African economies did not escape the impact of the financial crisis on the global economy. In the wake of reduced global growth, African Development Bank estimates project GDP growth in the continent to decline to about 2.8 percent in 2009, less than half of the 5.7 percent expected before the crisis.
While the effects of the world financial crisis on Africa continue to evolve, African financial sectors have proven remarkably resilient in withstanding the effects of the crisis, benefiting from high capitalization and liquidity levels.
The early effects of the crisis were evident in reduced capital inflows, with major markets such as Nigeria and South Africa experiencing larger net outflows than inflows. The higher net outflows increased demand for the dollar and other hard currencies, leading to the depreciation of several African currencies. Remittances are estimated to have declined between 4.5 percent and 8 percent during 2009.
While some measure of recovery has since taken place, equity markets have seen substantial falls: the Merrill Lynch Africa Lions Index, which accounts for 15 African countries, experienced a 70 percent drop in the March-December 2008 period.
Moreover, the credit crunch and increased risk aversion around the world have led to severe difficulties in both financing trade and obtaining long-term funding in international markets at reasonable cost, as shown by the considerable widening of bond spreads since June 2007.
Several African countries have postponed plans to tap international markets for financing their growth plans and capital investments.
In response to the need for international coordination in response to the crisis, African countries established the Committee of 10 (C-10) at a meeting of African Ministers of Finance and Governors of Central Banks in Tunis in November 2008, under the auspices of the African Development Bank (AfDB) Group, in collaboration with the African Union Commission (AUC) and the UN Economic Commission for Africa (UNECA).
The C10’s role is to monitor the impact of the crisis on Africa, assess regional and international responses, and to make proposals to help African economies mitigate its effects.