UPDATE: A comprehensive discussion on this topic has been subsequently facilitated by the World Bank’s Chief Economist for the Africa Region. Strongly recommended – click here to access it.
The week so far has definitely been diary material. In view of the current global financial crisis, these are certainly unprecedented times. Images of former Lehman Brothers employees weeping in public brought it all home for me. Soaring UK unemployment figures have also put things into perspective. Meanwhile AIG, HBOS, and other financial institutions have been teetering dangerously close to implosion. Increasingly, I have been left wondering what this means for Africa even though the implications appear elusive.
There have been voices suggesting that some parts of Africa may be less exposed to the perils of the global credit crunch. For example, yesterday’s edition of Nigeria’s Vanguard newspaper made references to the Central Bank of Nigeria (CBN) which caught my attention:
…The CBN Director of Banking Supervision, Mr. Ignatius Imala… said the collapse of the American banks would not have effect on Nigerian banks but that the CBN was taking full measures as it did not want to leave anything to chance.
His words: “I naturally feel that you would be interested in not only learning that the collapse of Lehman Brothers and a few others will not affect Nigerian banks because of their trading relationships.”
Earlier on in the year, Nigerian tycoon Aliko Dangote spoke to the Mail & Guardian newspaper voicing his own opinions on the credit crunch. He went as far as saying the global phenomenon could actually be a good thing for Africa. I quote:
“The credit crunch works better rather than worse for Africa in terms of investment,” Dangote said while on a visit to Sierra Leone late on Sunday.
“It means there is a lot of money that needs to be invested somewhere and the best place is … developing countries like Africa,” he said, pointing to growth rates in some African nations more than double those of their Western counterparts.
Call me a pessimist, but that seems like a somewhat simplistic view of the current situation. Given the decreasing liquidity of potential investors in the EU and the United States, I question where this foreign investment will come from. China perhaps? If anything I am more inclined to go along with Seeraj Mohamed’s view in an article written for the Polity.org.za website. He outlines the dangers of the global credit crunch in a South African context, highlighting the possible effects on domestic share prices.
Ultimately, I doubt anyone REALLY knows how the full impact of this fallout will accrue to African economies. One universally acknowledged fact is that we are in uncharted territory. Given the interlocking connections holding the global community together, I would be surprised if Africa is left unscathed.
10 Comments
September 19, 2008 at 12:34 am
I am not buying the decoupled markets argument. For countries like Nigeria, our economy rises and falls on the price of crude oil, the crunch will impact Nigeria’s economy in a direct way. You know sometime wishful thinking saves us from staying awake at night. I enjoyed reading this.
September 19, 2008 at 1:41 am
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September 19, 2008 at 6:30 am
Oz – We seem to be on the same page on this one. I suppose the concern is that such “optimism” seems to be coming from the highest echelons of African thought lol. Great hearing from you and thanks for stopping by.
September 21, 2008 at 3:01 pm
The credit crunch will have an effect globally – obviously some places/countries feeling it more than others… Africa included!
But it is hard to predict at this moment in time as these things seem to be happening instantaneously!!!
Being a former HBoS employee, my former colleagues are crying as a result of this crisis…
September 21, 2008 at 6:11 pm
Gagisa – future prospects for your former HBOS colleagues don’t seem particularly good. I was listening to the the Lloyds TSB boss speaking late this past week and he gave an indication of approximately 10% of current HBOS employees being shown the door after the latest Lloyds TSB – HBOS merger. The general feeling is that this is an extremely conservative figure with double or triple that figure being more realistic. He went on to say that where Lloyds TSB and HBOS branches exist side by side on the high street, one of the two would have to close. Need I say more…
September 22, 2008 at 5:25 pm
… no more is needed fellow blogger. Everyone at HBoS is afraid of the chop thats coming…
And since Lloyds TSB bought HBoS, I suppose they will get preference!
September 29, 2008 at 4:19 pm
The sad part is really the inability of the system to pin point what was thereally cause of the pneumonia /cancer that is slowly eating away a giant economy and set to shatter not only families but a whole generation of young entreprenuers … Someone slept on the job .. i wonder how much of this was political and how much of this was a regulation issue and how much was pure management poor oversight of their businesses. It all came in as a surprise to almost everyone … but where the heck were the auditors … after Enron they should been checking on balance sheets much closer… As for Africa yes there is safety in the short term as the markets are insulated by their isolation from the mainstream global markets … but certainly the chicken will also come home to roast here especially as demand for raw materials from the US and China start to dwindle. But for now Africa still posses an interesting opportunity for medium to long term investors…particularly in the resource and services sector.
September 29, 2008 at 5:01 pm
Norman – thanks for stopping over and sharing your perspective on things. You have a point – there seems to be a vague audit trail leading nowhere. There’s certainly a gross failure of accountability. I am of the opinion that the political element is more significant than we are allowed to believe – particularly considering the robust regulatory controls that are being proposed now in retrospect. Ultimately, the basic underlying element in all of this is raw human greed that was allowed to have a field day.
October 2, 2008 at 5:09 am
Well I think that almost all economies are linked one way or another, it would not be accurate to think otherwise. We all believe in the fundamental principle of supply and demand, if people are dont have money to buy the goods then no matter how much out put you have it will be to no avail. This would be termed as wastage of resources.
As for Africa well I must say we will be hit big time as most projects are donor funded and they rely on the major markets (not just wall street but the ordinary people who buy their goods) to make money, it would be fair to say we will be hit bad. this is seen already in the high increase in the cost of food and oil which has had a really big impact on African economies. Also with the shift in global weather patterns which has seen rain patterns change it is difficult for african to really provide for itself.
As for the financial crisis I really dont blame the so called Investment banks, and Wall Street as is so widely reported. I blame the people, this is a classic result of failing to live within our means. I used to hear this being preached to me a lot but never really understood the effect of living on credit until this mess.
The US situation is very simple yet very complex in that there are things that need to be set right as a fundamental principle that every American needs to acknowledge. Americans need to live within their means to fix this mess. When you dont have the money to pay for something dont borrow to buy it unless it is a necessity and if you borrow dont refinance it unless you are getting a better deal but rule of thumb always pay up the 1st debt before taking another.
I know alot of people would ask what do i mean. Well it is simple I believe that say for example you need to buy a house, first and for most look at what you have saved as down payment, then consider your fixed income which is your salary or wages, deduct all your fixed expenses which are not optional ( water, electricity, taxes etc) then consider the balance is it sufficient to meet mortgage payments. Remember that you must alway leave some cash for emergencies.
I was listening to one guy in the US on CNN who was talking about how the credit crunch is affecting him badly, this is because he was paying his mortgage using his credit card, I mean that is totally insane. Short term debt is the most expensive and to use short term debt to pay for a long term project is asking for trouble ( Basic level Accounting 101). Then there is the remortgaging your home to buy a car, 2nd home, boat etc, the last thing you need to put your primary home up as collateral especially if your income is erratic. This is what was happening in the US. a vicious cycle of credit and these are the effects. So when you can no longer pay you are stuck (from loss of employment etc) and the bank forecloses on you you lose your primary residence and the car.
For my Christian friends its like this on the day of Judgement you have to stand up and answer for yourself and your actions, you can not say someone forced you to do bad, or you couldn’t resist. You can’t blame the bank for having the financial Instruments they do. They are in this to make money, which means we have to be prudent to ensure we are not caught up in the craze of being discontent with what we have. We should be vigilant and not be like a moth being drawn to the light that will zap you.
Simple rule if we lived within what we have things will have moved well. If you need something but cant afford save for it, you may also try to negotiate with your employer for a raise. Do not go and borrow as a 1st option.
October 2, 2008 at 10:24 am
Beki – thanks for taking the time to share your thoughts. The Financial Services Authority (FSA) should rope you in to help them when they go on their roadshows educating the British public LOL. Great hearing from you after a long while.