Keynote Address by Abdoulie Janneh United Nations Under-Secretary-General and Executive Secretary of Economic Commission for Africa

It is a great pleasure and honor for me to be here with you to participate in the UNESCO Future Forum on "The Global Financial and Economic Crisis: What Impact on Multilateralism and UNESCO?" This crisis which is still evolving poses a challenge of unprecedented magnitude that will spare no part of the world. I therefore salute the Director-General of UNESCO, Mr. Koichïro Matsuura, for organizing this timely forum and for inviting me to deliver an address on the implications for Africa and the way forward. This laudable initiative by the Director General is congruous with the on going efforts of both the United Nations Secretary General Mr. Ban Ki Moon and the current president of the UN General Assembly to increase global and inclusive multilateral dialogue to find solutions to this crisis.

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To begin my short address, I want to briefly discuss the causes of the crisis and its impact on Africa and outline some key lessons learnt so far. Then, I will examine policy responses at the national and international levels and conclude with the role of the Economic Commission for Africa (ECA) working in collaboration with our partners in assisting African countries to mitigate the impact of the crisis on their economies.

What triggered the current crisis?

The global economic and financial crisis will go down in history as the worst crisis since the 1930s. Although it was triggered by events in the US housing market, it was caused by a constellation of three factors. First, expansionary monetary policy in the major advanced countries, since 2001 and the resulting low interest rates led to an overinvestment in the housing market and inflated asset prices. The collapse of the US housing market and the associated decline in housing prices precipitated the crisis.

Second, financial innovation and the improper pricing of risk in developed countries encouraged financial institutions to take on excessive risks which increased their exposure to the housing market and made them extremely vulnerable.

Third, the accumulation of unsustainable current account imbalances in developed economies increased the vulnerability of these countries to shocks. Indeed, excessive savings in emerging markets funded excessive consumption in rich countries resulting in an increase in global imbalances. Because these imbalances were unsustainable they increased the risk of a disorderly correction thereby threatening the stability of the global financial system with negative consequences for global output.

Consequences for Africa

Even though the current crisis originated in advanced countries, its impact is already being felt in all developing countries and Africa in particular. For example, wealth losses have been observed in several countries since the onset of the crisis. As at 13th February 2009, the Johannesburg Stock Exchange (JSE) lost 37.59% of its value on a year-on-year basis and the Nairobi Stock Exchange 20-Share Index lost 18% of its value in one month (from January 20th to February 19th , 2009).

There has also been a tightening of credit in domestic financial markets and an increase in risk premiums facing African countries in global capital markets. Commodity prices, which many African countries depend on for foreign exchange, have also taken a big hit. For instance, the average annual spot prices for crude oil and groundnut oil fell by 55% and 37%, respectively, from 2008 to 2009. Other sources of development finance such as foreign direct investment, tourism, workers remittances and exports are being threatened since the onset of the crisis. The drying up of these sources of finance will considerably curtail the ability of African countries to boost growth and achieve the MDGs. The potential impact of these shortfalls on fiscal revenue will significantly reduce African countries' capacity to fund their recurrent cost budgets relating to essential services and programmes. Preliminary estimates indicate that the crisis will reduce growth in Africa in 2009 by between I to 4 percentage points depending on the assumptions made.

There is growing concern that pressures to recapitalize the banking sector and provide support for ailing industries may, but we hope not, force developed countries to cut down on ODA flows to Africa. Given the importance of ODA in financing social infrastructure, this will be a major setback for the region. Since African countries have significantly benefited from aid-funded social protection programmes, reduction in aid could affect the poor considerably and thus increase their vulnerability. According to the World Bank and IMF, up to 100 million people, the majority in Africa, are at risk of falling into poverty.

Lessons learnt from the crisis?

Before turning to the policy responses, permit me to stress some key lessons from the current crisis that are important to bear in mind as we seek solutions to the crisis. One of the lessons is the importance of the role of the state in ensuring a smooth functioning of the market economy. While the market mechanism remains a vital framework for economic activities, governments must provide appropriate oversight and also stand ready to intervene in areas, such as financial markets, where there is evidence of market failure. In this regard, there is the need for pragmatism in the design and implementation of economic policies because the key challenges facing most economies today require a combination of market and government interventions.

The current crisis reminds us that global problems require comprehensive, coordinated and timely responses. Because of the growing interdependence of economies domestic problems are no longer confined to national borders and so a multilateral approach must be increasingly adopted to solve these problems. It is comforting to note that leaders of the advanced countries are beginning to take this fact seriously and are reaching out to more developing countries to find a solution to the current crisis. In this regard, I welcome the decision to invite more developing countries including a representative delegation from Africa to the next 020 Summit III London.

Another important lesson from the current crisis is that developed countries are not immune to financial crises and disruptions arising from imperfections of the market economy. In the past, global surveillance activities focused heavily on developing country financial systems based on the premise that developed countries had strong financial systems that are capable of withstanding shocks. The current crisis has debunked this myth and refocused attention on the need for better supervision and regulation of domestic as well as global financial systems. It has also led to caIls for a new international financial architecture, an issue to which I will return later.

What should be done?

The crisis facing us today is unprecedented in terms of its magnitude and potential impact. It therefore requires bold and swift responses to contain and reduce its negative effects on African economies. As African leaders have emphasized in various fora, although the crisis was caused by events beyond their shores and control, concerted actions are needed at the national and international levels in order to find an effective solution.

Let me begin with national actions that are needed to minimize the negative effects of the crisis on the African region. First, there is the need to strengthen economic policy management as well as deepen reforms. This is not only crucial for minimizing the effects of the financial crisis on African economies, but also for creating a sound basis for sustainable growth. I am happy to report that, in the Communique that was issued in Tunis at the end of the African Union/AFDBIUNECA supported High-Level Forum on the Financial Crisis, African Ministers and Governors of Central Banks undertook to stay the course and continue deepening economic reforms so as to provide a strong and sustained basis for growth. This includes, inter alia, more effective mobilization of domestic revenues and deepening of African capital markets for a more robust mobilization of local savings and financial integration. Evidence abounds from other regions that economic progress receives a significant boost from having a stronger domestic resource base rather than relying mainly on external support. The Economic Commission for Africa and the African Union Commission plan to put this item on the agenda as the key theme of the next AU/ECA Conference of African Ministers of Finance and Planning to be held in Egypt early June this year.

Second, the financial crisis underscores the importance of developing a sound regulatory and supervisory framework for the financial sector. In this regard, African countries need to undertake comprehensive review of their regulatory and supervisory regimes with the view of identifying areas that require further strengthening. There is also a need to ensure that all sectors of the financial industry are subjected to proper regulation and oversight. Improving structures of governance and accountability is also crucially important.

Third, since the poor are likely to bear disproportionately the brunt of the financial crisis, appropriate forms of social protection are required to cushion the effect of the crisis on vulnerable segments of our society particularly women and children. This will require increased expenditure on education, health and infrastructure, and therefore increased levels of short-term financing to bridge the resulting financial gaps in national budgets.

Although domestic actions are critical to minimizing the effects of the crisis on Africa, complementary actions are also needed at the international level given the interconnected nature of the global economy. One area that requires urgent action at the international level is the reform of the international financial architecture. African countries do not have adequate representation in decision-making organs of international institutions set up to regulate the functioning of the international financial system. There is the need for Africa to have more voice in these institutions. This is particularly important given that recent crises have shown that African countries are heavily affected by actions and events emanating from activities of developed countries.

Another issue that needs to be addressed as part of the reform of the international financial architecture is how to improve crisis prevention. In the past international financial institutions tend to put more emphasis on policy reforms at the expense of crisis prevention and performance outcomes. It is important that more tools be developed to increase multilateral surveillance of policies in areas such as exchange rate policies, banking systems and capital account movements. There is also a need to improve our understanding of the link between financial systems and the real economy.

Official development assistance will also be needed to enable African countries cushion the effects of the crisis on their economies. This is important given the limited fiscal space that most countries in the region currently have as a result of the crisis. In this regard, it is important that our developed partners fulfill their commitment to double aid flows to Africa by 2010. This point was amongst the keys recommendations made in the joint OECD Secretariat and UNECA report of the 2009 Mutual Review of Development Effectiveness, presented to NEPAD's Heads of States on 31 January 2009 in Addis Ababa. The report's main objectives are to gauge how far commitments made by African and its development partners have delivered, whether they have produced the desired results and what are now the key future policy priorities.

In seeking solutions to the crisis, we must resist the temptation to resort to trade protectionism. In this regard, there is urgent need to conclude the Doha Development Round with a significant focus on the development dimension. This will boost global trade and provide impetus for recovery.

Contribution and Role of ECA

Most of the discussions on policy responses to the current global financial crisis have thus far focused on national and international actions. The regional and sub-regional dimensions are completely missing. Yet they are of immense importance, especially in light of the limited capacity of many African countries. Against this background, the ECA, the African Union Commission (AUC) and the African Development Bank (AfDB) have taken several actions to assist African countries in dealing with the effects of the crisis. We jointly prepared the supporting documentation for the high level forum held in Tunis on 12 November 2008 I earlier on referred to. The Communiqué issued at the end of the meeting outlines measures to be taken at the national, regional, and international levels to mitigate the effect of the crisis on African economies. We will continue this joint research and analytical work to underpin Africa's participation in the forthcoming G20 Summit.

ECA will continue to provide technical assistance to enable African Countries to build capacity for policy design and implementation including deepening of current reforms. We will strengthen our advisory role by helping African countries improve capacity to harness potential natural resource revenue, and prudently using such resources for sustainable growth and development ECA will also help African countries reduce their vulnerability to external shocks by providing support in the development of productive capacities. This will enable them to diversify their exports and production, thus increasing their resilience to external shocks.

To conclude, I would like to stress that the current crisis threatens to erode the recent gains made by African countries on the economic and social fronts. The international community should therefore scale-up assistance to African countries so that they can sustain these gains. If we fail to rise up to the challenge facing Africa at this critical moment, we will be missing an opportunity to make the 21st century an African century.

I thank you