-for-work or school feeding programs families will feel less stretched by income losses, and incomes could increase by 4% in 2009 and a further 1% in 2010.
- If the stimulus goes to productive investment, in addition to the abovementioned short term effects, there is a long-run positive impact on the level of economic output in SSA, which remains about 1.5% higher. Further, the stimulus on infrastructure could have a further sustained increase in output by an additional 1%.
The research was carried out by Overseas Development Institute (ODI) and the National Institute of Economics and Social Research, ahead of the G20 Summit held in London on 2 April. The research serves as a backbone our policy asks that we’ve put forward to G20 leaders. In the next few days, we’ll be highlighting some of the key issues we’re hoping to see addressed during the G20 Summit in London next week.
-Mikiko Imai, ONE Policy Analyst
Today President Barack Obama is running an op-ed in 31 publications around the world including the Chicago Tribune, the Arab Times, and the China Morning Post just to name a few. This comes in anticipation of the G20 Summit in London next week and is an effort to ease global concerns about the financial crisis. In it, he asserts the US’s role as a global leader through the economic situation, and makes particular mention of the effects on the world’s poorest people.
Excerpt below, full op-ed here
We are living through a time of global economic challenges that cannot be met by half measures or the isolated efforts of any nation. Now, the leaders of the G-20 have a responsibility to take bold, comprehensive and coordinated action that not only jump-starts recovery, but launches a new era of economic engagement to prevent a crisis like this from ever happening again.
[…] we have an economic, security and moral obligation to extend a hand to countries and people who face the greatest risk. If we turn our backs on them, the suffering caused by this crisis will be enlarged, and our recovery will be delayed because markets for our goods will shrink further and more American jobs will be lost. The G-20 should quickly deploy resources to stabilize emerging markets, substantially boost the emergency capacity of the International Monetary Fund and help regional development banks accelerate lending. Meanwhile, America will support meaningful investments in food security that can help the poorest.
-Chris Scott
A World Bank report released on 8 March projects that global GDP will decline this year for the first time since World War II. The new report revised earlier estimates that emerging markets would sustain and grow the world economy even as the economies of developed countries contracted. The report was released ahead of the G20 finance ministers’ meeting to be held in London later this week. The report predicts that developing countries face a financial gap of $270-$700 billion caused by the global recession, and warns that even at the lower end of this range, international financial institutions such as the World Bank and IMF cannot by themselves currently cover the shortfall that includes mounting public and private debt and trade deficits.
The report also highlighted earlier analysis that poverty (people living below $1.25 per day) will increase by around 46 million people in 2009 (and by 53 million for those living below $2 per day), caused by adverse effects on employment and wages as well as slowing remittance flows. The crisis will be a major setback to the progress towards the Millennium Development Goals, as the long run consequences of the crisis may be more severe than those observed in the short run. For example, when poor households withdraw their children from school, there is a significant risk that they will not return once the crisis is over, or that they will not be able to recover the learning gaps resulting from the missed months or years of school attendance. The World Bank also warns that infant deaths in developing countries may be 200,000-400,000 per year higher on average between 2009 and the MDG target year of 2015 than they would have been in the absence of the crisis, according to its preliminary analysis.
The report concludes that stabilization, protecting longer-term growth and development, and protecting the vulnerable will be the main challenges for developing and emerging market countries, but pursuing these objectives requires significant resources which low income countries lack. As a response to the crisis, the World Bank is calling on developed nations to dedicate 0.7% of the money they spend on stimulus programmes (the G20’s announced fiscal stimulus collectively amounts to almost $1 trillion for 2008 and 2009 as of end of January, with a further $650 billion in 2010) toward a Vulnerability Fund to help developing countries absorb the shock of the financial crisis. Some G20 countries such as the UK have expressed interest in this idea, but to date, none of the countries has committed to it. The upcoming G20 finance ministers’ meeting will be an important moment to discuss this proposal.
-Mikiko Imai
