The tiny, sweltering shop where Barnabus Ossai sells boxes of imported A4-sized printer paper is a world away from the trading floors and banking offices where the global economic crisis was born.
Ossai doesn’t hold a subprime mortgage – the 28-year old bachelor shares a small Lagos rental apartment with some 10 family members. And with a net worth hovering somewhere around zero, he’s hardly exposed to risky collateralized securities.
Yet Ossai is keenly aware that Africa is deeply vulnerable to the world financial meltdown as it ekes out gains that depend largely on the health of richer economies. “I see changes. Bad changes,” said Ossai, sweat glistening on his brow under the equatorial sun.
As leaders of the Group of 20 industrialized nations prepare for an April 2 summit in London to hash out a coordinated economic plan, Africans and international activists are hoping that rich country leaders turn their attention to poor nations, too. Unlike the narrower Group of Eight forum, Africa has a seat at the G-20 in South Africa.
Africa’s exposure to the global meltdown is fundamentally different to that in developed countries: its economies are mostly based on hard cash, so lack of bank liquidity that translates into lower lending isn’t the main problem in Africa. And few Africans hold mortgages, so there’s no subprime mess.
Most African countries are instead suffering from depressed global demand for the natural resources that provide the lion’s share of their incomes.
Also hurting the continent:
– The drying up of crucial direct investment from overseas.
– A drop in remittances sent back home from African emigres.
– A stampede of foreign money out of fragile local stock exchanges as overseas investors seek safer waters.
– An expected drop in direct aid from richer nations now preoccupied with their own people.
While Africa is projected by the International Monetary Fund to squeeze out economic growth of about 3 percent in 2009 even as the global economy recedes for the first time in years, that’s only about half of what Africa has seen recently, and it’s too little to halt the spread of poverty.
ActionAid, a South African charity, says the global economic downturn translates into about a $50 billion – or 10 percent – drop in income for Africa by the end of the year.
“Although developing countries didn’t make this crisis, it has become all too clear that they are in the firing line when it comes to suffering its worst effects,” says Claire Melamed of ActionAid.
Consider Nigeria, Africa’s biggest oil producer, although the story is similar in many African countries that rely greatly on commodities exports – whether flowers from Kenya, Congolese coltan or copper mined in Zambia.
Nigeria’s government counts on crude oil sales for about 85 percent of its total revenues, but as the global economic recession takes hold, demand for oil is down and the price of a barrel of crude is off about 65 percent from its high near US$150 last year.
That has wreaked havoc with Nigeria’s planned public spending, a major engine of growth in the country. As investors expected that the country would dip into dollar-denominated savings to meet spending shortfalls, the local currency, the naira, has lost about one third of its value at official rates.
Down on the traffic-choked streets of Lagos, here’s what Ossai, the paper salesman, sees: When he visits black market vendors who hide brick-sized wads of naira in their robes, he gets fewer of the US dollars he needs to buy his paper from South Africa, where it’s produced.
To make up the difference, he is now selling a box of paper for about US$20, instead of about US$16, an increase of about 25 percent.
But purchasers are balking at the higher price, and his sales are suffering – a dynamic playing out across much of Nigeria’s economy, Africa’s second biggest after South Africa.
Even as most Nigerians’ paltry earnings remain stagnant – some 70 percent of the country lives on less than US$2 per day – inflation is soaring over 10 percent now on almost all goods in Nigeria, where almost everything is imported. For every 14 containers of consumer goods entering Lagos’s port, only one leaves the country for export, say shipping industry officials.
Across the continent, impoverished citizens are now seeing what IMF officials are calling the “third wave” of the global financial crisis, after a burst housing bubble and associated bank liquidity crunch: Many economists and aid groups are worried that Africa’s crucial gains in poverty and disease eradication could be rolled back, while crises in post-conflict countries like Liberia could flare again as resources become increasingly scarce.
Activists are hoping for substantive action from G20 leaders in London. Finance ministers and central bankers from the grouping, which accounts for more than 80 percent of the world economy, agreed this month that there was an “urgent need” for a big boost to the lending resources of the International Monetary Fund to help struggling governments in the developing world. But they left the specific amount and the question of who would contribute to be taken up at the summit of national leaders.
British charity Oxfam is calling for a bailout package for poorer nations totaling at least US$24 billion immediately, and more in the longer term, or at least for rich countries to meet their aid promises. Oxfam also wants a greater voice for poor nations in institutions like the IMF and World Bank, through which richer countries funnel investment and aid to Africa.
That view is shared by many Nigerians, who note that rich countries pushed them over the past decade to liberalize their economies and open their country to overseas investors and trade. Similar measures certainly helped spur economic growth across the continent – but it also left African countries more vulnerable to fickle foreign cash and global economic shocks.
Regulations on foreigners’ activities in Nigeria were much stricter under the military regimes that ruled until civilian leaders took over in 1999, said Bismarck Rewane, head of the Nigeria-based Financial Derivatives Co. Ltd.
While Rewane isn’t calling for a return to the government-heavy practices that hobbled Africa in the past, he does want commonsense, free-market regulations that favor foreign investors interested in long-term relations over short-term profiteers.
Many Nigerian business players blame foreign hedge funds for a stock-market crash, which has sent Nigerian equity prices down 70 percent from their high in March, 2008. They say foreign money raced out of Nigeria as the global economy soured, leaving surprised Nigerian investors helpless and hastening the economic downturn here.
“Someone moved the hands on the clock to midnight,” says Rewane. “The party ended, but no one told Cinderella.”
Copyright 2009 The Associated Press
