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CoDA - Global Financial Crisis: Alternative Responses of Africa

Tunis, 28 November 2009

Global Financial Crisis :


Alternative Responses of Africa
Conference organized by
The Coalition for Dialogue for Africa (CoDA)

Tunis, 28 November 2009, African Development Bank

Yves Ekoué AMAÏZO, Ph. D., MBA


Director of The Afrology Think Tank
International Consultant, Finance and International Business Management
Email: yeamaizo@yahoo.com - Internet: www.afrology.com - www.amaizo.info -

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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

AGENDA

1. Economic Resilience and Development:


Asking the right questions
2. Impact of the 2008 Financial Crisis on Africa
3. Reactions of African authorities
4. Alternative Reponses: Purchasing power
and Economic Prosperity
5. The Way Forward: Accountable for Agile
and Participative Pacts

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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

Alternative conception of « Development »


Poverty :
Deprivation of basic rights,
Participative process in
Beyond generating economic prosperity Shared
Accumulation of leadership with
wealth and growth DEVELOPMENT AS AN women
of GDP or income
INCLUSIVE PROCESS
(Economic, social, cultural and political)

• BEYOND MARKET AND STATE ROLES: • BEYOND EFFICIENCY VERSUS EQUITY:


Both failed in the past Accountable to values and norms
Wealth creation (market) Legitimacy, democracy
Equity and distribution (State) Solidarity and Collective efficiency

DEVELOPMENT AS A
Concentration of Power over REGULATION PROCESS Unilateral diffusion of
Productive structures (Economic, social, cultural and political) a « dogmatic vision of
without local re-investment the markets » or the
« State » without
alternatives of reforms
Undermine the promotion of values
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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009
JOBLESS PEOPLE AT GLOBAL LEVEL
(Change in %) 2000-2009 (twice a year)
30

25

20

15

10

-5

-10
2000, 2000, 2001, 2001, 2002, 2002, 2003, 2003, 2004, 2004, 2005, 2005, 2006, 2006, 2006, 2006, 2007, 2007, 2008, 2008, 2009,
Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jun Jan Jul Jan Jul Jan Jul Jan Jul Jan

Source: IMF, “Protecting People, Promoting Jobs, September 2009, p. 6 (Data are estimations from G20 and 34 countries
(when statistics available).
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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009
AFRICA SUPPORTS THE GLOBAL ECONOMIC GROWTH,
1991-2014, (Real GDP annual change, in %)

AFRICA WORLD INDUSTRIALIZED COUNTRIES


7 6.5 6.3
5.7 6.1
6 5.4 6.7 5.3
4.9 5.2
5
5.1 5.2 4 4.5
4 4.9 4.5
3.1
3 2.3 3.6 3 3.1
2.8 1.7
GDP (in %)

2.9 3.2 3
2 2.4 2.6 2.7
2.4
1 1.9
1.7
1.4 1.3
0 0.6 -1.1

-1
-2
-3
-4 -3.4

1991-2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2014
Source: IMF, WEO, October 2009, p. 169 5
CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

1. Economic Resilience and


developpement:

Asking the right questions

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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

AFRICA AND THE 2008 FINANCIAL CRISIS :


Strategic Awareness, Reformulation of Objectives and Policy Differentiation

 Recurrent crises on the continent :


 Energy
 Food
 Structure of the economy (shared wealth creation)

 Is Africa unable to plan its future ?


 Sustainably dependent on Development Aid?
 Hostage of the market?
 No collective interest in economic sovereignty?
 No interest in improving African people’s daily and future
well-being?
 No collective discipline in responding to the 2008 financial
crisis and to structural crises?

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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

2. Impact of the
2008 Financial Crisis on Africa

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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009
AFRICA : GDP GROWTH PER REGIONS, 2000-2010
Annual change in % (ADB/OECD)
9

8.8

8
7.6 No economic
recession in Africa
7.1 7.3
7
7 6.8

6.4
6
6.1
6 6 5.7 5.7
6.1 5.7
5.9
5.7 5.5
5.4
5.2 5.4 5.5
5 5.2
5.1 4.7
4.9 4.6
4.8 5
4.2 4.5
4.6
4.2 4.2
4
4.1 4 3.5
3.4 3.6

2.8
3
AFRICA
SUB-SAHARAN AFRICA 2.8

SOUTHERN AFRICA
2 CENTRAL AFRICA
2.4

EASTERN AFRICA
NORTHERN AFRICA
1 WESTERN AFRICA
0.2

0
2000-2005 2006 2007 2008 2009 2010

Source: ADB & OECD, African Economic Outlook 2009. 9


CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009
THE CRISIS ERODES FISCAL AND BUDGET SPACES
Overall Fiscal Balance including Grants, 1997-2010, en % of GDP
20

20
18 M AGHREB
SUBSAHARAN AFRICA
16 WAEM U
CEM AC
SADC
14
COM ESA

12
10.5 10.2

10
8.5
8.3
8 6.8 9.1
8.1
6.5
6
6.8
5.8
4 3
4.8 2.7
2.7

3.2
2 2.2 2.2 1.7
1.3
0.1 1.8
0.2 1.2 1.1 0.4
0 0.6
-0.7 -1.9 -0.1
-1.9
-3 -2.4
-2 -1.9 -2.4
-2.6 -3.2 -2.6
-2.5 -2.2 -2.1 -2
-2.8 -2.7 -2.8 -3.4
-4 -3.4
-4.4

-4.7 -4.8 -4.8


-4.7
-6

-8
1997-2002 2003 2004 2005 2006 2007 2008 2009 2010
* Maghreb: For 2004: average of Central Government Fiscal Balance: 2000 to 2004
Source: IMF, REO, SSA: Weathering The Storm, Oct. 2009, p. 69. and IMF, REO, ME & CA, Oct. 2009, p. 50. 10
CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

THE CRISIS HITS DEPENDING ON THE ECONOMIC STRUCTURE


External Current Account including Grants, 1997-2010, (in % of GDP)
22
SubSaharan Africa 21.2
20
Oil Resource-Intensive Countries
18 Non-Oil Resource-Intensive Countries
16 Coastal Non-Resource-Intensive 14.2
Countries 14
14 Landlocked Non-Resource-Intensive
Countries
12

10
7.9
8 7.2 6.7
6.3
6

4 2.7
2.6 2.1
4 1.6
2 0.9
0.6
-0.7
0 1.1
-1.4 0.9
-1.7
-1.8 -0.5 -0.2
-2 -3.1 -3.2 -2.2
-2.6
-2.8
-4 -3.5
-4
-3.9 -5.9
-4.1 -4.3 -4.3
-6 -6.8
-5.8 -7.9
-5.9 -6.4
-8 -6.7 -7.8
-7.8
-8.3
-10 -8.8
-11.1
-12
1997- 2003 2004 2005 2006 2007 2008 2009 2010
2002
Source: IMF, REO, SSA, Weathering The Storm, Oct. 2009, p. 79. 11
CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

CONSEQUENCES OF 2008 FINANCIAL CRISIS SHIFTED AND


REDUCING AFRICA’S POLICY AND FISCAL SPACES

Vulnerability Anticipation
and and
Réactivity Resilience

External Internal
Resources Resources
CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

3. Reactions of African Authorities

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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009
SUB-SAHARAN AFRICA VERSUS MAGHREB REGIONS
(Real GDP Growth, annual change in %)
M AGHREB SUBSAHARAN AFRICA
7

6.9
6.2 6.3

5.4

5 5.2

4.8
4.1

4
4.1
3.9 3.9

Maghreb region more resilient 2.9

than Sub-Saharan Africa


2

1
1.1

0
2005 2006 2007 2008 2009 2010

*Source: IMF, REO, SSA: Weathering The Storm, Oct. 2009, p. 62. and IMF, REO, ME & CA, Oct. 2009, p. 44. 14
CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

BOTSWANA and SEYCHELLES (most hit) VERSUS UGANDA and MOROCCO (Less hit)
(Real GDP Growth, annual change in %)
Botswana Se yche lle s M orocco Uganda
11
10 10.8

9 8.3 8.4
9
8
7.5
7 7.8
7.3 7
6 6.3
6

5
5.6 4.1
5.1 5
4 4.4 4
3 3 3.2
2.7 2.9
2
1.6
1
0
-1
-2
-1.9
-3
-4
1. POLICY BEST PRACTICES (Morocco and Uganda)
-5
-6
2. AFRICA NEEDS TO CONVERGE
-7
-8
-9 -8.7

-10
-10.3
-11
2005 2006 2007 2008 2009 2010

*Source: IMF, REO, SSA: Weathering The Storm, Oct. 2009, p. 62. and IMF, REO, ME & CA, Oct. 2009, p. 44.
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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

CONVERGENCE AND MACROECONOMIC STABILITY


POLICY SPACE: PRIOR TO RECOVERY
Stability first, recovery later
1. Recovery of global trade
2. High Fiscal and budgetary deficit must be
1. Growth of GDP per capita > 2,25 %
reoriented into Productive structures
2. Inflation < 6%
3. Support of the Monetary policy
3. Volatility of exchange rates <6%
4. Effectiveness of policy responses including
4. Balance surplus
stimulus packages in support to Purchasing
• 4.1 Fiscal balance
power
• 4.2 Trade Balance
5. Confidence and Trust among Banks and
• 4.3 External Current Account
financial institutions
5. External Debt < 60 % PIB
6. Stability of Commodities’ prices
6. Debt service and grace period
7. Specific measures for vulnerable people
7. Additional concessional loans
8. Rejecting a Tax on financial transactions if
8. Limit to Capital flights
used to cover Toxics financial assets
9. International reserves
9. Organizing a new Watch system on future
10. Domestic Debt paid
crises (in reference to 1970, 1975, 1982,
11. Focused/Targeted subsidies
1991... Crises)
12. Regulation of the banking sector
10. Establishing a mechanism and process of
13. Diversification of strategic partners
Accountability
14. Taking advantages of global recovery (terms
11. Regulation and redistribution principles with a
of trade, global trade, commodities prices,
renewed State based on Public-private
capital flight, financial resources...)
partnership (Bottom-up approach)

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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

4. Alternative Reponses:
Purchasing Power and Economic Prosperity

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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

RESILIENT ECONOMIES IN AFRICA IN 2009


(Real GDP, annual % change)

 All Africa Economies are Resilient to the 2008 Financial Crisis


 Except 9 countries
1. Botswana (Diamond, GDP: -10.3 % - GDP/cap -11,4 %
2. Equatorial Guinea (Volatility of oil price, GDP: -5.4% - GDP/cap: -8.1%
3. Gabon (Oil prices and electoral campaign, GDP: -1% - GDP/cap: -2.4%
4. Lesotho (Lack of diversification, GDP:-1% - GDP/cap: -2.8%
5. Madagascar (Political crisis, GDP: -0.4% - GDP/cap: -3%
6. Namibia (Lack of diversification, GDP: -0.7% - GDP/cap: -1.6%
7. Seychelles (Contraction of Tourism, GDP: -8.7% - GDP/cap: -8.9%
8. South Africa (Food shortage and too much linked to global market, increasing
inequality and violence, GDP: -2.2% - GDP/cap: -3.2%
 Zimbabwe not on the List, GDP: 3.7% - GDP/cap: 3.7%

Source: IMF, REO, SSA Oct 09, p. 62 and MECA, Oct 09, p. 44
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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009
RESPONSES AND NON-RESPONSES OF AFRICAN AUTHORITIES
The “Triple A”: Anticipation, Agility et After-crisis
ANTICIPATION :
Stability First AGILITY :
Preserving Productive Structures AFTER-CRISIS
1. Integration in the budget Re-Launch the Economy on
(2009): Re-Launch the 1. Public-Private Strategic alternative basis
economy based on the Watch Comittee 1. Change of economic paradigm
consumption 2. Market and Value chain (Shared economic growth,
 Preserving Purchasing analysis Studies on sectors economic prosperity and
Power directly hit by the crisis contractual solidarism)
 Increasing revenues for 3. Support/Stimulus Plan for 2. Keeping economic fundamentals
economic agents Productive enterprises with under control
 Fiscal stimulus the objective to preserve 3. Insuring financing of SME and
2. Increasing Public Investment jobs Micro-economic activities
(infrastructure and 4. Alternative Markets Studies 4. Increasing public investment
Construction works) and Strategic diversification (infrastructure and regional
3. Acceleration of the pace of of partners integration)
disbursement of public 5. Support to the Banking 5. Plan MLT for most hit sectors
expenditure (National and sector in order to retrieve 6. Increasing Purchasing Power
international projects and Trust and confidence in the and salaries
programs) financial communauty 7. Institutionalization of coordination
4. Identification of main losses of 6. Specific/Target Measures and negotiation with private
resources (financial) for vulnerables people sector and civil society
7. Selected Tax holidays organizations (more participative
approaches)
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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

EFFECTS AND IMPACT OF THE 2008 FINANCIAL CRISIS


RESILIENCE NON-RESILIENCE
1. Limited dependency on demand volatility 1. Fall of Global Trade (-11,3 %) and contraction
(commodities) of global demand
2. Not/less hit by previous crises (energy/oil, 2. Fall of selected commodities’ prices usually
food) exported by Africa
3. Macro-economic fundamentals in green and 3. Fall of fiscal income/ Descreasing earnings
stables (GDP, Inflation, Budget deficit, trade 4. Scarcity of Non-debt generating resources and
surplus, surplus of external current account, increasing aggressive conditionalities
increasing reserves, debt service limited to resources (limited capital flow)
country’s affordability...) 5. Drying of the easy access to credit
4. 4th trimester 2008: Economy growth falling, 6. Fall of remittances of African leaving Abroad
significant decline and deficit of external (ALA)
revenues, tax revenues and external 7. Deterioration of main macro-economic
resources (FDI, IP, ALA (African leaving indicators
abroad, Diaspora), Grants, Technical 8. Weak level of productive structures, of financial
Assistance), Negative Trade balance, institutions and support institutions including on
domestic debt not paid, job destruction…) transactions
5. Resilience en 2009/2010: smooth recovery 9. Accountability process inexistent
6. Buffer Initiatives in support of purchasing 10. Regulation and redistribution principle of the
power State not transparent, nor efficient
7. Increasing role of State regulation and 11. Lost of both Policy and budget space with
redistribution relevant fiscal space and economic sovereignty
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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

Over production Crisis

Ad hoc or Short-term Strategic and systemic


Approaches Approaches

Pressure of the CRISIS OF THE SUSTAINABILITY OF Opportunities from


environnement PRODUCTIVE STRUCTURES the environnement

Too much time devoted to:


"managing" the State and its Frequent accidents in the
services, repairing externalities life cycle of products,
associated with a non- services and of productive
conducive environment structures in Africa

Production Crisis
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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

CUMULATIVE VULNERABILITIES:
FIXING FRAGILITIES

1. Purchasing power
2. Productive capacity
3. Technology content
4. Transaction and logistics
5. Regulation and business environment
6. Ownership enforcement and protection of “traditional land
ownership”
7. Administrative constraints and corruption
8. Access to finance (weak MLT Finance) and access to market
(non-tariff barriers and lack of quality infrastructure)
9. Domestic Debt balance at the expenses of the private sector
10. Benchmarking/Positioning with appropriate measurements
criteria (regional average)
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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009
SUB-SAHARAN AFRICA, 1997-2010
Growth of GDP per capita, (annual change in %)

6 10 years of GDP per capita: above average


 2009 = -0.9 % GDP per cap.
 Losses: 4 % of GDP per capita growth
5 Direct increase of Poverty
GDP per capita (growth in %)

4 5
4.8
4.1 4.2
3
3.1
2.9
2
1.8 1.9
1

0
-0.9
-1
1997-2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: A partir de IMF, REO, Subsaharan Africa. Weathering the Storm, October 2009, p. 64 23
CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

EROSION OF
SOCIAL CAPITAL

DE-
ECONOMIC GROWTH INDUSTRIALISATION
WITHOUT CANNOT BE THE
JOB CREATION ANSWER

AFRICA SHOULD DEFINE


ITS OWN STRATEGY

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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

PRODUCTIVE SECTOR: UNESCAPABLE SECTOR FOR PROSPERITY

Economic
Countries with No
variable of Social Safety
Policy Room
Adjustment in the Nets
(Budget constraints)
global Market

Debt
Generating
Productive Non-Debt
Generating
Resources sector Resources

Economic Growth
Countries with Economic
with Job
Policy Room Growth with Job
destruction/No
(budget initiatives) Creation
Job Creation
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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

BUILDING POLICY AND BUDGET SPACES:

Focusing on productive structures and


looking for economic resilience

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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

TOWARDS AN AGILE AFRICA

 Macro-economic policy in support to productive and


commercial structures and capacities
 Standing apart from policies moving against the
interests of African peoples
 Re-orienting resources towards economic
sovereignty, convergence and regional integration
 Diversifying strategic partners

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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

5. The Way Forward: Accountable


for Agile and Participative Pacts

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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

Revisit the Development paradigm:


Economic Transformation and sustainability

Providing Collective Attracting countries


Responses to Climate with savings surplus
Change towards regional
investment

Development of Productive
Structures and Decent Job Creation
(capacities, capabilities and smart partnership)

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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

AFTER 2009 :
CONTRACTUAL SOLIDARISM

Institutionalizing Public-Private Partnership including


civil society
 AFRICA: Losses of 3,5 % of Economic growth in 2009
 Afrocentricity: Moving towards an African economic
prosperity paradigm
 Favoring a responsible and coherent fiscal policy
 Pact to support purchasing power, shared wealth
creation and economic prosperity in Africa
 At all levels: intra-national, national, sectoral, sub-regional,
regional and continental
 Urgent and Short-term measures/initiatives (1-3 years)
 Medium and Long-term measures (3-7 et 10-25 ans)
 Anti-palliatives Mesures (anti-poverty trap)

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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

ALTERNATIVE PROPOSALS
2008 financial crisis as an opportunity to change
URGENT AND SHORT-TERM MEDIUM AND LONG-TERM
MEASURES MEASURES ANTI-PALLIATIVES
MEASURES
1. Adopt a new role of State as 1. Include the Pact of Purchasing
regulator Power in the on-going national
2. Limit debt service to 7% of budget 1. Request changes of the
national budget in order to 2. Direct African sovereign toward Objectives of the Millennium
gain some Policy space investment in productive Development Goals: from
3. Pay Domestic Debt as a structures and infrastructure poverty reduction to shared
priority as a support to 3. Operationalize the African wealth creation and decent jobs
SME/SMIs Monetary Fund, the African 2. Request that all international and
4. Reduce transaction costs and investment Bank, the African African institutions provide
main factors costs Central Bank and the African statistics on the whole Africa as a
5. Implement the African common currency continent
Productive Capacity initiative (decentralized areas) 3. Create counter-power institutions
approved by all African Heads 4. Prepare market studies for on strategic watch
of States and NEPAD in 2004 alternative and strategic 4. Increasing transparency on
6. Accelerate the convergence, diversification of partners information related to profits
the harmonization and the 5. Establish the Diaspora Bank generated in Africa
monetary discipline sub- 6. Re-launch African Economy 5. Create an Dispute settlement
regional using specific measures on structure related to « contractual
raising the consumption as part solidarism »
of the proximity economy 6. Boosting the agglomeration of
approach competencies in Africa
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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

Recovering economic sovereignty space:


Financing African economy with new priorities

NON-DEBT GENERATING NON-EXCESSIVE


RESOURCES CONDITIONALITIES
RESOURCES
(Trade surplus, Remittances of (Foreign Direct Investment, Portfolio
Diaspora, Grant, Diversified Investment, Domestic Debt be honored
Technical Assistance) in real Time)

Fiscal revenues based on Government


accountability and Responsibility
before African People (Tax payers)

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CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

To
ECONOMIC Industrialized
From RESILIENCE Economies
FRAGILITY

Dynamic
Productive
Structure
Diffusion of
Development of Technology
Productive
Capacities & Content +
Sector
Capabilities Social safety
(institutions & nets
accountability)
Decent Job
Competitive
Business environment Creation

From Least
Industrialized Government
To
Economies Commitment
AGILITY 33
CoDA - Global Financial Crisis: Alternative Responses of Africa
Tunis, 28 November 2009

Discussions ?

Thank you ! 34