State Bailouts in an Era of Financial Crisis ... - Global Trade Alert

Figure 5: Net private capital flows to developing‐country regions
Source: Economic Commission for Africa.
General responses from global governments to the crisis
To minimise these negative effects, several actions have been taken by governments of both
developed and developing countries. These include tariff changes, trade remedy measures, fiscal
stimulus packages, subsidies, sector – and firm – specific bailouts aimed at protecting employment,
encourage local production, lessen liquidity constraints and promote consumer confidence. One of
the most acceptable and widely used remedial measures is the fiscal stimulus and sector‐ and firmspecific
bailouts. Alas, the questions raised by proposed stimulus – whether to apply it, what sort it
should be, how much it should cost, and when it should begin and end – are far trickier to answer
than problems involving dead batteries. And, remarkably enough, history and economic research
offer no conclusive answers.
While there are headline support figures from developed countries and some emerging economies
in Asia and Latin America, not very much has been done in sub‐Saharan African (SSA) countries,
despite the biting effects of the crisis. South Africa and Nigeria are the only notable examples of SSA
countries that have provided major support to specific sectors aimed at managing the risks induced
by the crisis. For instance, South Africa has provided fiscal stimulus to sectors considered to be of
high importance to the economy. In addition, bailouts in the form of subsidised loans worth R644
million have been extended to 11 firms, with another 49 applications being processed. In Nigeria,
the banking sector has been bailed out with over $4 million.
Research questions to be addressed in this paper
One thing that remains unknown is the determinants of action and inaction on the part of
governments of SSA countries relating to their interventionary role in mitigating with the effects of
the crisis. Little is also known about the mode of intervention, risks emanating from such
interventions and strategies for mitigation, and policy action for ensuring smooth disengagements
without jeopardising the interests of private actors and tax payers’ money.
This research is aimed at examining the nature, pattern and types of bailout and fiscal stimulus in
SSA countries and most importantly at identifying the risks emanating from such interventions and
suggesting mode of disengagement at the end of the crisis. The specific objectives of this paper are
in line with the following research questions:
(i) What are the nature, trends, pattern and determinants of fiscal stimulus and bailouts in SSA visà‐vis
those initiated and implemented in the United States and Europe
(ii) How do bailouts in SSA compare to those in other developing regions of the world
(iii) What are the effects of state fiscal stimulus and bailouts on sectoral and aggregate economic
performance in SSA
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