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How will Africa weather financial storm?

September 25, 2008

Kenyan Maasai herdsmen walk on the animal migration corridor at the Nairobi National Park November 12, 2007. REUTERS/Antony Njuguna

Isolation might seem like a good idea when it comes to the storm sweeping global finance and there is no doubt that African countries are among the most isolated in the world economy.

Avoiding the impact seems unlikely, though, particularly at a time when Africa as a whole has been enjoying its fastest growth for decades and the continent has become an increasingly popular investment destination – not only for Asian countries in search of resources but for frontier investors willing to take higher risks for higher returns.

The African Development Bank’s chief economist told Reuters that Africa should withstand the first round effects of the financial crisis but that export demand and access to finance could be hit in the longer term.

Although some still see Africa’s isolation as a measure of protection, the enthusiasm of frontier investors has been fading too. The impact can be seen on stock exchanges from Lagos to Lusaka. Ghana has postponed a new debt issue due to the global conditions.

Stockbrokers trade at the Nairobi stock exchange during the commencement of trading of Safaricom shares, one of East Africa's biggest initial public offer (IPO) in Nairobi, June 9, 2008. REUTERS/Antony Njuguna

Such things might not appear to have much direct impact for most people in Africa, but rising world prices for food and fuel are being felt even in the remotest villages. If the prices of Africa’s export commodities fall because of global turmoil then that pain is likely to be felt too. If rich countries can afford less aid, that could also be damaging for some dependent states.

What fallout do you expect in Africa? What action might mitigate any damage?

Comments

I would expect export demand and export prices to fall while aid will drop. Finance will also become more expensive, and investment opportunities in other continents with less sovereign risk should attract foreign capital. Food and fuel should continue to rise. In all, my pessimism says things will get worse. Still, I always say this. Maybe this time I’ll be wrong!

Posted by John | Report as abusive
 

The Key Pillars of the Continent’s renaissance have been;

1. The Emergence of China and India which made the demand side of the African equation less one sided and also These new entrants committed to term contracts for our Commodities. This is a big plus in the scheme of things.

2. Remittances. These are set to slow very sharply if the Mexican example is correct.

3. Big Ticket Capital projects might find the going harder.

However, there is a very low base effect in many parts.
Africa is a unique story of a one off late cycle convergence with the Globe. And that remains in tact.

Aly-Khan Satchu
http://www.rich.co.ke

 

Any pullback of Western financial institutions and multinationals will make more openings for cash-heavy Chinese banks and firms to make more structural inroads into African markets. Diversification would be good. Meanwhile, many African markets would grow much more if there are improvements to the investment and business climates, as well as regional integration, than by any foreign intervention.

 

Africa will do pretty well as long as it carries on its successfull policy of sucking up to China and accusing the West of racism and anti-poverty measures whenever the West questions its record on corruption, syphoning off funds and the purchase of military hardware with the money it is supposed to spend on Development.

Posted by Nick | Report as abusive
 

Africa would do well with the help of Chinese and other developing countries. The West has ceased to be the dominant factor in world trade, the new kids on the block have ushered in a new multipolar world.

Posted by Nduka Tolefe | Report as abusive
 

An industrial strategy I’ve suggested for Canada that also should work for commodity economies like Australia and South Africa, is to encourage counter-cyclical fiscal policy.
Commodities will eventually be supplanted by materials science and chemical industries. It makes sense to encourage the ownership of these foreign players (Siemens, BASF, 3M, etc) over the long-term.
Also, gold is counter-cyclical unlike other industrial metals. It would be naturally stabilizing to encourage gold mining exploration.

Posted by Phillip Huggan | Report as abusive
 

high interest rates will push up debt repayments. this will mean more structural adjustment programs, less public spending on essential things like heath and education and this will definately hamper any economic growth.

Posted by peter | Report as abusive
 

And (Nick) be realistic. The west has made conditional aid availeble to the african countries on the condition that they purchase military hardware. A recent example is the (alleged) involvedment of france in sudan. this is a dog eat dog world, there are not many ‘friendly countries’ and every country acts in its own best interests whether it’d be at the expense of another country or not.
the western retailers have been pushing prices of commodities down (cocoa and coffee) to increase their own prices and keep western consumers happy. this has meant that african countries got lower prices for exports, while the costs of imports have gradually increased ( oil and other raw materials), they have had to finance this gap through aid; accumilating more debt.

Posted by peter | Report as abusive
 

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