Because most African nations have only tenuous connections to the world’s financial system, many thought Africa would largely avoid the depths of the financial crisis now felt throughout the developed world. However, such a view ignores the non-capital market impact of a global economic slowdown on African countries.
The slowdown in developed world economies has caused a sharp downturn in commodity process – 70% for oil-producing countries and more than 50% for metal producing countries. Those nations who relied on higher prices for raw commodities (all falling except for gold and cocoa) are losing billions of dollars. But the negative global downturn impact doesn’t end there.
Foreign direct investment also is down. After reaching a high of $53 billion in 2007, an estimated $50 billion in short-term money has been withdrawn from capital markets in Nigeria, South Africa and Kenya, and at least $10 billion in projects have been suspended in Tanzania and the Democratic Republic of Congo. Moreover, remittances from African expatriates have fallen sharply over the last six months. The World Bank estimates that African economic growth will slow to 3.5% in 2009, down from an average of 5.8% over the last decade, and predicts a further decline to 2.5% next year.
Next Thursday, the G20 group of old and emerging economic powers will gather in London for their annual meeting. Some G20 members are already signaling their intention to support Africa in terms of its position on how the global economy should be addressed and how they should specifically be helped. Ethiopian Prime Minister Meles Zenawi, the representative of Africa at the meeting, has announced his intention to request an increase in funding (as much as $50 billion) and easier access to international financing. South African Finance Minister Trevor Manual, representing the only African member of the G20, is putting fellow G20 members on notice that the global economic downturn is not the fault of Africa and that the developed nations of the world must correct the mess they’ve made.
The British, the Germans and the Chinese are voicing their support for African demands that the international Monetary Fund be reformed, but while they are not signaling an intention to cut aid, neither are they promising to boost aid. It is estimated that the nations who took part in the G-8 summit in 2005 are now $20 billion behind in their pledge of another $30 billion a year in aid by 2010.
There is an old African saying: “When elephants battle, it is the grass that is trampled.” Now the grass is saying to the elephants that enough is enough.