A new report says Africa will suffer a huge drop in income due to the global financial crisis. The ActionAid report – called Where Does It Hurt? – says the worst affected countries may see a decline in income of up to 50 percent.
The report is being released as British Prime Minister Gordon Brown meets Monday with African leaders on the financial crisis. The meeting comes ahead of next month's G20 summit in London. The G20 is a group of finance ministers and central bank governors from 19 of the world's largest economies, plus the European Union.
Claire Melamed is head of policy for ActionAid. From London, she spoke to VOA English to Africa Service reporter Joe De Capua about the new report.
"We've looked at all of the different ways that money travels between Africa and the rest of the world and counted how much Africa's income is going to be cut by the financial crisis. So that's things like what they earn from trade, what banks borrow from each other and all the different ways that money flows into Africa," she says.
The report indicates the continent has been hit hard. Melamed says, "We've calculated that just by the end of this year, Africa's income stands to fall by $50 billion. And that's equivalent to a pay cut of more than 10 percent for the continent."
At the start of the financial crisis, there were some who said Africa would be spared many of its effects because it was not as interwoven into the international financial markets as other parts of the world. Melamed disputes that, saying, "I always found this very ironic. It was the same people who were most trumpeting the virtues of globalization, who then when the crisis hit turned around and suddenly said, oh well, let's hope the globalization hasn't really gone as far as we thought it had and that will protect developing countries from the recession. Now of course that hasn't happened."
She says African countries have been "tied in to the rest of the world for many, many years." She adds, "What this crisis does is just shows the depth of global integration and the way in which we're all inter-connected now whether we like it or not."
South Africa, considered a major economic power house on the continent, is one of the worst affected countries, according to the report.
"What's happening in South Africa is really a kind of cautionary tale about engaging too enthusiastically with the global financial markets. So, financial institutions in South Africa like banks…companies raising money, like shares, are all much more tied in to global finance than they are on the rest of the continent," she says.
In South Africa, the sharp drop in car sales has led to the layoffs of tens of thousands of miners, who dig for the metals used to make the vehicles. As a result, those miners, who may be from many southern African countries, send much less money home to their families.
The ActionAid policy head says there are two things than should be done. "In the short-term, numbers like this should really provide the rest of the world with an indication of how serious the problem is and motivate G20 leaders to mobilize large amounts of money to tied developing countries over the worst short-term impacts of the crisis. But I think it also shows that financial institutions and financial markets really haven't been serving developing countries for a very long time. And what we need is to rebuild financial markets so that they can work differently and they can provide more of the find of financing that developing countries need without the terrible risks that have become all too apparent in the last few months," she says.
ActionAid recommends a long-term
approach to financing. "One of the crucial things is to create incentives in
financial markets so that traders and others can have much more of a long-term
horizon. So when they invest in a country, they're not just looking for a
payback in a few months, but really over years and even decades. Because as we
know, that's how development happens." she says.