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Africans Dealing With Harsh Realities of Global Recession


The global financial crisis is said to be the worst since the Great Depression. It has contributed to the failure of key businesses and declines in consumer wealth in Africa and other parts of the developing world. In sub-Saharan Africa, there has been significant drop in economic activity, with the export sector suffering major losses in revenue.

The causes of the crisis had nothing to do with Africa, says Dr. Shantayanan Devarajan, the chief economist of the World Bank's Africa Region.

But the continent was soon feeling its effects.

Initial concerns in Africa were directed at the increase in oil prices. Governments were not too concerned about the effect it could have on local financial institutions, since many of them are not fully integrated into the global financial structure.

But as the crisis worsened, that theory was proven wrong. African banking institutions have working relationships with major financial firms, and Devarajan says declining investor confidence in the West led to reductions in credit available to African banks.

Most important, he says, was the decline in commodity prices. As an example, oil exporters like Nigeria and Angola saw a sharp decline in revenues when the price fell from 140 to 40 dollars a barrel.

Africa also suffered a loss in tourist revenues. Many African countries depend on earnings from tourism. For some, it accounts for most of their foreign exchange earnings. When Western consumers starting feeling the effects of the financial crisis, tourist traffic to Africa began to drop.

The export sector experienced financial losses as well. In some countries, Devarajan says, exports make up almost 70 percent of GDP, “so when the export sectors declines, all the other sectors of the economy are affected.”

The World Bank says while the global economy is showing signs of recovery, many developing countries are still suffering, highlighting the need to increase support to the poorest countries dealing with economic volatility.

Because of the crisis, says the Bank, 89 million more people will be living in extreme poverty, on less than $1.25 a day, by the end of 2010. It says the recession put at risk $11.6 billion of spending in areas like education, health, infrastructure and other important sectors.

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