Workers at an export processing zone in Kenya. The country is among those identified for increased support, alongside Ghana, Zambia and the Comoros, particularly for infrastructure, education and health programmes. Photo/FILE
African economies are suffering worse than expected from the current global economic crisis.
This is due to higher than expected declines in major growth indicators like remittances and foreign direct investment (FDI) flows, according to the World Bank.
Contrary to earlier perceptions that African economies were least exposed to the fallout from the financial crisis afflicting Western banks and other financial institutions, due to absence of direct linkages with developed markets, a recent escalation in the number of troubled companies has resulted in hard times for many African countries.
Numerous layoffs in businesses within Europe and the United States of America have diminished remittances to Africa faster than projected while a drastic increase in company failures has caused sharp reductions in FDI.
Declining exports in some countries like Angola are anticipated to cause serious budgetary problems, owing to lack of viable alternatives for government revenue.
However, the bank believes that fast-tracked aid money for infrastructure projects will help maintain economic stability for most of Africa, particularly in countries with limited fallback resources like Uganda.
Uganda’s aid dependency is estimated at 28 per cent but limited export revenues over the years have led to minimal foreign exchange reserves.
On average, the reserves are projected to cover only five months of imports of goods and services.
Lack of swift intervention is likely to erode Africa’s economic growth.
‘Exporting countries like Botswana, Angola and Sierra Leone are already suffering from the credit crunch through reduced earnings and tax collections.
Africa’s economic forecast for 2009 was originally 6.4 per cent but is down to 3.5 per cent. “It could drop by another 1.5 per cent if no action is taken,” said Katryn Obiageli Ezekwesili, World Bank vice president for the Africa region.
The bank has already proposed a Vulnerability Fund for developing countries in need of financial rescue but cannot afford bank bailouts and fiscal deficits.
It would require a 0.7 per cent contribution by each developed country based on its stimulus package.
The USA’s possible contribution alone is estimated at $6billion.
Remittance flows have reportedly exhibited the most significant exposure to the global economic crisis.
Kenya, for instance, registered $1billion in remittance income during 2007, but was forced to cut its growth forecast for 2008 by a half. Rising pressure from the prevailing crisis has seen its projected growth for 2009 reduced to zero.
It is partly because of such grim indicators that the World Bank has identified Kenya for increased support alongside Ghana, Zambia, and the Comoros mainly for infrastructure, education and health programmes.
