AFRICAN ECONOMIES AND THE GLOBAL DEBT CRISIS
So far the current global debt crisis has cost the leaders of Greece and Italy their jobs, who will be next only time will tell. The current debt crisis is one of the most devastating since third world debt crisis of the 1980s, so far it impacts has concentrated on the developed countries of Western Europe and North America. African countries like most other developing countries have had their own share of debt crisis in the past and many are yet to recover from that almighty blow to their nascent economic growth. But this time around the blow that they will be receiving is indirect, since the debt in effect is European sovereign debt. There are various channels through which the current global turmoil can affect African economies, one of which that has already affect the continent is through trade. The bulk of African export to European countries has already been affected by way of reduction in the over all export especially that of primary products. Countries such as Kenya, Mali, Uganda, and Senegal have already seen their primary export to Europe been affected by the crisis. As austerity measures put in place in countries such as Spain, Ireland, and Portugal bit harder so should the volume of trade between these places and their African partners. Debt crisis of this magnitude should be expected to have an effect on corresponding debt hold by African countries; already the cost of borrowing has increased making it more difficult for poor African countries to finance their deficits. Many countries across Africa are rethinking their earlier decision to issue bonds or borrow from multinational financial corporations. But one positive way the crisis is affecting Africa is by way of directing the attention of global financial players toward Africa. In order to satisfy the demand of portfolio diversification theory many global investors are directing their money toward African debt market which is young, dynamic and diverse.
China with foreign reserve running into trillions of dollars has been christened by analysts as the lender of last resort in this crisis. Already china government and business community has bought billions of dollars of western European debts, at a time when Europeans themselves are running away from these junk debts. No African country can play the role China is currently playing in this crisis, the combine foreign reserve of China is more than African economies put together. As a matter of fact no one expect Africa to play any such role, if not the way the crisis has affected the total number of aid money coming to the poor continent. Thus, here in Africa analysts are more concern with the way and manner the crisis is affect ting the total amount of aid and development money that is coming to the continent and no the other way round. But one important sector that the European debt crisis hit the most, is emigration sector; Africans now find it difficult to migrate to Europe even when they possess the most needed education and talent. The big sign on the wall as far as Europe is concern is that; investors capital and high net worth individual welcome, less endowed individuals and migrant without capital you are not welcome. This is not to talk of illegal migrant who will be maltreated when ever they show their faces. As for the millions of Euro remittance money that is coming from African migrants who are working in Europe Africa should expect less of it as the crisis bite harder. This is not to talk of the thousands of Europe based African who have lost their jobs since the start of the crisis, therefore, find their way back to Africa.
According to a July 2010 issue of African Development Bank market brief, North and West Africa are the regions of Africa that are most connected in trade with Europe, therefore, more vulnerable to any contagion that come from Europe. Countries in these regions face increasing prospects of declining revenue and negative balance of payment position, the brief observed. Already, the weakening in the value of Euro has affected the portion of these countries foreign reserve that is invested in Euro. In African countries, especially in the CFA zone, the crisis may affect their banking system by affecting their liquidity positions as well as credit lines that are coming from the European banks. As European banks become more involve in Greece and other crisis countries debt problems they will find it more difficult to extend their credit line to their African partners. But one positive way that the crisis is affecting Africa is by making it people and government to look inward rather than the past usual way of setting eyes on Europe and US. We all see how Nigerian authorities are fighting day and night to attract foreign investors with capital and skill to develop the local economy. Countries such as Ghana, Angola and Uganda are increasingly been seen as African success stories who have implemented hard economic prescriptions and have steered their economies toward the path of growth. But the impact of Arab uprising on debt laden European countries is to make their condition more worth. We have already seen how Libya revolution is affecting the Italian economy. The decrease in the supply of crude oil, gas, and other raw materials from these North African countries to Europe has important implication on the economies of these European countries; the same thing with the declining line of capital that is coming from North Africa to Europe.