Economic turmoil could have impact on Africa

Ngozi Okonjo-Iweala says progress in poorer countries remains fragile Keystone

The managing director of the World Bank is concerned about the effects the slowing-down of the American economy and higher food prices will have on Africa.

Ngozi Okonjo-Iweala, the former Nigerian foreign and finance minister, talks to swissinfo on the sidelines of the World Economic Forum’s annual meeting in Davos.

swissinfo: With stockmarkets in turmoil and given the state of the American economy, are you worried about the impact on developing nations?

Ngozi Okonjo-Iweala: Yes, I am worried. I sincerely hope that for the sake of the poorer countries there will not be a full-fledged recession, even though we are seeing what is quite a sharp downturn now. Poorer countries are not doing so badly yet. They have improved the management of their economies. They have learnt from the crises of the past, like the East Asian financial crisis.

Many of them do not have current account deficits, they have savings and reserves, they are open to trade, they are adopting technologies, so they are doing the right thing. They are a little more cushioned. But it is fragile, particularly in the African countries.

swissinfo: Might a possible recession in the United States have an impact on Africa?

N.O-I.: Yes, if it results in less demand for African exports, which may be the case. Exports of commodities will be impacted.

It may be a little more insulated than the past, because we also have demand from China and India. But I’m afraid that if the US recession impacts negatively on China, then that will also affect the demand for commodities from Africa.

swissinfo: Petrol prices have gone through the roof, as have those of foodstuffs. What is the cost for Africa?

N.O.-I.: That is a very, very severe problem. There are about 17 poor countries – most of them in Africa – who import significant amounts of food, so the impact of rising food prices on them is quite significant. Wheat, rice, vegetable oil: countries like Togo, Gambia, Eritrea and so on, Senegal even, are at risk from this. So the issue is, what can we do? We don’t have very good safety nets for Africa, whereas richer countries have better safety nets when there is a problem. So we need to start thinking now about how we can support some of these countries to avoid crises of hunger.

In the longer term, we need to improve the productivity of African agriculture. There is enough land, but we need to improve yields so that we can feed ourselves.

swissinfo: Are you concerned that that food prices will make people take to the streets and protest, perhaps even violently?

N. O.-I.: Yes. You can see that China is trying to put some price controls on meat and other products… Can you imagine in African countries that are already vulnerable to hunger, if prices go up? Yes, it may result in that. It may also result in people voting with their feet. Not just by going into the street, but they will look for other countries to go to where they can eat.

swissinfo: How do you explain these price increases for food items?

N.O.-I.: There are several supply side constraints. You’ve got the fact that there is an increased demand for biofuels. Some food crops, maize and so on, which would be used for food, are going into ethanol and production of other energy sources.

You’ve got droughts that have happened in several countries, wiping out their crops. And you’ve got increases in the prices of fertiliser. These are all reasons behind the supply shortage. Therefore, if we can lift some of these constraints, then we will be able to increase production.

swissinfo-interview: Pierre-François Besson in Davos

Key facts

The annual WEF meeting takes place in Davos from January 23–27.
Those attending include 27 heads of state or government, 113 ministers, the heads of several international organisations, 1,370 business leaders and 340 representatives from civil society (religion, culture and NGOs).
Six of the seven Swiss cabinet members will also be there. The exception is the newly elected Eveline Widmer-Schlumpf.
Decision makers will discuss the economy, geopolitics, ecology, business, technology and society at this year’s event, which has as its theme “The power of collaborative innovation”.

Ngozi Okonjo-Iweala

Ngozi Okonjo-Iweala was both the first woman to be finance minister and foreign minister of Nigeria, serving in the government from 2003 to 2006.

She was educated at Harvard University and earned her PhD in regional economics and development from the Massachusetts Institute of Technology.

Prior to her ministerial career in Nigeria, Okonjo-Iweala was vice-president and corporate secretary of the World Bank Group.

In October 2005, she led the Nigerian team that struck a deal with the Paris Club, a group of creditors, to pay a portion of Nigeria’s external debt ($12 billion) in exchange for an $18 billion debt write-off. Prior to the partial debt payment and write-off, Nigeria spent roughly $1 billion every year on debt servicing, without making a dent in the principal owed.

She was appointed managing director of the World Bank last year, taking up her post on December 1.