On the overall outlook: Basically, the African financial sectors were spared the initial round of bank failures and financial sector turmoil because African banks weren't that integrated and weren't dealing in derivatives and CDS and those sort of things. But when it turned into a real world economic crisis, when there was recession in developed countries, that immediately had a major impact on African countries on four main channels -- FDI, remittances, commodity prices, and aid. In each of these channels, the effect on Africa was particularly devastating.

On FDI: Private capital flows have been rising and had a peak of $53 billion in 2007, and now they're declining through no fault of the Africans. There are still profitable investments, but because the appetite for risk has gone down, the portfolio inflows have started reversing, with stock and FDI investments falling. For instance, the Democratic Republic of Congo is looking at a $1.8 billion dollar decline. The reason this is particularly bad is because financial capital had been seen as a sign that Africa might finally turn the corner. After twenty or thirty years of slow growth, it might be poised to take off. But those hopes have been deflated.

On remittances: They had risen to something like $20 billion. Normally you think of remittances as countercyclical -- things go bad at home, and people send more money. But, this is the first crisis that has started in the remittance-sending countries. 75 percent of remittances come from United States and Western Europe, the epicenter of the crisis. It's a very bad situation. Many people rely on those remittances for basic things -- food, medicine.

On foreign aid: This is also an unknown -- foreign aid is threatened. Even though the donors have committed to aid, we have to keep in mind that they committed it when the global economy was booming. There's been some analysis of Norway, Sweden, and Finland. They experienced a crisis in the mid-1990s and -- remember, these are particularly aid-friendly countries -- in all of those, foreign aid dipped by 10 or 12 percent. It took five years for aid to resume.

These are all compounding each other -- private capital, remittances, and foreign aid. It's a triple whammy.

On oil and commodity prices: There's been a big effect on primary commodity prices. Many countries who relied on exports, those prices have come crashing down. I was optimistic that this time around as opposed to during previous crises, oil exporters like Nigeria, Gabon and Angola had saved money from the price spike. They used a reference barrel price of $57 or $58 and saved the money beyond then. So that meant there was a cushion of reserves to withstand the hit. But, in a country like Angola, the non-oil sector is non-existent. The public sector relies on oil revenues. So, the situation is bad.

On countries unable to provide stimulus: There are some African countries that started with serious macroeconomic imbalances. Ethiopia, which is where I am now, had a 60 percent inflation rate in July of last year. It was related to food and fuel price crises. Ghana had a deficit of 14 percent of GDP last year. These countries have much less room to maneuver. They can only stimulate using funds provided by foreign governments, aid, organizations like the World Bank. The World Bank has been frontloading our allocations of aid to something like 15 countries so they can sustain a modest fiscal deficit.

On growth pessimism: Africa had been averaging 5 percent growth over the last 10 years, and for the last 3 was averaging 6 percent. Now, in 2009, the most recent forecast is 1.7. The IMF and the World Bank have been practicing competitive pessimism. I think in October the Fund projected 3.5 percent, and then we came in with 2.7 percent, and then the Fund came in with 1.8 percent. It's a major revision down.

On what less growth means: Of course, 1.7 percent growth still looks good by European standards or U.S. standards. But that kind of shortfall in growth in Africa has devastating consequences. In Europe, during a recession, you may lose your job or maybe even your house. But when the economy rebounds, you get your job back. But, in low-income Africa, when there's this much of a drop in growth, you have permanent consequences. Children get pulled out of school, which has lifelong effects on learning and earnings. More infants die before their first birthday. Growth decelerations actually lead to increases in infant mortality. That's the really scary thing.

On possible increases in investment: One concern that I have is -- suppose the global economy rebounds. Say it's a U rather than a V or an L. And say private capital flows resume globally. What that doesn't tell us is whether people are going to have a more permanent loss of appetite for risk. We don't know that, and it's going to have huge consequences here. What if investment doesn't return to Africa for some time?

Because, I would think that it would make sense for people to see stable African markets as a good place for portfolio diversification, for investment. These markets are less correlated to the big financial markets. But, that doesn't sound like what they're doing. There's been a flight to safety. I don't know. That's one concern I have. When will capital start flowing to Africa again?

On infrastructure problems: One of the reasons Africans are suffering is that the Africans weren't diversified. Many African countries still have an infrastructure deficit. And the business climate isn't good for new industries. So, African governments can use this opportunity to accelerate those reforms that will leave Africa both better poised to benefit from the global recovery but also better placed to withstand the next recession. Because it's going to happen. The issue is whether you can make these economies more resilient. It's bread and butter development, it's nothing fancy. But they've had trouble making inroads until now. If countries like Zambia and Cameroon had been able to develop a business structure that was more conductive to many industries, they wouldn't be so badly hit.

We shouldn't just focus on macro problems, let's focus on some of the microeconomic problems. The analogy is with the U.S. in the 1970s. Then, there was a major growth slowdown, with stagflation and oil price shocks and lots of other things. During that time, the government undertook the deregulation of infrastructure, and so in the rebound in the 1980s, productivity growth really took off.

In small ways, at least what I'm seeing is that some countries not hit with a major crisis -- Tanzania, Rwanda, Burkina Faso -- they're proceeding with the reform agenda.

Shanta Devarajan is the chief economist of the World Bank's Africa region.