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The ATrium DiAlogues
Partners in development: the role of development finance institutions during the current economic
crisis and the views of our clients
DEG Symposium in Cologne on 16 September 2009
Introduction
The effects of the financial and economic crisis on emerging markets and developing countries
The negative effects of the current financial and economic crisis have now spread far beyond just the western industrialized nations.
The recession is now having a global impact. This is because the international markets for goods, services and financial products are
closely interlinked; many African and Asian countries are dependent on global market prices. After a short delay, the crisis has now
reached the emerging markets and developing countries. At the end of June, the World Bank reduced its growth forecast for the poorer
nations to just 1.2 percent. In 2008, this figure stood at 5.9 percent. Added to this, the global economic crisis and the fragility of the
financial markets are having a particularly drastic effect on flows of private capital into the emerging markets and developing countries.
According to World Bank estimates, this is likely to be around 363 billion dollars this year – less than a third of 2007’s record high of
1.2 trillion dollars.
Worsening conditions for financing
The extent to which poorer nations suffer from the consequences of the crisis is dependent on how closely they are integrated into the
world economy.
The financial markets in the emerging nations and the advanced developing countries are being hit particularly hard. According to the
UN, stock market prices between January and October 2008 crashed by around 40 percent in these countries. Hardest hit were Russia,
with losses of 70.9 percent, and Ukraine, with 77.5 percent. One of the general problems has been that small and medium-sized
enterprises in emerging markets are currently finding it extremely difficult to get credit from the banks. In addition to this, many
entrepreneurs took up loans in euros or dollars before the crisis which they now can no longer repay because of the devaluation of their
own currencies. Economists estimate that, in the emerging markets, loans of around 2 to 3 trillion dollars will be due in 2009.
Decline of foreign trade
To add to the considerably worsened financing conditions, the falling demand for export goods such as electronic products, clothing,
games and toys is also hitting the emerging markets and the advanced developing countries hard. China has already witnessed the
closure of thousands of factories. Around 20 million migrant workers have lost their jobs, according to official estimates. Similar trends
are being observed in African countries such as the Democratic Republic of the Congo, Zambia and South Africa – all of which are
dependent on the export of raw materials. The global decline in demand has led to cutbacks in production and company closures here too.
Reduced investment from abroad
Developing markets are also experiencing a huge fall-off in the level of migrant workers’ remittances. According to the World Bank,
these stood at around 305 billion dollars in 2008. However, because of the economic downturn, the quantity of money flowing from
migrant workers in the industrial nations back to their home countries has dwindled significantly. According to figures from the Inter-
American Development Bank (IDB), transfers from migrants in Brazil (Latin America) and the Caribbean have already fallen by up to 11
percent this year. This development is particularly deleterious to countries where money transfers from abroad make up a large part of
the gross domestic product; for instance, Tajikistan, Moldova and Honduras.
Private development finance institutions in demand
To cope with the current bottlenecks in financing, emerging economies and developing countries are relying more than ever on the
support of private development financers. Because it is right now that these economies need capital to ensure basic social services, to
realise development investments and to stabilise the finance sector. Which specific measures are suitable and what kinds of
contributions private development financers and their partners can make is the subject of this year’s specialist conference ‘Partners in
development – the role of development finance institutions during the current economic crisis and the views of our clients’ organised by
DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH.
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