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28.11.2008 Business & Finance

Financial Crisis Can Undermine Progress In Africa - WB


A looming drop in world trade can 'set developing countries back for many years' and erase recent gains in development, Mr Danny Leipziger, Vice President of the Poverty Reduction and Economic Management Network at the World Bank (WB), said last Wednesday.

He said, 'The financial crisis has already affected trade and can undermine progress achieved in Africa and elsewhere in the last six years. Low-income countries, weakened by high food and fuel prices over the last year, have little to fall back on in terms of sheltering the vulnerable.'

Mr Leipziger, who is also a Senior World Bank official, warned in a statement to the Ghana News Agency in Accra ahead of a United Nations International Conference in Doha, Qatar, that, 'With a global downturn, we are in for a rough patch'.

Global recession looms as heads of state are set to meet at the International Conference on Financing for Development in Doha, Qatar, from November 29 to December 2.

The conference is a follow-up to a 2002 meeting in Monterrey, Mexico, often seen as a turning point in development co-operation by the international community.

The WB Group announced measures to step up assistance to developing countries, which include increasing IBRD lending to as much as $100 billion over the next three years and doubling International Finance Co-operation's (IFC) trade finance program to $3 billion.

The statement said the Group is also working to speed up grants and long-term, interest-free loans to the world's 78 poorest countries, 39 of which are in Africa.About $42 billion in funds are available through the International Development Association, the World Bank's fund for those countries, over a three-year period.

According to the WB, world trade has indeed been an engine of the world economy, with developing countries posting nearly eight per cent growth and attracting a record of $1 trillion in net private capital flows in 2007.

Global trade is more than the mere exchange of goods and services. It includes exchanging knowledge, know-how, and ideas more generally, Mr Leipziger stated.

The global economy is forecast to grow by only one percent, with developing country growth expected to fall to 4.5 percent from a previously projected 6.5 percent.

The World Bank estimates each one percent drop in growth can trap another 20 million people in poverty.'At the moment what's constraining the world trade is not only falling global demand but lack of trade finance,' says Mr Leipziger. 'You can't get enough financing to ship your goods. So this is something that needs to be solved, and the quicker the better.'

'The main thing is to try and have this recession be as short as possible,' he said; adding with most developed countries expected to slip into recession, fears linger that some will move to raise trade barriers.

'The multilateral trading system is no doubt being tested,' says Leipziger. A case in point is the subsidies and other forms of domestic support to various industries that developed countries are contemplating.

Mr Leipziger said keeping markets open is key. Governments should strive to use the crisis as an opportunity to invest in trade-related infrastructure, implement measures to facilitate trade, and maintain trade finance credit lines and guarantees, especially through their export credit agencies.