Africa - World economic crisis

African countries continue to feel effects of the global economic crisis

Article published on the 2009-09-16 Latest update 2009-09-16 13:57 TU

Women walking home from a market in Kenya
(Credit: Angela Sevin/Wikimedia)

As the world's richest countries gear up for the G20 economic summit in the US later this month, African countries are examining what they must do to protect themselves as the global economic crisis has hit the African continent in a number of ways, including trade, aid and remittances. Exports have declined throughout Africa-- analysts expect a $578 billion fall to hit the continent, according to Martin Cox, Deputy Director at International Policy Network, a think tank based in London.

"That's largely because there is a low demand...in African exports, and the price of commodities have fallen," Cox told RFI.

Foreign income that African countries receive is split into a number of areas, including aid, export revenue and remittances.

In terms of remittances, the World Bank has indicated that money sent home is likely to keep falling and that it should hit as much as eight per cent below the levels it was at before the recession.

"That's a big problem for a country like Mozambique... as 42 per cent of the GDP is foreign aid," said Cox. "If that starts to get hit by countries in the West coming back on what they spend on foreign aid, that could be a short-term problem for Mozambique," he said.

US President Barack Obama spoke earlier this week on the US banking system and called for a new set of controls to be placed on US banks. The African banking sector is somewhat insulated from the US market, so that means that those that are affected is not as high as some people might imagine, said Cox.

"However, African economies depend on foreign investment from countries and anything that will make it difficult for companies to borrow and lend money across borders" is likely to affect Africa negatively, said Cox.

Kenyan President Raila Odinga called for the banks to lower their interest rates earlier this week. Cutting interest rates could stimulate the economy, said Cox, but this could take at least one or two years before it kicks in.

The problems the Kenyan economy has had are not directly releated to high interest rates, said Cox. The Kenyan economy largely depends on exports, such as horticultural products. The farming division employs 2.5 million people, but the industry depends largely on demand from people overseas.

The World Trade Organisation has critisised Kenya for its trade policy, that sets up barriers that make it very difficult for foreign businesses to work with Kenya. And the World Bank has accused Kenya of having a very hostile environment for business, said Cox.

While the recession has touched Africa, there has been a positive outcome, at least for countries like the Central African Republic.

On Tuesday, the Paris Club of sovereign creditors forgave a large portion of the debt the CAR has accrued, some $49.2 million (33.4 million euros). Some $6.5 million was cancelled under  bilateral agreements, reducing CAR's debt to  $3.7 million (2.5 million euros).

The Paris Club cancelled the debt on the basis that CAR has been determined "to implement a comprehensive poverty reduction strategy and an ambitious economic programme," according to a statement released by the group.