Thursday, March 12, 2009

Africa Hammered By Global Recession & Drop In Commodity Prices

Commodity-rich Africa profited when the world was growing. Now that it's not, it will be the hardest hit.

For the last decade or so, an economic uplifting in Africa has brought millions out of poverty. Democracy spread farther and faster than ever before. In December, the World Bank reported that sub-Saharan Africa's 2008 economic growth was 5.4 percent, equaling Europe and higher than Latin America (Africa finally ceded to Latin America its place as the world's slowest-growing region). Even now, many Africans imagine they will escape the global credit crisis relatively unscathed.

They're in for a rude shock. Recent IMF forecasts predict growth of 3 percent this year, compared to 4 percent in low-income countries. There are three main factors at work. Commodities are Africa's bread and butter and commodity prices have been dropping fast thanks to falling demand due to the global downturn. A second factor is that many African countries are largely aid-dependent, and big Western donors with slumping economies are less likely to want to give. Similarly, declines in foreign direct investment and remittances will hammer African economies. Finally, the specter of economic collapse, while scary for well-to-do countries, can wreak political havoc in unstable ones. As revenues decline, companies and governments are likely to have to scale back development plans, which could infuriate populations who had only recently gained some hope that living standards in Africa could rise. "Most Africans believed they'd be untouched," says Greg Mills of the Brenthurst Foundation, an independent think tank in South Africa. "But they underestimated the scale and the intensity of this crisis."

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