Africa comes to terms with global financial crisis

Projections indicate that Africa will be gravely affected by the global financial crisis.

September 17, 2009 12:02 am | Updated 12:02 am IST

One can’t open a newspaper or tune into the 6 o’clock news these days without being met with another development with regard to the global financial crisis. Two years ago, there was another crisis inundating our news media in much the same way. The global food crisis — a rise in the price of cereal, foodstuffs, perpetuated in part by the ever-increasing droughts and floods characteristic of climate change — alarmed us all that in the poorest parts of the globe, hunger levels were escalating.

But in the summer of 2008, focus on the global food crisis diminished as stories of the global financial crisis began to emerge. With unemployment and factory closures impacting numerous countries throughout the developing world as in the West, the world’s attention has quickly turned to the worst economic situation since the Great Depression.

Projections indicate that Africa will be gravely affected by the global financial crisis. The IMF predicts that growth in Sub-Saharan Africa will decline from 5.25 per cent in 2008 to a mere .25 in 2009, increasing financing needs of the region. Already there has been an 11 per cent reduction in per capita income. At the same time, the food crisis continues, leaving financially devastated countries to simultaneously bear the cost of increasing food costs and starving populations. Without doubt, the food crisis was the overture that set the stage for the global financial crisis’ devastating crescendo.

In Africa, where the majority of countries primarily rely on agricultural production and mining, falling world prices have meant a gross reduction to gross domestic products (GDPs) and per capita incomes. The global food crisis may have led to the increase in foodstuff prices, but the global financial crisis is now reducing GDP levels and making it near impossible for Africans to afford food necessary for their own survival. For example, in Tanzania, though the average 7 per cent GDP growth rate has not declined, inflation rose by 10.3 per cent between 2006 and 2008. Meanwhile, in Ethiopia, the national inflation rate is approximately 30 per cent, with the food inflation rate being at least 6 per cent higher. In both countries, families are now paying more for dietary staples like starch foods, cereal, and vegetables.

As African citizens, 206 million of whom live on less than a dollar a day according to the FAO, attempt adjustments to ensure that they can sustain their livelihood, an odd catch-22 surface: Global demand for their exports decreases as western governments seek greater protectionist policies, forcing farmers to sell their products domestically at higher prices. This reality, coupled with escalating import prices, increasing domestic pricing. For example, real GDP is expected to drop in Burkina Faso from 5 to 4.5 per cent, in Niger from 8.8 to 5 per cent and in Benin from 4.8 to 3 per cent between 2008 and 2010, according to the IMF. These declines are especially owing to falling demand and price of cotton (projected to decline by 5.5 per cent by the end of the year) — the primary exporting commodity of these three countries.

This is one situation in which competitive pricing is not helping anyone. Perhaps the most daunting reality of all is the way in which the stand-by alternatives have also been affected by the global financial crisis. Remittances have traditionally been a quick-fix solution in desperate times. But with economic turmoil hitting the globe, remittances to Africa have been reduced to unprecedented rates, leaving needy families without the ordinary support of emigrated relatives. According to World Bank Chief Economist of the African Region, Shanta Devarajan, almost $12 billion in remittances was received throughout Sub-Saharan Africa in 2007. The World Bank predicts that this will decline by 8.3 per cent by the end of 2009. Since the majority of remittances are transferred from emigrants to relatives, this large reduction will impact the purchasing power of families the continent over.

Earlier this year, Senegalese President Abdoulaye Wade admonished that “the amount of investment needed to feed people and create jobs in Africa is a fraction of the money being spent on the global financial crisis.” While northern countries focus on finding immediate solutions to the effects of the global financial crisis within their own borders, African governments must grapple with the harsh reality that there is no immediate solution for them. That is at least not if they are left to their own defences.

At the Gleneagles Summit in 2005, the G8 committed to increasing official development assistant (ODA) to Africa by $25 billion by 2010. Yet if projections are accurate, ODA could decrease by 40 per cent by the same year. If the global financial crisis truly is global in scope, then solutions must also be global — intended for all countries, not simply the West. Faced with the consequences of both the food and financial crises, the African continent needs the international community to follow through on its aid commitments — not because Africa is a charity case, but because the continent is part of the so-called ‘international community,’ too.

( Leah McMillan is a PhD candidate at the Balsillie School of International Affairs and a Balsillie Fellow at the Centre for International Governance Innovation (CIGI). Hany Besada is a senior researcher and programme leader at CIGI.)

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