Africa: Calculating Wall Street’s damages

“There is a well-founded possibility that Subsaharan Africa will resist the global financial crisis better than other places “. The Economist readers must have been really surprised to read such “flattering” words to Africa; those used to leafing through the prestigious magazine must know that Africa’s critics are more the rule than the exception. Nevertheless, the most read financial weekly magazine unexpectedly says that, at least in the short term, “systemic risks in the African bank sector are not expected”, with the exception of those countries that are most connected to Wall Street or to London’s city, like Kenya, South Africa and Nigeria.

And here we come to one of the big globalization’s paradoxes: Africa, that has always been considered a global finance’s outcast, takes advantage of its peripheral position in the international finance system to protect itself from the tsunami that devastated stock markets in rich countries and, though to a lesser extent, poor countries alike, including China, India and Brazil. “Nobody should think they are safe from the crisis”, points out the half French-half Beninese banker Lionel Zinsou, “but it is true that African countries are lucky”. Why? “For three reasons: due to Africa’s total weight of less than 2% in global trade, the continent is less subject to the domino effect that has hit the European capitalist system. Also, contrary to what happened in the United States, African banks have a lot of savings, which means cash that allows them to protect themselves from the unlucky effects of the present crisis”. And the third reason? “Lies in the motor for endogenous growth that distinguish the so called emerging economies. In Africa there is a huge need for infrastructure and telecommunications, which means that the real economy is actually working”.

 

Unfortunately, however, not everything that glitters is gold. In recent regional economic forecasts, the international monetary Fund argues that: “African economic growth will slow down between 2008 and 2009 to settle around 6%”. This may be a percentage that many European leaders would dream to have, but the recession that is about to hit the United States and the European Union may well cause a steep decline in the demand for raw materials, which would have a devastating effect on Africa as it is the continent’s main export.

Since last July the price of petrol has halved. “At present there are no
effects”, assures Zinsou, “also because the price of hydrocarbons are higher now than 2007’s average, but as of 2009 the situation will be difficult. The decrease in demand of rich countries will lower both the volume and the value of raw materials exported from Africa, testing the public finances of many African States.

The damage caused by rich countries’ failing economy doesn’t stop here, though. As European Union governments are forced to pay out millions of euros to save their own bank systems they will have to cut their aid to development funds. Finally, Le Monde reminds us: “Africa risks suffering from Europe’s unemployment crisis, as it will certainly affect African migrant workers. Unemployment will mean that the volume of money sent to African countries by  relatives working in Europe is destined to decrease. So, taking a closer look, the African continent is not so isolated from the rest of the world as it is made out to be”.

Translation by: Cristina Barbetta