Impact of the Financial crisis on Africa : The unpredictable flows: remittances and aid

Abstract

The forecast of economic growth in Sub-Saharan Africa have repeatedly been revised downwards over the last 6 months. It has now reached 2% which is close to a third of what it was a year ago, implying negative growth in per capita terms. Considerable uncertainties remain in these forecasts. Oil- and mineral exporters are likely to take a severe first hit, as collapsing commodity prices translate to reduced export revenues and foreign direct investments are paralyzed. Two additional flows that connect Africa to the global economy, where impact is harder to predict, are aid and remittances. This note explores how these flows have reacted in OECD countries during previous episodes of severe financial crises. It is shown that if these past episodes serve as a guide to the present, then a considerable reduction is to be expected. Remittances would react immediately, while the impact on aid would be lagged but being more prolonged. Given that projection, the critical need for more of accountability in international aid commitments is discussed.