Working Paper 96 - Impact of the Global Economic and Financial Crisis on Africa

Prior to July 2008 and despite the subprimecrisis, Africa recorded excellent economicgrowth. The drivers of strong economicgrowth included macroeconomicreforms, a world economic situation thatwas characterized by high demand forcommodities, rising capital inflows andChina’s strong growth. Analysts were optimisticabout the capacity of the continentand the world economy to generate thenecessary resources for development andpoverty reduction.Despite early signs of a pending downturnsince 2007, few could have anticipated acrisis of the magnitude observed since thesecond half of 2008. Today, the world economyis officially in stagnation, industrializedcountries are in recession and Africafaces serious uncertainties over its growthand development prospects. The currentfinancial and economic crisis has affectedAfrica’s growth drivers. Demand for andprices of commodities are falling, capitalinflows are declining and promises ofincreased aid have not materialized yet.China’s growth has slowed. The only goodnews is the easing in inflationary pressures.Although the immediate impact of the crisiswere contained, the medium-term effectsare likely to be greater.This paper presents a preliminary assessmentof the impact of the financial crisis onAfrican economies thus far. The paper firstexplains the impact on the banking sectorand why Africa has not been directly affectedby the banking crisis (Section 2). Itgoes on to discuss the direct impact of thecrisis on financial markets, foreign exchangemarkets and commodity markets(Section 3). Section 4 shows that the negativeeffects will mainly be felt through tradeand capital flows, including foreign directinvestment and migrant remittances.Section 5 discusses the prospects forpublic finance, inflation and growth. A sectoralanalysis is also carried out, highlightingthe impact on tourism and mining.Section 6 concludes by a discussion onsome policies that could mitigate the impactof the crisis.

Financial innovation and money demand in sub-Saharan Africa

Financial innovations are considered important factors in the development of the financial sector and economic growth. Following the 2007/2008 financial crisis, their effects, both positive and negative, have become an issue of considerable debate, especially in industrialised countries. While a number of empirical studies on the effects of financial innovation have been undertaken for industrialised countries, few developing country studies exist. This is surprising, given the remarkable growth of financial innovation in some developing economies. In particular, mobile money (M-PESA), a technology first developed in Kenya that enables individuals to transfer, deposit and save money using cell phone technology without necessarily having a bank account, has quickly spread to several developing countries and is expected to continue to expand. This thesis contributes to the limited literature by undertaking a panel study of the effect of financial innovation on money demand in Sub-Saharan Africa as well as a case study of the home of mobile money, Kenya. A third study considers how mobile money has influenced household consumption behaviour using data from Uganda. In chapter two, the effect of financial innovation on money demand in Sub-Saharan Africa is investigated in 34 countries for the period 1980 to 2013 using dynamic panel data estimation techniques. Money demand is found to be relatively stable in the region with financial innovation significant with a negative sign. While the coefficients on the other relevant variables are significant with expected signs, the size of the coefficients change with the inclusion of financial innovation. This suggests that exclusion of financial innovation may have led to biased or misleading estimates of the money demand equation in previous studies, and that financial innovation plays a significant role in explaining money demand in Sub-Saharan Africa. Given the potential importance of this form of financial innovation, a case study of the impact of mobile money on money demand in Kenya is undertaken in chapter three. Using time series analysis on a quarterly basis for the period 2000–2014, the results suggest a positive relationship between mobile money and money demand. The Kenyan demand for money is found to be stable when mobile money is taken into consideration. These results are robust even with the use of alternative measures of mobile money and imply that this particular financial innovation has important implications for the effectiveness of monetary policy in Kenya and possibly in other similar countries. While mobile money has been found to have important macroeconomic effects, there is little research on how it affects the real economy. Chapter four investigates the way this type of financial innovation can alter household behaviour, particularly household consumption patterns. Since data was not available for Kenya, Uganda was used as a case study. It is one of the countries that has been successful in mobile money usage since its introduction in 2009. The Financial Inclusion Tracker Surveys (FITS) household level survey conducted in 2012 also provides valuable data. Using ordinary least squares and seemingly unrelated regression estimation techniques, the results suggest that mobile money users spend less on food, a necessity, and more on luxury goods, than non-users. In addition, mobile money users are more likely to receive more remittances, and as a result, they are able to spend more efficiently on particular commodities than non-users. This suggests that mobile money could potentially improve individuals' livelihoods. Finally, chapter five concludes with a discussion of the summary of the findings from the thesis, the policy implications, and the suggestions for future research

Monitoring Mechanisms And Task Participation: The Mediating Effect Of Personal Responsibility

This study investigates the mediating role of personal responsibility on the link between monitoring mechanisms and task participation. Design/methodology/approach – The proposed hypotheses were tested on a sample of local government employees in Uganda. Using Analysis of Moment Structures (AMOS), research from the monitoring mechanisms, personal responsibility and task participation literatures was analyzed and integrated to put forth a new theoretical lens, represented by the structural equation model developed in this paper that helps to explain local governments’ employee task participation. Findings – Development of the model reveals a relationship between monitoring mechanisms, personal responsibility and task participation among local government employees. This model also highlights the importance of personal responsibility in mediating the relationship between monitoring mechanisms and task participation. Originality/value – The study findings enrich organizational behavior studies by confirming that monitoring mechanisms and personal responsibility are key antecedents of task participation. Secondly, the study is one of the pioneers to demonstrate that the presence of personal responsibility helps to extend the positive effects monitoring mechanisms have on task participation

Capital Inflows and Macroeconomic Policy in Sub-Saharan Africa

Little has been written about capital flows to sub-Saharan Africa (SSA), largely because of the flows' small size and data limitations. In this working paper, Louis Kasekende, executive director for policy and research at the Bank of Uganda; Damoni Kitabire, commissioner for the Macroeconomic Policy Department for the Ministry of Finance and Economic Planning in Kampala; and Matthew Martin, director of external finance for Africa, explore these inflows, noting that although they are small compared to those into other countries, they are in proportion to the size of the recipient economies. The authors examine the scale and composition of capital inflows, their causes and sustainability, their effect on macroeconomic stability, and their responsiveness to policy measures for six SSA nations: Kenya, South Africa, Tanzania, Uganda, Zambia, and Zimbabwe. Exhibit 5 shows the change in the composition of private capital flows to SSA nations. Most of the changes are in the same direction as in other developing regions, but the magnitude of the changes in other regions is generally greater than in SSA countries. The absolute size of these changes are, however, still small. For example, portfolio investment was no more than U.S.$120 million per year and foreign direct investment was around U.S.$1.6 billion during the period 1990 to 1993, with foreign direct investment lower in real terms than in the early 1980s. Overall, SSA inflow trends were similar to those in other small countries, with short-term bank loans and foreign direct investment playing a greater role than medium- to long-term loans and portfolio inflows. Kasekende, Kitabire, and Martin identify a number of determinants of recent capital inflows, which they classify as push (external) or pull (internal) factors.

Private sector climate resilient agriculture co-investment reaches over 237,000 farmers in East Africa

Farming communities in Eastern Africa face immense challenges in the second decade of the 21st century, including a continuing population increase, rising food prices, declining soil fertility and crop yields, limited access to land, poor market access and high inflation (Kristjanson et al. 2012). Climate change is adding another challenge on top of these others. Africa’s climate is warmer than it was 100 years ago, and model-based projections of future greenhouse gas induced climate change for the continent project that this warming will continue, and in most scenarios, accelerate (Christensen et al. 2007)

Small and medium-sized enterprise champions promoting climate resilient agriculture in Eastern Africa

Sub-Saharan Africa (SSA) is one of the poorest regions in the world, where an estimated 386 million people (48% of the region’s total population) live on less than USD 1.25 per day (Ravallion 2012). This group of people are considered the most vulnerable to climate change as they possess minimum financial and technical resources to cope with climate change (Wheeler and von Braun 2013). In SSA, meteorological disasters, especially droughts and floods, are the most common forms of natural disasters. As such, drought and floods represent 70% of economic losses related to natural hazards in SSA (Bhavnani et al. 2008). Because of climate change, the frequency and intensity of floods and droughts are projected to increase in the future (Bernstein et al. 2008) which negatively affects agriculture