Africa and the global financial crisis: Disaster or opportunity?

By Dr. Michael Meegan

ICROSS.ie

Africa has seen dramatic shifts over the past 20 years. It has always been a continent of dynamic change and turmoil. The last few weeks in International markets have shaken the Globe and the chain reaction will affect us all, especially the poorest.

Despite very real challenges there are signs of hope. International attention has focused on poverty, corruption poor economic growth, AIDS and famine.  Media has rarely highlighted other trends and patterns that show another side to Africa.  Markets are opening, new industries are emerging and global shifts are encouraging.  The impact of the global financial crisis on Africa has been cushioned by its limited holdings of stock share capital. Most essential credit lies with secure multi and bilateral structures like the World Bank and IMF, Governments and nonprofit institutions. 

Given the downturn in global markets, many investors will be reluctant to increase African investment or explore trade relationships in a climate of declining credit. The notable exception in Africa has been China, this too may change. China depends on exports but if demand slows as consumers spend less the slump will impact all of South East Asia. As part of the chain reaction Africa will have its own industries hurt as Westerners choose cheaper holiday destinations, import less and become more careful with spending.

While Africa has a long way to catch up with other areas like South America and India there are encouraging signs.  There are less people living in absolute poverty than thirty years ago though the gap is greater than ever.  There are less people seriously malnourished the twenty years ago but famines continue to be often man made like Darfur.

Many African countries like Tanzania and Kenya are seeing a slow increase in economic growth with those experiencing decline (like Somalia and Zimbabwe) being trapped in power traps and control feuds. Most of the Continent is moving, though rarely on its own terms towards integrated democracy. Western models of political management are not always ideal even in Europe, our own Governments struggle with local politics and corruption as well. The difference has always been scale and acceptance of open dishonesty at every level of society from the educational system to judiciary.

Global economy has dramatically shifted in the last decade; fast emerging economies like Thailand, Vietnam, South Korea, Malaysia and China are shifting global trade balances. With China exporting far more than it imports it is fast becoming one of the richest economies in the World. The impact on Africa has been the opening of new trading relationships with many countries turning away from often poor trade relationships with western trading blocks to more favorable partnerships with middle income economies. While the Global crisis will have negative effects on Growth in the short term, Western Governments have already begun restructuring in order to protect the financial systems from further collapse.

While there is likely to be significant cutbacks in spending, there is a realization that the world economy is truly global and interrelated. This recognition alone means that no trading block can thrive if another is in decline. The World stock exchanges are so closely linked that share prices followed mirror patterns throughout the past weeks. African Governments followed European central banks to protect their vulnerable economies Nigeria changed the interest rate from 10.25% to 9.75%, the liquidity rate from 40% to 30%, and cash reserve requirement from 4% to 2%. The policy adjustments are designed to pump N150 billion into the system and improve liquidity. Nigeria is seen as the country best prepared to manage the present crisis.

South Africa’s central bank governor Tito Mboweni warned that slowing economic growth linked to the financial crisis risked pushing tens of millions into poverty in Africa. The IMF warned on Wednesday that Sub-Saharan Africa would see slower growth this year and next as the region suffers from the global financial turmoil and a sharp spike in inflation pressures.( AFP)

Africa has made great strides over the last decade with improved Governance , widespread efforts for improved Governmental transparency and political reform.  While there are many challenges throughout the continent, the UNICEF indicators have improved over the past decade. Apart from   setbacks in life expectancy in many countries largely due to to HIV related deaths there are signs of improved health services, long term changes in infant mortality in the Sub Sahara as well as improved quality of life.

One of the key elements to the exponential success of South Americas rise out of poverty into middle income economies has been its economic diversity. South East Asia also moved from poverty in the 1950s and 60s into highly effective diversified markets by the early 1980s. The educational systems of countries like the Philippines provide useful examples of how poor countries can develop curricula that prepare their work force internationally. The Philippines realized how useful it would be to have children speaking English and like India they were outward looking in their strategic vision. Africa too has an opportunity of incorporating some of the lessons learnt from countries that have   moved from being low income to middle income economies. 

South African finance Minister Trevor Manuel said in an interview with Business Day newspaper that it will probably be a year or more before the impact is seen fully. The Ugandan Government called for increased regional trade to lessen dependency of overseas markets.

The African labor force has never been as prepared with a record number of University graduates. Investment while small has been growing. If African countries could follow examples like India and proactively nurture IT, computer and communication industries new opportunities may open up as they have in Asia.

Communication and transport have seen dramatic progress in the last five years with street hawkers, shepherd and farmers part of the mobile phone revolution. A traditional pastoralist mother can now phone her daughter miles away even though the family may have no electricity at home.  The mobile phone age has leap frogged communication into rural communities who could never have dreamt of phones five years ago.  Mobile phones and computers are increasingly affordable and with them new possibilities for commerce.

The Aid industry worth billions of dollars may be affected by a short term decline in funding as Governments curb new funding, the most vulnerable group in many African countries will be the new emerging middle class.  In countries like Uganda, Kenya, Nigeria and South Africa, this rapidly growing percent of the work force have helped strengthen thriving economies and seen the start of western style suburbs and spending habits.  These tax payers have made a major contribution in stabilizing especially urban growth in cities across Africa.

This new middle class will be nervous as they often work in industries most tied to International business like export, tourism, finance and insurance.

UNECA chief Abdoulie Janneh was reassuring taking an optimistic view, “It is frightening, but I am optimistic that the process of fixing the problems has begun, and at the end of the day, we hope this continent would be better off.”(Peter Heinlein, Voice of America, Addis Ababa, 10 October 2008).

Many economists agree that Africa will be among the least affected by the crisis, but it may slow down AID and development funding for a period while markets recover.

The setbacks and challenges range from endemic corruption and poor planning to pockets of poverty of those not part of the new growth. Many cities in Africa are surrounded by slums which can easily be ignited as we saw in Kenya and South Africa earlier this year.

As always it is the most vulnerable who are most at risk.  Countries like Kenya are beginning to take initiatives to tackle rising slum populations and improve opportunities and living conditions. Raila Odinga, Prime Minister of Kenya has launched an ambitious programme to replace the ghettos and confront the poverty trap that millions find themselves in.  If it works, it will be an important model of coping with urban slums in Africa, starting with Nairobi’s one million slum dwellers.

Another challenge is that the wealth of natural resources in Africa rarely filters down to the poor, even wealthy countries like Nigeria has areas of   poverty despite considerable oil exports.
 
How Africa uses its natural wealth depends on its ability to learn how to manage its very vulnerable economies. Some countries are better at  marketing than others, south Africa and Egypt have  highly successful overseas policies to promote investment and tourism, others like Sudan and Zimbabwe have further to go.

Nelson Mandela often said that the future of Africa lay in investing in the children, in education.  This human resource is perhaps the key to Africa’s future.  The Western World needs to have a donor shift; a change of model regarding Africa. Ultimately the last few weeks have been a wakeup call for the World.  A reminder that we are all fragile and our world can easily fall apart.  It will fall apart unless we are all working together, together as equal partners.  Western Governments might learn a little humility from the lessons of the Global melt down.  They might listen more and trust more, and   adopt greater real partnership.  The days of donor driven policies and agendas are at an end , the great wisdom of the  capitalist consumer model has been shown to be a dangerous illusion, and more honest transparent  strategies will be needed as the World begins  reforming and regrouping.

For Africa this is an exciting opportunity, a real chance to be more engaged as equals in a global economy realizing we are interdependent.  The rich may not always be rich and poor may not always be poor; the best we should be is a community of equals working towards a common future learning from mistakes and building on success.

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3 thoughts on “Africa and the global financial crisis: Disaster or opportunity?

  1. Pingback: China-Africa: Chinese investment in Africa : what are they saying. | Daniel's Blog

  2. Pingback: Chinese investment in Africa soars | Worldfocus

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