Africa And The Financial Crisis

Perhaps ironically, Africa’s generally weak integration with the rest of the global economy may mean that many African countries will not be affected from the crisis, at least not initially, as suggested by Reuters in September 2008.

The wealthier ones who do have some exposure to the rest of the world, however, may face some problems.

In recent years, there has been more interest in Africa from Asian countries such as China. As the financial crisis is hitting the Western nations the hardest, Africa may yet enjoy increased trade for a while.

These earlier hopes for Africa, above, may be short lived, unfortunately. In May 2009, the International Monetary Fund (IMF) warned that Africa’s economic growth will plummet because of the world economic downturn, predicting growth in sub-Saharan Africa will slow to 1.5% in 2009, below the rate of population growth (revising downward a March 2009 prediction of 3.25% growth due to the the slump in commodity prices and the credit squeeze).

South Africa, Africa’s largest economy, has entered into recession for the first time since 1992, due to a sharp decline in the key manufacturing and mining sectors.

The IMF has promised more aid to the region, importantly with looser conditions, whichin the past have been very detrimental to Africa. Many will likely remain skeptical of IMF loans given this past, as Stiglitz and others have already voiced concerns about (see further below).

In the long run, it can be expected that foreign investment in Africa will reduce as the credit squeeze takes hold. Furthermore, foreign aid, which is important for a number of African countries, is likely to diminish. (Effectiveness of aid is a separate issue which the previous link details.)

African countries could face increasing pressure for debt repayment, however. As the crisis gets deeper and the international institutions and western banks that have lent money to Africa need to shore up their reserves more, one way could be to demand debt repayment. This could cause further cuts in social services such as health and education, which have already been reduced due to crises and policies from previous eras.

Much of the debts owed by African nations are odious, or unjust debts, as detailed further below, which would make any more aggressive demands of repayment all the more worrisome.

Some African countries have already started to cut their health and HIV budgets due to the economic crisis. Their health budgets and resources have been constrained for many years already, so this crisis makes a bad situation worse. As IPS reports,

Already, large percentages of households in Sub-Saharan Africa are poor, and the large number of people on treatment means ever-increasing treatment program costs.

Yet, Sub-Saharan Africa only accounts for one percent of global health expenditure and two percent of the global health workforce. Currently, only one third of HIV-positive Africans in need of antiretroviral (ARV) treatment can access it.

… Dr Bactrin Killingo, chairperson of the Nairobi-based Collaborative Fund for HIV Treatment Preparedness [says, ] “If current cost constraints faced by HIV treatment programmes are not addressed, while the demand for expensive second-line treatment increases, we will soon find ourselves in a situation similar to the 1990s, where millions of lives were lost unnecessarily because people could not afford the treatment they needed to stay alive.”

— Kristin Palitza, Health-Africa: Global Financial Crisis Leads to HIV Budget Cuts, Inter Press Service, May 18, 2009

And it is not just poor nations’ health funds at risk. IPS adds that even international donor organizations have started to feel the financial crunch:

The Global Fund to Fight AIDS, Tuberculosis and Malaria recently announced it is at least $4 billion short of the money it will need to continue funding essential HIV, TB and malaria services in 2010. The coalition believes there is a $10.7 billion funding gap for regional implementation of the Global Plan to Stop TB alone.