World Economic Forum: Africa had nothing to do with the sub-prime crisis

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The serious threat to African economies posed by the global financial crisis is an emerging theme at the World Economic Forum. Politicians and economists have stressed that an era of relative optimism about Africa’s economic prospects is coming to a close.

By Gideon Rachman in Davos

Speaking to the opening session in Davos, Trevor Manuel, South Africa’s finance minister, said that Africa’s economies were “at risk of decoupling, derailment and abandonment”.

Mr Manuel is particularly worried by the threat of trade and financial protectionism in the developed world. He is concerned that banks and financial institutions in the US and Europe will increasingly be under pressure to direct loans towards their domestic markets. He also believes that the huge volume of debt being issued by countries like the US and the UK is in danger of crowding out other sovereign borrowers.

Mr Manuel’s concerns are shared by Kofi Annan, the former secretary-general of the United Nations, who divides his time between Geneva and Accra in his native Ghana. Speaking to the Financial Times, Mr Annan said: “Africa had nothing to do with the sub-prime crisis but we are all going to be affected.”

Mr Annan has several concerns. He points to a fall in commodity prices. Mining projects across the continent have been put on hold and Africa’s oil producers are suffering from falling prices. Mr Annan is also worried that the high price of fertiliser is inhibiting investment in agriculture.

A particular concern for Mr Annan is a decline in remittance income sent by Africans working overseas. “It’s going to hit remittances,” he said of the slowdown. “Africa gets billions from the diaspora.” This concern is echoed by Rachid Mohammed Rachid, Egypt’s trade minister, who told the forum: “Workers in the Gulf and elsewhere are being sent home, so remittances will eventually go down.”

Searching for ways to mitigate the impact of the economic crisis on the poor in Africa and other parts of the developing world, Ngozi Okonjo-Iweala, a managing director of the World Bank, suggested that 0.7 per cent of the spending stimulus packages adopted by developed nations be directed towards the developing world.

But Ms Okonjo-Iweala did not sound optimistic that the needs of the developing world would rank high in the priorities of richer nations. Like many African participants in Davos, she seems concerned that Africa is once again in danger of becoming the “forgotten continent”.

Financial Times

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