Africa, trade, and the crisis: a stimulus package for Africa

Research at the London‐based Overseas Development Institute and the National Institute of Economic and Social Research shows that the road to African recovery depends on the size and focus of the stimulus. Debt relief would be helpful but have no direct effect on demand and hence growth and poverty. If the stimulus is spent to cushion the impact on the vulnerable it will have short‐term positive impact on growth as it helps smooth income losses. In case the emphasis is on productive investment it will have a short and long‐term impact by preserving the pre‐crisis growth prospects.

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Key global trade governance priorities for Sub‐Saharan Africa

The legitimacy of the G20 leaders will depend on the extent to which they can integrate the interests of non‐G20 members. They should collaborate with Africa to create the conditions for swift recovery and even

higher growth. Focus could be on increasing policy transparency and stability and enhancing policy credibility that in turn will make the region attractive to domestic and foreign investors. They should ensure

the Doha Round is completed in a timely manner with the interests of African countries properly reflected

in the final agreement. A related priority is to conclude the EPA negotiations in a manner that eases the integration of African countries in the international trading system.

Finally in case the stimulus finances investment in infrastructure, Africa would see growth in productivity that can nurture long‐term growth beyond pre‐crisis growth potential. The same research shows that growth in Africa will in turn contribute to swift worldwide recovery, especially in countries with significant trade links with Africa such as Europe and China. African countries need a stimulus package to mitigate the

contagion of these internationally originated problems. The stimulus shall have properly integrated sets of

trade, monetary, and fiscal measures. It could provide assistance to facilitate economic adjustment and nurture investments in human and physical capital, such as to minimise long‐run costs. The stimulus should

support appropriate safety nets for those most vulnerable and most exposed to the crisis; it should be consistent with long term sustainable levels of indebtedness. The private sector and particularly the Small

and Medium Enterprises (SMEs) that will be creating wealth necessary for poverty reduction should receive

particular attention. Unfortunately, African countries cannot internally mobilize the necessary resources.

Various proposals have been floated recently. One example by the World Bank is to devote 0.7% of the stimulus of developed countries to a “Vulnerability Fund for Africa.” This Fund could finance projects that would help mitigate the consequences of the crisis, including safety nets programs, investments in innovation, technological upgrading, and infrastructures that can provide the foundation for future growth.

The Vulnerability Fund for Africa would also undertake those actions that governments would have undertaken with funds diverted from current reform program. Effective implementation Aid for Trade would assist African countries affected by the financial crisis to increase exports of goods and services, to integrate into the multilateral trading system, and to benefit from liberalised trade and increased market access. It would help distribute the global benefits more equitably. So far most of the suggestions have been coming from outside Africa. The G20 leaders could facilitate collaborative efforts aimed at bringing forward a common African response to the crisis through an Africa‐led stimulus package that is properly funded, free from un‐necessary bureaucracy, and not diverting resources from existing programs.

by Dominique Njinkeu

* Dominique Njinkeu is the Executive Director of the International Lawyers and Economist Against Poverty (ILEAP) in Toronto