So governments all over the world are grappling to deal with the impact of a financial crisis that is seeing the collapse of financial lending firms, institutions that were once considered to be solid or too big to stumble are now have now since either gone bankrupt, had to rely on Government bail-outs or worse, selling up their assets to the competitors to recoup losses; America’s Fannie Mae, Washington Mutual, AIG, Lehmann Brothers, Wachovia, Britain’s Northern Rock as well as many other firms in Germany, Iceland (country facing bankruptcy and having to rely on a financial bail-out from Russia) and many other countries all across the European Union. The story has been so big that it’s even managed to push the on-going soap opera between McCain and Obama. That’s partly due to the impact it’s had on the markets with markets such the Dow Jones and the Nikkei index experiencing the worst one day losses since the crisis of the nineties, followed by roller-coaster of gains and losses in a very volatile market devoid of investor confidence analysts say that major stocks such as telecoms, Pharmaceuticals and petroleum have all fallen by more than a third in the last one year – no industry seems immune to the crisis.
Am certainly no economic guru, but Maths 101 says that the cause of the credit crunch which was the beginning of the problem – as I understand it – was the collapse of the mortgage market with banks securing bad mortgages and bad loans, free capitalism at it’s fatal worst – the idea that financial institutions can regulate themselves because they are after all the experts. Of course the financial markets in Africa haven’t been immune to the fall with massive drops in share prices but the status of the market doesn’t always reflect on the real economy; the one where people lose jobs! The African media hasn’t been as diligent in their coverage of the crisis and it might be with good reason too………..Even with globalisation, which inexplicably means that we are all more connected than we would love to be, thereby creating some kind of domino effect, Africa may as yet escape this worst of the storm?! A majority of Africans rarely deal with banks and in fact many SMEs do not even have bank accounts; so whether or not there’s a credit crunch it doesn’t affect the growing of tea in Kericho for Mama Mboga or your ordinary small business person who doesn’t rely on credit from the banks to run their business – evidently obvious as banks move to slow down o consumer loans and to secure bad loans. So for once you might claim that the ignorance, illiteracy and infrastructure that have for so long been blamed for Africa’s under-development may actually be a blessing in disguise – and just like Mexico during their all too infamous crisis, Africa’s non-financial institutions could escape too much damage because the economy isn’t tied too much to banking!
However before I altogether dismiss the significance of the recession of the world’s biggest economy on Africa, I may be well advised to remember the old saying that when America sneezes then the whole world catches a cold……..true the I we won’t lose any sleep over the tight lending conditions, but Africa is bound to lose Millions of dollars in foreign investments which supports the majority of companies and key industrial sectors being foreign owned; examples may be in Kenya where all telecom companies have foreign firms as major shareholders. It might also be prudent to add that our economy is based on the dollar and any falls in the value of the dollar may have astronomical impacts on many African economies such as Kenya where export is the biggest revenue earner! Then shamefully last, let’s not forget that Africa is the land of hand-outs; development projects, healthcare, education, and even elections are all run on donor funding and with the donor countries now experiencing problems of their own, it remains to be seen what kind of impact if any the crisis will have on donor funding. With the humanitarian problems in Darfur, Zimbabwe, Sudan, Somalia – the list is endless – any scaling down on funding could have catastrophic effects on Sub-Saharan Africa.
Globalisation means that we have a global economy and as a global citizen I would plead with Americans to give Obama the mandate to fix their economy, because political paralysis and bad policies have always created a good environment for economic recession and the last eight years must certainly have worked to show Americans the evils and consequences of ineffectual governance. Or else we could see their economy go into a depression and with disastrous repercussions for Africa!!
PS: would love to get suggestions on any factual errors, leave a comment below!!