While the US credit crunch was costing America and Europe massive job losses, economic experts were convinced that Africa will emerge unscathed by the global financial crisis because of its isolation from the global economy. Due to the restrictions on foreign ownership of banks in some African countries, and tight credit regulations implemented by African states, the impact of the US credit crunch on Africa was limited.
For a while Africa remained unharmed. However, when the recession intensified in the First World, Africa started feeling its full effects. According to a report compiled by Juan Somavia, International Labour Organisation’s Director General last year, people working in the construction, automotive, tourism, finance, services and real estate sectors will be affected the most during these tough times. Let’s look at the sectors which have been affected by the US credit crunch in Africa:
Impact On Africa’s Financial Sector
Although Southern Africa’s economies remain financially sound, in December 2008 it was reported that lack of trade finance is causing stockpiles to build up at Southern Africa’s second-biggest coal port in Maputo, Mozambique. Due to lack of finance, coal trade has fallen significantly. The frozen markets have made it more difficult for shippers to secure letters of credit.
In South Africa car sales have dropped drastically because it’s become more and more difficult to secure loans. Its also been predicted that the global recession is going to result in a decline first world countries giving aid to Africa which will definitely have devastating effects on countries which depend on US and UK aid for survival.
Impact On Africa’s Export And Import Industry
The US credit crunch has crippled Africa’s export and import industries. Africa relies heavily on exports of its raw commodities such as oil and coal, and since the US credit crunch most countries which buy Africa’s exports have been unable to access credit. This has caused a sharp fall in exports and in-turn resulted in price cuts. Warehouses in Kenya, the world’s biggest black-tea exporter had to drop prices by 50% in December.
South Africa’s Johannesburg Stock Exchange fell by 31% last year in mid-November. As a result a lot of investors withdrew their investments. Since then South Africa’s currency has depreciated touching R9/$ for the first time in six years, it’s become more expensive to purchase imported goods, demand for Africa’s minerals and oils has declined. Food prices in African countries have shot up because of higher costs of imports. According to a report released by the World Bank on Global Economic Prospects 2009, the investment growth in the developing world is going to fall from 13% in 2007 to 3.5% in 2009.
Impact On Africa’s Tourism Industry
Countries where tourism is a large part of the economy such as Egypt are expected to suffer from the US credit crunch as tourists will cut down on holidays and touring.
Worker’s Remittance
The African diaspora sends approximately 15 billion US dollars back to Africa every year. If the credit crunch gets worse in Europe and Africa, the may not send as much money anymore. Countries that are bound to be affected if the African diaspora pulls their funds are Lesotho, Uganda, Senegal, guinea-Bissau, Togo, Burkina Faso and Benin with a high dependency on these funds.
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