U.S. President Barack Obama has called it “the worst financial crisis in our life time.”
You can call anything you like; the crisis of a generation, the trickle-down effects of the sub-prime mortgage lending mess, or whatever, but the global financial crisis is hitting not only the United States but all countries around the world.
It may not be a great depression, or anything similar to the 1972 oil shock or even the 1987 stock market crash, but the culmination of these economic events have implications for today’s internet generation unlike the 30’s, 70’s or 90’s. While homeowners, banks and automakers have gone broke in America, what you may not know is that banks in other countries, including the Netherlands, France, Germany, Iceland and even Switzerland, considered a safe haven for the rich and famous, are all receiving help to stay afloat.
In some of these countries, citizens are furious and blaming the United States, which they say, started a problem that went out of control. A $700 billion or even higher injection of capital into the U.S economy is what economists say is needed to fix the problem.
In the U.S, imports of cheap Chinese goods have suddenly declined and causing analysts to wonder if China is also in deep trouble. Prices for crude oil have recently slumped, making gasoline cheaper. Because this also affects revenue intake from oil exporters such as Saudi Arabia, Nigeria and Iran, nations that are part of the OPEC cartel, there is a new rush to cut production in order to push prices back up.
In December it was announced that Angola, one of the fastest growing economies in Africa and now China’s biggest supplier of oil, according to the Heritage Foundation, is seeking new loans from the Chinese to help keep its own commitments for a boost to its domestic infrastructure spending.
In the United States where major corporations and small businesses are all competing for scarce cash, thousands of people are being laid off, leading to higher unemployment.
Poor nations caught in the mix.
Whether things get better or worse in the short term or long run, there are some nations that would come out probably worst off. In Africa, home to more than 900 million people, 53 nations and over two-thirds of the Heavily Indebted Poor Countries of the world (HIPC), a reduction in capital flows to these nations caused by the current crisis could make matters worse.
If these streams of capital are affected because there is a slowdown in capital flows to the continent, that could spell trouble for much needed infrastructure investment in Africa, some of which may be postponed, according to the World Bank.
Shantayanan Devarajan, chief economist for Africa at the World Bank’s says “a cut back in capital flows could seriously impact growth and poverty reduction in Africa.” Devarajan references current and past securities prices and stocks markets in Nigeria and South Africa that have benefited from Foreign Direct Investment into the continent.
At the same time, Devarajan, who writes a blog for the World Bank called AfricaCan, says the overall impact to Africa would be minimal compared to other nations in Asia and Latin America. The main reason for this is because “African banks retain loans they originate on their balance sheets, the interbank market is small and the market for securitized or derivative instruments is either small or totally nonexistent”
The actual fear, he contents, is what the impact of a recession in the U.S might have on commodity prices in Africa. “Food, oil and mineral prices have already begun to fall, although they are still higher than they were in 2006-7,” he writes.
The bigger question is whether the US will keep its commitments to Africa under the Millennium Challenge Corporation(MCC) agreements and whether it will hold its pledge for a $48 Billion increase in AIDS treatment to Africa under the presidents Emergency Plan for Aids Relief (PEPFAR.)
On this subject, the chief economist says “if the cutback spreads to official development assistance such as the $40 billion over the next five years that has been promised by the U.S for HIV/AIDS, the lives of hundreds of millions of Africans, including the two million on AIDS treatment, may be threatened.”
What Is The Way Forward
While there is plenty of distressing news on this subject, what has emerged and is being put to use today are ideas from the G-20 nations, an amalgamation of financial ministers from the world’s industrialized and emerging market countries, including those from G-7 and G-8 nations, with strategies to wade off the present calamity.
At the behest of the U.S, the G-20 nations, the Britton Woods Institutions; the IMF and the World Bank, and governments around the world met in Washington in November to try to deal with the issue.
Barack Obama and the incoming US administration have called for an even bigger injection of capital into the U.S system to help head off more unemployment. This call is being echoed by International Monetary Fund (IMF) chief Dominique Strauss-Kahn who said at a December meeting in Madrid, Spain that “more action is needed to combat the spreading world crisis.”
Our news analysis now on the Africa News Matters website