Monetary Policy, Financial Markets and Food and Water Security : An AfDB Perspective

K. MLAMBOOffice of the Chief

Economist

Outline

1.Africa and the Financial Crisis

2.Financing Challenges in ensuring Food and Water Security

3.Role of the AfDB

Monetary Policy, Financial Markets and Food and Water Security : An AfDB Perspective

Real GDP Growth (%)

Source: OECD Development Centre / African Development Bank. 2008

Africa not decouple: the crisis is taking a toll on Africa’s growth prospects

April 08 projections

Nov 08 projections Feb 09 projections May 09 projections

Impact of the financial and economic crisis in Africa

Commodity prices and exports

Exchange rates

RemittancesForeign aid

Foreign investment

Channels of transmission of the economic and financial crisis:

Source: OECD Development Centre / African Development Bank

Cost of the crisis:• Oil exporters the most hit.• More integrated economies

also strongly affected• Low-income / non-oil

exporting countries are less affected. because:-- beverages (cocoa. tea. coffee) less affected by decline in global incomes.-- less integration to the world economy

- 2 to- 3 %

Zero to – 1.9 %

- 3.1 to – 23 %

Increased growth between 2008-09

Growth differential 2008 - 2009

Impact of the financial and economic crisis in Africa

Countries behind on progress toward the MDGs

Source: OECD Development Centre / African Development Bank. 2008

• Decelerating growth will push more people into poverty, hunger and malnutrition

•Government revenues expected to decline

•Falling capital flows; remittances and foreign exchange reserves

•Diverting focus and resources towards crisis response to the detriment of long term development programmes

Implications of the crisis for food and water security

Severe macroeconomic impact (February forecast)

* Excluding Zimbabwe** Estimations for 20078and predictions for 2009/10

Source: OECD Development Centre / African Development Bank. 2008

Inflation

Current Account

Fiscal balance

• The crisis will cause fiscal balances to deteriorate significantly across the continent.

• Limit the capacity of countries to import food and invest in water

Financing Infrastructure

+ Mobilisation of finance remains a challenge

Current investment: $2.5 billion per year 80% from donors80% from donors

MDGs: $4.5 billion/year (Water - $1.2 billion, Sanitation - $3.4 billion)

+ $10 billion per year required to support the 7% GDP growth rate for MDG attainment

X 2Financing must at least double

International Community should honour their commitments at Monterrey and Gleneagles

Key Developments

2000 - Africa Water Vision 2025 - $20bn per annum

2003 - Camdessus Panel – recommended a doubling of investments in water and sanitation

2005 - G8 Glenagles Summit – responded by a doubling of commitments to water in Africa by 2010

2005 - Gurria Task Force – broadening scope towards financing agriculture and local financing

2007 - World Water Council – Recommendations for National and Local Action Plans

Ongoing – WSP – national plans in 16 countries to get African countries on track, including focused national finance requirements on water and sanitation

Low levels of involvement of the private sector in provision and management of water (WWC):

65-70 funded from domestic public sources10-15% International donors10-15% international private sector5% local private sector

low capacity in public sector to design bankable project proposals

Existence of a large number of transboundary water basins, but very few jointly managed

Financing Challenges in the Water Sector

Financing Infrastructure: AfDB is rising to the challenges in the water sector

ADB Group Financing - Water & Sanitation Sector(Amounts in US$ million)

0

50

100

150

200

250

300

350

400

450

500

1967 - 2002 * 2003 ** 2004 2005 2006 2007

Years

Am

ount

s in

US$

Mill

ion

* These figures include neither hydropower nor irrigation projects

** These figures include a Sector PBL for Morocco amounting to $263 million

AfDB has increased sector financing fivefold in the last 5 years

AfDB continues to mobilize financing through RWSSI and AWF

4.64.3

5.4

Total

Phase IIIPhase IIPhase I

RWSSI Target: $14.2bnPhase 1 financing fell short by 30%

REVISED TARGET:$17.393bn

$600m Target

Euro 236m 2008-2010Operational Plan

RWSSI was launched in 2003 to extend safe water and basic coverage to 80% of the rural dwellers by 2015To date 20 operations have been approved totalling US$ 2.2 billionTotal rural population served with safe water supply through RWSSI increased from 1.2 million in 2003 to 3.3 million in 2008.Population served with improved water sanitation increased from 600,000 to 1.7 million

The Rural Water Supply and Sanitation Initiative (RWSSI

The Multi-Donor Water Partnership Programme (MDWPP)Established to operationalise the 2000 Integrated Water Resources Management Facility (IWRMF)

Funds pledged as at end December 2008 were US$13 million

By end September 2008 approx. US$5.7 million had been disbursed.

The programme is also financing several studies and assessments of IWRM planning in 12 east African countries

African Water Facility (AWF) Initiative hosted by the AfDB on behalf of the African Council of Ministers (AMCOW) established in the context of the Africa Water vision and the MDGs.

Objective is to create an enabling environment to attract investments in the water sector and strengthen water resource management

Operational areas of focus:> National and Trans-boundary water resource management> Capital investments

AfDB and partners now implementing the 2009-11 operation programme for a total amount of US$193.4 million

In 2008, 11 countries benefitted from 14 projects amounting to US$27.9 million

The Financial Crisis and Food securityIssues

Vulnerable agriculture and food security situation:

Relatively inefficient markets: despite the general decline in global food prices in the second half of 2008, prices in Africa did not fall by the same margin.

Low public spending on agriculture (6-7%)

ODA on rural development & food security still too low

Response: • short-term actions to reduce food poverty and malnutrition; and,• medium to long-term actions to ensure sustainable food security

Bank Short Term ResponsesThe short-term programme amounting to US$727 million seeks to reduce food poverty and malnutrition by:

• Freeing funds by realigning existing agriculture portfolios and restructuring non-agriculture projects.

• The funds to be used to purchase agricultural inputs

• Providing budget support in order to stabilise prices

• Boosting the use of high yield New Rice for Africa (NERICA) seeds in suitable projects

• Allocating specific resources from the Bank’s Surplus Account to African countries, particularly fragile states.

Medium to Long-term ResponsesThe Bank has also put aside resources amounting to US$2.2 billion from its regular instruments to ensure medium to long-term food security.

The programme will run for 3 years and will target:

• Transformation and revitalisation of the agricultural sector by adopting/adapting new technologies

• Improving rural infrastructure (rural access roads)

• Operationalising the African Fertiliser Financing Mechanism

• Increasing NERICA rice production

• Capacity building, policy dialogue and trade promotion

• Scaling up private sector operations for food security; and,

• Promoting agriculture research