The Global Economic Crisis and Its Impact on Africa

Summary

The world’s second largest continent containing almost 10% of the world population, Africa has been continually troubled by manmade and natural disasters since from the European invasion and further colonisation. Africa has already been known as the homeland to the largest number of low income countries in the world. Political and tribal strife and poverty seemed to have been the major hazards for Africa in its way to meet the international goals for the past centuries. The worldwide economic crisis of late 2008 and 2009 makes significant economic and social development challenges for African countries. Even if the impact of the economic crisis on Africa was expected initially to be less severe, the later experienced challenges have now been estimated to be profound. As the crisis deepened the growth rates in the African countries have tumbled

This project investigates the nature and consequences of the global economic crisis on the world economy in general and on Africa in particular. I conducted PESTLE analysis and I have collected data and relevant materials by using books, journals, articles and online search engines. After analysing the impacts of the global financial crisis on Africa Have suggested certain Global Business strategies and given a set of recommendations.

The project is aiming at, analysing the economic crisis and identifying the challenges on African economy. Furthermore this study extends its investigation to suggest adequate policy responses and business strategies for the African countries in order to minimise the severity of the crisis.

1. Introduction

1.1 Aim

1.2 Objective

1.3 Key Question

2. Economic Crisis- African Perspectives

2.1 Introduction

Ø Introduction to the Global Economic Crisis

Ø Causes in General

Ø Impacts

Ø Policy Responses and Way Forward

2.2 Introduction to the African Economy

Ø Economic History of Africa

Ø Policies and Trends in Africa Prior To the Crisis

2.3 The Impacts of Recession in Africa

2.3.1 Profound Decline in Economic Growth

Ø Huge down turn in export revenue

Ø Major Losses in Trade Tax Revenue

Ø Decline in International Trade

Ø Shortfall in Capital Inflows

Ø Foreign Aid

Ø Down turn in Migrant Remittances

2.3.2 Impacts on Different Sectors

Ø Impacts on the Stock Markets and Banking Sector

Ø The oil sector

Ø The mining sector

Ø Tourism

Ø Agriculture

Ø Health sector

2.3.3 Impacts on Development Strategies

Ø Threats to Poverty Eradication Agenda

Ø Worsening the Impact of Food Crisis

Ø Reversing the Gains of Millennium Development Goals

Ø Increasing Unemployment

2.4 Significances of the Recession in Africa

Ø Significances in Sub Regional Disparities

Ø Significances in Economic and Account Balances

Ø Significances in Poverty Eradication Agenda

Ø Significances in Food Security Measures

Ø Significances in Political Stability Issue

2.5 Policy Responses

2.5.1 Policy Responses from African Governments

Ø Infusing Liquidity to Banks and Financial Institutions

Ø Reducing Interest Rates

Ø Financial Policy Measures

Ø Trade Strategy Methods

Ø Organisation and Agreement Building

2.5.2 Efforts from International Financial Institutions

Ø The International Monetary Fund and Lending Commitments to Africa

Ø The World Bank and Economic Commitments to Africa

Ø African Development Bank and Crisis Response Initiatives

2.6 Global Business Strategies

Ø Economic Reforms

Ø Adequate Public Spending

Ø Promoting Domestic Investments

Ø Investments In Infrastructure

Ø Domestic Resource Mobilisation

Ø Regional And International Development Partnerships

Ø Political Stability and Sustainable Governance

Ø Effective Poverty Eradicating Policies

Ø Financial Policies

Ø Strengthening the Banking Sector

3 Methodology

3.1 Political Forces

Ø Government

Ø Tax policy

Ø Labour law

Ø Environmental law

3.2 Economic Forces

Ø Economic growth

Ø Interest rates

Ø Exchange rates

Ø Inflation rates

3.3 Social forces

Ø Population

Ø Education

Ø Religion

3.4 Technological forces

Ø Communication system

Ø Transportation

Ø Research and Development

3.5 Environmental factors

Ø Tourism

Ø Climate change

Ø Natural calamities

3.6 Case Study and Discussion- Crisis Hits Ghana’s Exports

Ø Introduction and Background

Ø Decline in export revenue

Ø Decline in foreign trade

Ø Decline in gold price

Ø Decline in cocoa price

Ø Conclusion and Recommendations for the case study

4 Recommendations

5 Conclusion

6 References

Chapter 1 Introduction

1.1 Aim:

To identify different types of indicators which reflect the occurrence of crisis in Africa

1.2 Objective

· To comprehend all issues involved in different sectors which are responsible for the crisis in Africa.

· Impact of crisis on the economy of Africa.

1.3 Key Question

How economic crisis is affecting the life of the African people?

What institutions are helping to reduce the crisis in Africa?

2 Economic Crisis- African Perspectives

2.1 Introduction

Africa is one of poorest regions in the world constituting almost 10% of the world’s population. With its tremendous high crime rates, dictators and high corruption, fear for HIV/AIDS; the continent has been profoundly portrayed in stereotypes like the Dark Continent in the world. Africa is often considered to be the most dangerous continent because of the countless wars and political conflicts within its territory. Almost 80% of the total population still seems to be under the threat of poverty and malnutrition. Amidst these facts Africa has a rich history of unique civilizations that deserves the recognition as ‘the cradle of humanity’. Despite the poverty, corruption and political instability, the Africa region has experienced robust economic growth in recent years, prior to the crisis, averaging 6.5% per year between 2002 and 2007. The factors affecting Africa’s economic growth have always been identified as inadequate policy responses and lack of basic infrastructural support all over the continent. Furthermore the recently experienced global financial and economic crisis has made major blusters all over the African countries. Some of the African countries had achieved a remarkable growth prior to the crisis including stabilizing their external debt conditions sizeable reduction of their debt burden. But the crisis threatens to overturn these achievements and to repeal the gains.

In the initial stages of the global financial crisis, the impacts on Africa were believed to be minimal because of Africa’s low integration in to the global economy. Moreover the restrictions on new financial products and restricted market entry as well as the small inter-bank markets would believe to have defended the crisis. However the recent estimations have revealed the fact that, Africa is not insulated from the current global economic crisis. The crisis is hitting the key drivers of the economic growth like natural resource sectors, agricultural exports, trade flows and capital inflows. The profit, Africa gained from the exports and imports have been substantially reduced. Trade with china and United States of America became significantly feeble.

The crisis is believed to disturb the ongoing Millennium Development Goals (The MDGs) in particular the programmes aiming to diminish poverty, hunger, maternal and child mortality, and guaranteeing ‘decent work for all’. As the African countries are least represented in global financial system the early signs of the crisis were negligible in the continent when compared to the industrialised and developed economies of the world. As the recession has deepened and emerged as a global phenomenon; the continent experienced an abridged demand for its goods exports. Subsequent decline in FDI (Foreign Direct Investment) and other capital inflows made a serious threat on the economy of the continent. Africa has been in its one of the historic growth rates estimated an average of 6.5% per year between 2002 and 2007. The crisis, according to the International Monetary Fund (IMF), would result a trim down in this growth to 1% in 2009.

Ø Introduction to the Global Economic Crisis

The global economic and financial crisis of late 2008 and 2009 is considered by most of the economists all around the world as the worst economic turmoil since the great depression in 1930s. As the economies of each and every nation all over the world are profoundly interrelated and interdependent, the impacts of the recession seemed to have universally influenced the economic growth rates and development strategies unconstructively. The recession has raised a wide range of concern not only to the developed economies, but to all other world economies which have been incorporated in to the global economy. Even if in the initial stages of the global economic down turn , the wide spread observations suggested a minimal and less severe impact on the developing and third world nations, the later estimations have exposed a profound economic grout decline and financial down turn in Asia and Africa in particular.

Ø Causes in general

There have been a number of aspects identified that have fuelled the global economic and financial crisis. The fact that the current economic down turn has its origin long ago and has been growing for a long period but has become profoundly evident since late 2008. One of the major causes of the crisis was the collapse of the US housing market. Subsequently the impacts have come out on a large scale and spread all around the world; from industrialised countries to the emerging and developing economies of the world, further more to the third world poor countries. Afterwards the world has experienced an unprecedented turn of events related to the economic turmoil.

Ø Impacts

The impacts of the global economic crisis have been experienced as a synchronised sequence of events all over the world. The world has so far witnessed a number of consequences. The developed countries has already experienced an extensive economic down turn, a large number of investment banks reported to have crumpled. Trillions of US dollar relief packages are drawn up, leading a subsequent impact on developing economies and third world countries. An average of 40% decline has been reported in stock markets. Interest rates are cut down all over the world. As the recession has deepened, the recent developments have shown contrasting the early predictions that the impacts of the economic turmoil have left no chance for the developing countries including Africa to get away from it.

Even as the outcome of the recession seem to be varied from country to country, the experts observe that a possible set of common economic impacts are to be expected to those countries having large scale exports, countries having considerable dependence on FDI (Foreign Direct Investment), countries with high government deficits. The impacts on developing countries including a significant decline in export income, worsening the growth rate and increasing unemployment, have been considered as the after effects of the economic turmoil in developed countries, leading to a worst economic contagion in developing countries all around the world. The impacts include several aspects. A decline in Foreign Direct Investments (FDI); in developing countries, banks are failed to lend when comparing the commercial lending they have done prior to the crisis. Due to the crisis rescue packages and relief aids from the developed countries, fund from US and UK in particular, have been cut down significantly. The impacts on the growing economies in the developed region have made a severe blow on the other poor economies of the surrounding regions.

2.2 Introduction to the Economy of Africa

The continent, home to more than 700 culturally distinct tribes and groups, was under foreign control till the end of the 19th century. Even as the colonies gained independence by the early 1950s; the abrupt decolonisation insecurity and volatility to many parts of Africa. Unrest wars and political conflicts made democratic rule difficult in many of the African states. In some of the regions military rule is still prevalent. These factors added the economic instability in African continent. The economy of Africa is largely maintained by a number of different sectors. Agriculture has a unique place among these sectors. The other sectors are mining, oil, drilling, tourism etc. Africa is known for its unique storage of rarest metals and precious stones. And the continent is considered as the land of natural resources. Africa has a major percentage of world’s cobalt and platinum. And is a land of extensive storage of gold chromium and uranium. Congo has more than 30% world’s diamond reserve. Inadequate usage of the available resources makes the economic growth weak.

Ø Economic History of Africa

As the land of colossal reserves of the natural resources, Africa was one of the richest continents in the world prior to the foreign invasion. Ancient Egypt was one of the richest and affluent countries in the world. Alexandria, the ancient Egyptian city was the centre of trade for centuries. Foreign rule and colonisation made significant blow to the growth and development in most of the African states. In the early ages the major source of income was agriculture. Plantations of cocoa, rubber, and ground nuts were mainly maintained in the continent. Eastern and southern parts of Africa are the richest agricultural areas. South Africa is the only state out of the 54 African states, to be considered as industrially developed. Almost all other states are still remaining industrially underdeveloped. Mining and drilling are the most important sectors in the continent. Libya, Algeria and Nigeria are the oil producers in Africa. Zambia has the large deposit of copper ore in the world.

As Africa is known for its abundant natural recourse deposit, its economic structure profoundly depends on the exporting of natural resources. Prior to the current global economic turmoil, many of the countries in the continent were reported to have achieved an unprecedented growth rates extending to an average of 6.5% per year between 2002 and 2007. The price increase in row materials and their increased demand made most of the resource rich countries to grow substantially. This growing demand for raw materials and their increased price were believed to bring a sustainable growth rate in African economy. But when the crisis started hitting the developing and third world economies, followed an inevitable decline of raw material prices and decreased demand for exporting commodities from the continent, have projected the weaknesses of the current African economies and have exposed the uncertainties of Africa’s economic future.

Ø Policies and Trends in Africa Prior To the Crisis

While assessing the economies of the world, the periods of 1960s and 70s can be considered as the period of a fast growth. Even in this period of rapid development, Africa seemed to be lagged behind other regions in the world. As the period of 1980s witnessed a tremendous slowdown in economic growth and development, African region reported to have had a negative growth rate. Studies suggest the fact that while in 1950s African incomes were almost comparable to that of Asia, by the early 1950s the rates had fallen to almost quarter to that of Asia. This fluctuated growth rates and development declines show that, Africa poses growth challenges through decades. The political will of the economic concert and the economic importance of their public policies, seem to have major role in their continuing economic problems. Many researchers from time to time have given different reasons for the deprived growth performance and economic instability in Africa. Some of the causes have been suggested by studies include Africa’s natural and cultural endowment, its tropical location and its position in and explosion into the global market and economy and ethnic diversity. (Sachs, Warner, Easterly and Levin).

Scholars suggest both internal and external factors for the economic and development challenges of Africa. External forces include, centuries lasted colonial dominance in Africa, Africa’s dependent position in world economic order. But the noticeable disproportions of growth rates between the African countries with comparable resources recommend some internal factors to their poor economic performance. The lack of adequate public policies and political responsibilities of their governments are some of the perceptible internal factors which make Africa lagging behind in the global economic order. Analysing different researches, findings suggest a focus on the internal reasons, such as the reluctance and inability of the governments to adopt and implement public policies which benefit the common people rather than a chosen few individuals or the government themselves. Single party governance, military rule and dictatorship are some of the political reasons from which economic downturn originates in Africa. It seems without political reform and adequate public policies economic restructuring and renewal of growth rate cannot be achieved.

Between the period of 2002 and 2007, Africa witnessed a growing demand for African goods. This rising demand brought an economic growth into the continent and the growth in this period was recorded as an average of 6.5 % per year. The external demand for the primary commodities was very huge. Exporting of oil and minerals made the growth stable and steady. The increased demand for the African commodities in international market has drove an investment rush and capital inflow, including FDI (Foreign Direct Investment).

Economic Growth in Africa

Percentage Change in GDP (Year-on-Year)

Source: IMF Sub-Saharan Africa Regional Economic Outlook Database, April 2009

2.3 The Impacts of Recession in Africa

The crisis has brought a profound economic decline in to the African countries. The growth rates have dropped. Impacts hit all major economic goals, causing down turn on natural resource sector, different sources and recent development strategies.

2.3.1 Profound Decline in Economic Growth

Ø Huge down turn in export revenue

Ø Major Losses in Trade Tax Revenue

Ø Decline in International Trade

Ø Shortfall in Capital Inflows

Ø Foreign Aid

Ø Down turn in Migrant Remittances

Huge down turn in export revenue

The demand for African commodities was increasingly growing in global market prior to the crisis. When the recession has deepened, exporting and the demand for the commodities have experienced a huge decline. As the demand was reduced the exporting countries experienced a deep fall in their export revenue. That has lead to a decrease in the economic growth rates and account balances. Experts observe the revenues from the export are yet to be reduced severely. Many of the countries largely rely on the exporting revenue of the natural resources; oil and minerals in particular. The decline has made serious threats to their expected growth and current economic developments. Figures and facts from the estimations show that many of the African economies have experienced severe shortfall in their export revenue. Mineral exporting countries like Zambia, Democratic Republic of Congo (DRC) collectively could drop about 6 billion US dollar in 2009. Likewise Nigeria and Angola together could witness a deficit about 76.8 billion US dollar in their exports. Uganda, the second largest coffee exporting country in Africa, experienced a shortfall from 36. 3 to 23.9 million US dollar in Coffee Robusta export.

Major Losses in Trade Tax Revenue

The decline in the prices of African commodities has significant impact on trade in African countries. Crude oil has been reported to be the severely affected commodity in Africa. Figures show that the decline has been more than 50 % between 2008 and 2009. 20% of decline has been reported in the prices of coffee, sugar, copper and cotton over the same period. According to the African Development Bank statistics, Africa experienced a decline of 15 billion US dollar in trade tax, representing 4.6 % of government revenue and 1% of Gross Domestic Product (GDP). Angola and Nigeria together suffer a loss of 4.6 billion US dollar in their oil exports. That signifies the largest loss for oil exporting countries of Africa. And experts held the view that as the recession deepens the decline in trade tax revenue may grow bigger.

Figure: Decline in trade taxes (USD billion)

Source: African Development Bank statistics Database

Decline in International Trade

As the African continent experiences threats to their export revenue because of the reduced demand for their commodities, trade rates with the other countries were reduced significantly. Even if their international trade is less than 2%, many of the countries largely depend on the revenue from it. The trade with United States of America and china have been reduced considerably. Trade with US was recorded to have an increase of about 29% between the period of 2007 and 2008. In the early months of 2009 when the recession has deepened profoundly, the value of trade has been lowered by about 57%. As the oil and fuels account for 80% of US import from Africa, their decreased demand made a severe impact. Chinese trade with Africa was reported to have a growing increase in recent years. China was one of the main countries in the world importing African commodities. Africa is having 13% of its import to china. Indeed recession made a setback in trade between Africa and china.

Shortfall in Capital Inflows

Capital inflows to Africa were main sources of external revenue for the continent. These include foreign aid, migrant workers remittance, Foreign Direct Investments (FDI), different charities etc. Capital inflows were in a growing stage estimated nearly from an 8.95 billion US dollar to 54.8 billion US dollar between 2000 and 2007. Recession turned down the growth rates. According to the International Monetary Fund, Foreign Direct Investments FDI) May have a drop by 26.7% in 2009. The most impacted capital flow in the initial stages of the crisis was portfolio investments. Some of the studies suggested that, the impact of decline in portfolio investments will have less severe effects on regional growth. The figure below shows the capital inflows to Africa (in billions of US dollar) from 2000 to 2009.

Capital inflows to Africa

Source: IMF Regional Economic Outlook: (Sub-Saharan Africa, April 2009)

Foreign Aid

Many of the African countries largely depend on the foreign aid and other charities from the international communities. The aid to Africa has been increased by many countries in the G8 summit of 2005, prior to the crisis. European countries and United States of America declared a significant increase in their annual aid to Africa during the summit. When the crisis made profound decline on the economy a number of developed countries, they were forced to reduce the aid to Africa. According to the Organisation for Economic Cooperation and Development (OECD), Africa is getting world’s maximum total amount of foreign development support. It was almost 27.19 billion US dollar, received by Africa as the foreign development support during the period of 2007 and 2007.

Down turn in Migrant Remittances

The money sent by foreign workers to Africa has played an important role in the economic developments of Africa. Nigeria and Kenya were reported to receive the largest value of remittance. According to World Bank, in 2007 remittances in Lesotho were 29% of GDP. World Bank predicted an average of 4.4% decline in remittances in Africa due to the recession.

2.3.2 Impacts on Different Sectors

The crisis made severe impacts on almost all sectors including Banking sector, Oil sector, Mining sector, Tourism, Agriculture, and Health etc.

Ø Impacts on the Stock Markets and Banking Sector

The economic turmoil has made severe impacts on the stock markets. The estimations reveal the surprising fact that African markets have experienced severe losses than that of the developed nations. Since the inception of the crisis, the stock markets in Africa increasingly become vulnerable. Declines in Nigeria and Egypt were reported to be nearly 67% between 2008 and 2009. Many other African countries were also reported to have suffered severe declines in their stock markets (Mauritius, Zambia, Kenya and Botswana). These impacts on stock markets have lead to threats to Africa’s banking sector. According to IMF, there was an increase in the ratio of nonperforming loans to gross loans in Ghana from 7.9% to 8.7% during the period of 2006 and 2008, and from 2% to 3.5 % in Lesotho. Even though African banks have least exposure to the subprime mortgage market, report indicates

Banking sector in Africa is not insulated from the crisis. The flow in nonperforming loans has caused huge profit losses in banking sector. During the period of 2007 and 2008 the credit loss ratio for standard bank was reported to be 1.55%. Actually it was an increase in the ratio from 0.8% to 1.55%. Many other banks were reported to have an increase in the credit lose ratio. African countries have experienced a decline in this foreign exchange markets as well. Table shows depreciation of the currency of different African countries against the US dollar.

The oil sector

The demand for oil in international market has been reduced considerably, followed a decline in oil price. These are the situations, which have lead to a severe down turn in oil sectors. Countries like Nigeria and Angola, largely dependent on oil exporting revenue, have experienced major decline in their exporting revenues. The decline has made decrease in their government revenue followed a cut down in public expenditure. The decline in government revenues were reported to be from 24% in 2008 to 25% in 2009 in Angola and Nigeria. The currency value has been reduced significantly because of the decline in their exporting revenues.

The Mining Sectors

The mineral exporting industries have also experienced large revenue loss since the onset of the recession. The demand for the minerals from America has been largely decreased because of the economic down turn in the developed countries. The decline in the price forced to cut down the mining process results a severe revenue loss. In June 2008 the production in Democratic Republic of Congo was 34215 tons; by 2009 October production has been reduced to 23562 tons. The slowdown in the mining process has lead to closing of extracting sectors in countries like Congo (DRC), and resulting unemployment and poverty.

Tourism

Some of African countries have been maintaining an economic growth through their revenue from tourism. Countries like Morocco, Mauritius, Uganda and Kenya largely dependent on their tourism revenues. Recession has resulted significant reduction in the number of tourists to Africa. According to world tourism barometer (UNWTO) there was 15% reduction in tourist revenue of Mauritius by late 2008. Many other countries were reported to have experienced reduction in their tourism revenue due to the tour cancellation.

Effects on Agriculture

Agriculture and agriculture dependent economy experienced a considerable decline. Due to the short fall in the price of the agricultural products expert revenue from the sector has been reduced significantly. Due to the crisis many of the African countries failed to achieve the targets in their production and export revenues. This made sever impacts to those countries that largely depend on the revenues from the agriculture. Countries like Ethiopia, Burundi, Mali etc are seem to be most affected countries in Africa because of the substantial decline in their agriculture revenues. The affordable economic turmoil has made the farmers helpless. They were unable to purchase seeds and fertilizers. This has lead to a decrease in cultivation and export of products.

Impacts on Health Sector

Health sectors in most of the African countries heavily depend on the external financing and aid packages. Last few years there was an increase and improvement in health care financing of Africa before the crisis. According to the world health organisation (WHO) Africa’s external funding for health sector was about 17% in 2006. As crisis has deepened, health care financing in African countries has been tremendously decreased. As the revenues of government have been declined profoundly, financing health care has been severely reduced. The losses from the all other revenue sources forced the government to cut down financing all social programmes including health care. In order to defend HIV / AIDS Africa relies in the overseas development association (ODA). ODA seems to be one of the major external sources of financing in health care sector. As downer countries reduced their funding because of the recession, ODA has also been reduces substantially.

2.3.3 Impacts on Development Strategies

Threats to Poverty Eradication Agenda

In some of the African countries poverty has become their part of life like blood in their veins. Poverty leads to malnourishment and child mortality. For the last several years there have been considerable efforts to eradicate poverty by African countries and their development partners. The crisis makes severe threats to these targets like poverty eradication agenda and millennium development goals etc. According to UNESCO, in 2009 the workers earning less than 2 us dollar would have been increased from 82.2% to 86.6% in Africa. According to the World Bank estimation another 53 million people in third world developing countries would fall into extreme poverty as a result of the crisis. UNESCO’s figures predict that infant mortality and child malnutrition will increase largely. Death rates due to poverty will also be increased.

Worsening the impact of food crisis

Due to the short fall in government revenue and foreign exchange reserves food insecurity in Africa has been deepened severely. As the recession affected the downer countries, food aids to Africa has become considerably lower. These factors have worsened the food insecurity experienced after the food crisis in Africa. The number of people who face food insecurity has been increased tremendously.

Reversing the gains of millennium development goals

‘Millennium development goals’ (MDGs) in Africa is believed to be the sincere effort in international level to save millions of people from their pathetic living conditions. MDGs aiming at eradicating ‘poverty and unemployment’, ‘hunger and malnutrition’,’ addressing the issue of illiteracy’, ‘ensure education to all African children’. The crisis has made serious threats to the goals by reversing the gains. According to the African development banks, before the onset of the crisis African countries were slowly attaining steady and stable progress in the directions of millennium development goals (MGDs). The major achievements include access to safe drinking water, political empowerment of women, controlling the spreading of HIV/AIDS etc. Above all introduction of innovative public policies in Africa toward the attainment of the MDGs is a major progress in the continent. Crisis makes threats to all these progressive conditions toward the attainment of the MDGs.

Increasing Unemployment

Losses and decline in different sectors has made jobs vulnerable in Africa. Due to the shortfall in production many of the countries were closed mines. Decline in exports and prices have lead serious unemployment in mining and oil sectors. In Democratic Republic of Congo (DRC) 40 mines have already been closed and has lead to a loss of 300000 jobs in the region. 3000 jobs have been lost in Zambia since the onset of the crisis. According to the international labour organisation (ILO) unemployment rates in Africa could raise to 8.5%. The proportion of vulnerable jobs in Africa is also expected to be increased largely.

2.4 Significances of the recession in Africa

The impacts of the crisis in Africa have already been experienced by many of the countries irrespective of their economic stability and growth rate disparities. The implications of the crisis in Africa vary from country to country. There has been short term effects and long term effect for the continent according to the participations and exposure of different countries in to the global financial system. There have been profound disparities even between the comparable resource rich countries in Africa. As some of the countries possess strong trade restrictions and restrictive entry for certain financial products, impacts would be less severe than that of the other countries. However African economy has declined significantly due to the global economic turmoil. Recession brings various implications in Africa, particularly economic growth, fiscal balance, sub regional variations, poverty eradication agenda, Millennium Development Goals (MDGs), food security measures, political stability issues etc. Since the onset of the crisis economic growth rates in Africa instigated to decline. According to International Monetary Fund (IMF), in 2007 average growth rate in Africa was almost 7% and had fallen to almost 5.5% within one year period. IMF further predicts the impacts of the crisis on Africa’s largest economic regions would be stronger than this figures.

Ø Significances in Sub Regional Disparities

Ø Significances in Economic and Account Balances

Ø Significances in Poverty Eradication Agenda

Ø Significances in Food Security Measures

Ø Significances in Political Stability Issue

Ø Significances in Sub Regional Disparities

The impacts of the recession in Africa vary from country to country. Recession has brought different level of impacts among large medium and low economies of Africa. South Africa, Nigeria and Angola, the largest economies of Africa collectively constitute 60% of the Gross Domestic Product (GDP) of the whole continent. South Africa is experiencing the worst economic down turn for the first time in last 17 years. As Nigeria and Angola largely depend on the oil export, impact on their economic growth rate is much severe. South Africa seems to be largely closer to the global economic order than the other African countries and as they have strong trade relations with the rest of the world, impacts on their economy expected to be severe than that of the other regions in Africa. GDP of South Africa was reported to have experienced a decline of nearly 2.25% in 2009. Decline in South African growth rates caused economic down turn in neighbour countries that have strong trade relations and investments with the largest economy in the region. The middle income countries including Africa’s oil and mineral exporters in the region have experienced severe setback due to the recession in South African economy. South Africa’s economic linkages to the surrounding regions made recession in South Africa a regional economic down turn. Botswana, another middle income country in Africa, largely depends on the revenue from diamond exporting, experienced economic shortfall due to the decreased demand for the product and reduced price of the exporting commodities in the global market. The impacts of recession in low income countries of Africa were expected to be less severe because of their low integration in to the global financial order and they are not exporters of oil and minerals. They were even expected to have an increase in their economic growth rates. However the countries, heavily dependent on the primary commodity exporting experienced negative impacts. The disparities in the continent imply that the low income countries in Africa may overcome the impacts than the large and middle income countries in the region.

Ø Significances In Economic and Account Balances

Africa has already experienced severe impacts on its fiscal and trade balances due to the recession. Some of the African countries successfully attained an economic stability and maintained an average budget surplus of 1.75% of GDP during the period of 2004 and 2008. Recession makes threatens to reverse all these achievements. According to the International Monetary Fund (IMF), deficits of GDP for the year 2009 and 2010 would be 4.75% and 2.72 % respectively. And an average fiscal deficit of 6% would be expected in oil exports. Even if some of the African countries have already adopted fiscal packages to recover the deep decline in fiscal and account balances, many of the other countries in the region find it difficult to enact with fiscal packages. As the decline may have long term impacts in the region many of the countries proposed long term financing plans. But South Africa has failed to implement these plans. Some other countries were also reported to be unsuccessful in implementing these plans because of the impacts of the crisis in global financial order.

Ø Significances in Poverty Eradication Agenda

Africa is one of the poorest regions in the world. There have been sincere efforts from the African governments with the immense support from the international community to eradicate poverty from the continent. As part of the Millennium Development Goals (MDGs) Africa has witnessed tremendous progress towards the attainment of the targets. Recession has already brought severe threats to reverse these gains. According to the International Monetary Fund (IMF), the number of people living below 1.25 US dollar per day would be increased by 7 million in 2009 and an additional 3 million by 2010. The after effects of food crisis has been deepened by the crisis to an extend that threatens the future food security of Africa. The implications project the long term effects of the crisis in the continent which may fuelled the current food insecurity in to the future as well.

Ø Significances in Food Security Measures

Africa has been the land of millions of undernourished people for so many decades. Food security in Africa has always been under threats. According to FAO (Food and Agriculture Organisation) the number of African countries where food crisis persists for long is almost 20. That signifies the fact that, the crisis has worsened the impacts of food crisis. The efforts to ensure the food security in the continent have been reversed by the crisis. The proportion of malnourished people in Africa was 28% in 2004 and 2006. According to the estimations of United Nations the proportion has been increased to 29% in 2008.

Ø Significances in Political Stability Issues

Unrest wars and political conflicts were an inevitable part throughout the history of the African continent. Political instability seems to be one of the major factors which make Africa lagging behind the other continent in the current world order. The crisis has made serious blows on the economic and governmental structures of almost all countries in Africa. When people lose their faith on their government anarchy takes over democracy. It was evident on the food riots happened when the whole continent experienced food crisis. As the number of poor and unemployed people increases, the threats to the political stability also increase. This may have long term impacts on the political structure of the country. When people lose confidence they may be prompted to act against the rulers and the institutions.

2.5 Policy Responses

2.5.1 Policy Responses from African Governments

African governments have so far implemented a number of policy changes and precautions to alleviate the impacts of the crisis on their economies. Policy responses differ from country to country on the basis of the impacts and the integration of their economy into the global financial order. Some of the major steps taken by the most of the countries in the continent include reducing the interest rates, financial stimulus packages, infusing liquidity to banks, fiscal policy measures, amendments in trade policy etc. The policy responses from the oil exporting countries seem to be different from that of the non oil exporting countries because of the disparities in their foreign reserves and exporting revenue. Countries like Rwanda, Kenya, Nigeria and the Democratic Republic of the Congo (DRC) adopted such methods that constitute committees to recommend respective governments on how to respond to the crisis and what policy measures should be taken.

Ø Infusing Liquidity to Banks and Financial Institutions

Ø Reducing Interest Rates

Ø Financial Policy Measures

Ø Trade Strategy Methods

Ø Organisation and Agreement Building

Ø Infusing Liquidity to Banks and Financial Institutions

Some countries in Africa have taken several steps in order to keep the flow of credit in the banking sector by increasing the liquidity to banks and other financial firms. According to the report of the meeting of the ‘Meeting of the Committee of Experts of the 2nd Joint Annual Meetings of the AU Conference of Ministers of Economy and Finance and ECA Conference of Ministers of Finance, Planning and Economic Development’. In countries like Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, the Niger and Togo the common central bank has injected liquidity in the regional money market to increase the liquidity in the banking system and to mobilize credit flow. In some other countries like Liberia, Cameroon and Tunisia various financial packages and new deposit and credit facilities have been adopted to increase the liquidity.

Ø Reducing Interest Rates

In response to the financial crisis most of the African countries have taken actions to reduce their interest rates significantly since the very beginning of the crisis in the continent. In countries like Botswana and Egypt, central banks have made a decrease by 50 basis points. In Nigeria the interest rate was 10.25% prior to the crisis but the central bank of Nigeria has reduced the rate to 9.25% in response to the crisis. Many of the other countries include Namibia, South Africa, Swaziland and Tunisia also reduced interest rates. In contrary, Democratic Republic of Congo (DRC) was the only country that has responded to the crisis by increasing the interest rates instead of decreasing the rates as the other countries have done.

Ø Financial Policy Measures

A number of African countries have announced several fiscal stimulus packages to advance the economic growth rate in response to the global crisis since the onset of the recession in the continent. Many countries have proposed significant increase in public spending in their budget. A 17% of budget rise in public spending to supply financial package to their economy has been made in Cape Verde, in 2009. In Egypt, 15 billion Egyptian pounds was the stimulus package to improve the economic growth rate in response to the crisis. Some of the plans adopted by certain countries even include beating red tape and corruption. Morocco was an example for such actions. South Africa has adopted stimulus packages with several separate aspects including public investment plans, increasing employment opportunities in public sector, supporting private sector, extending the scope of public spending etc. Increasing public spending and developing infrastructure were some of the major highlights in almost all stimulus packages adopted by different countries. There was a 24% raise for public sector in Namibia.

Ø Trade Strategy Methods

In response to the financial crisis, some of the African countries have made significant efforts to improve economic growth rate through trade with other countries. Such steps include cutting down the trade tariffs and import taxes. Trade has been an inevitable part of policy responses to the crisis for countries like Cameroon, Madagascar, Tunisia, Liberia etc. Import taxes on oil exploration equipments have been cut down in Cameroon in response to the crisis. Madagascar government has adopted trade policies to boost their exporting. The value added tax paid by gold mining companies has been refunded by the government of Mali as part of their trade policy changes in response to the crisis. Trade tariffs and taxes have been reduced in Liberia.

Ø Organisation and Agreement Building

The suggestions and policy responses of the finance ministers from different African countries, who met in Tunisia on 12 November 2008 to discuss how to face the challenges of global financial crisis on Africa, were significant in fighting against the recession. It was a joint meeting organised by the Economic Commission for Africa, the African Development Bank, and the African Union Commission. The policy makers suggested some key issues to be addressed and actions to be undertaken. They suggested further economic reform in order to minimise the impacts of the crisis. They emphasised the enactment of the commitments from the donor countries to increase their aid to Africa in G8 summit. They also stress the importance of the official development assistance in order to face the short fall in revenues from various sectors.

2.5.2 Efforts from International Financial Institutions

Financial assistance from international financial institutions serves as an inevitable source of external revenue in African economy. Africa seems to be the continent which receives world’s major portion of foreign aid and financial support from international institutions. Since the onset of the crisis international institutions like IMF (International Monetary Fund), AfDB (African Development Bank), World Bank has extended an increase in their financial assistance. The role played by these institutions to minimise the impacts of the economic turmoil in Africa is very important. Apart from implementing new schemes and plans, these institutions have reconsidered the policy focuses and made appropriate amendments and reform in their lending policy and economic assistance to Africa considering the depth and range of the crisis. As a result many of the existing plans and financial programmes have been reformed accordingly. Main agendas of their newly proposed plans in the process of beating up the crisis were liquidity injections to the banking sector and other financial institutions, compensating budget deficits, supply financial packages to support trade and export etc. World Bank, International Monetary Fund and African Development Bank have implemented plans and programmes of their own subsequently. Emergency Liquidity Facility and Trade Finance Initiative is a plan to assist exporters and importers in Africa by trade financing in order to improve the economic growth. Financial Crisis Response Fast-Track Facility and Infrastructure Crisis Facility is a new programme proposed by World Bank to support developing countries in beating up the crisis. International Monetary Fund (IMF) has implemented Exogenous Shocks Facility in order to facilitate assistance and financial support for these developing countries including the African countries that have been facing severe economic decline due to the crisis.

Ø The International Monetary Fund and Lending Commitments to Africa

The International Monetary Fund has raised the amount of loans to African countries to stabilise the economy of the continent in the context of the financial crisis. There was an increase to 2.7 billion US dollar from a previous amount of 1.1 billion US dollar in 2008 in their concessional loans. IMF’s efforts include the following measures to support African countries to minimise the impacts of the crisis on their economic growth.

Ø Multilateral Debt Relief Initiative

Ø Poverty Reduction and Growth Facility

Ø Exogenous Shocks Facility

Ø IMF special drawing rights

The figure shows the amounts of the concessional loans agreed by the International Monetary Fund from 2002 to 2009. It shows the increase in the amount during the period of recession.

Source: International Monetary Fund

The loans from the International Monetary Fund have helped those countries that have no option to receive or borrow money from the foreign nations and even failed to make their international payments. IMFs recent reforms focus enduring proposals to extend its financial support and loan schemes to exporters and investors in Africa. Many of the African countries receive the benefits from Special Drawing Rights (SDRs) of the International Monetary Fund worth 250 billion US dollar. SDRs provide an amount to each and every member country according to their IMF quota share.

Ø The World Bank and Economic Commitments to Africa

The World Bank has taken several steps since the onset of the crisis to lend assistance in defending the economic decline in its poor member countries. The following are some of the important plans and programmes through which the World Bank has actively involved in beating up the crisis and minimising the impacts in African countries.

Ø Financial Crisis Response Fast-Track Facility

Ø Infrastructure Crisis Facility

Ø Global Food Crisis Response Program

Ø Infrastructure Recovery and Assets Platform

The Financial Crisis Response Fast-Track Facility is a facility approved by the member countries of the World Bank to accelerate the support and financial assistance to the poor member countries. The programme has been a benefit for many of the African countries. The financial replacement Under the International Development Association 2007 allowed many of the countries to receive extended assistance and many of the African countries have taken advantage of these facilities. According to the report of United States Congressional Research Service Democratic Republic of Congo (DRC) was one of the countries that have taken early advantages from these facilities. Infrastructure Crisis Facility (ICF),another facility implemented by the World Bank to assist those infrastructure developing schemes which face financial crisis. By giving financial assistance, this facility makes extra funds available to those infrastructure development projects. The crisis even worsened the impacts of food crisis in Africa. World Bank has supplied assistance to face the challenges made by the food crisis through the Global Food Crisis Response Program (GFCRP). A total of 83 million US dollar has been received by the African countries from this programme. Infrastructure Recovery and Assets Platform (INFRA) is an expansion of infrastructure investments, another considerable effort from the World Bank in assisting the African countries.

Ø African Development Bank and Crisis Response Initiatives

The African Development Bank (AfDB) has declared several initiatives in response to the crisis including Emergency Liquidity Facility,Trade Finance Initiative, and Accelerated African Development Fund transfers etc.

Ø Emergency Liquidity Facility

Ø Trade Finance Initiative

Ø Accelerated African Development Fund transfers

Ø Enhanced Policy Advisory Support

The Emergency Liquidity Facility provides financial assistance to African recipients to give economic boosting worth of 1.5 billion US dollar. A 1 billion US dollar trade finance initiative has enabled bank resources to be used by the development institutions and banks. African countries received budget supports and financial assistance for infra structure from the facility of accelerated African development fund transfers. The figure shows the financial commitments by the World Bank and African Development Bank (AfDB) to Africa from 2002 to 2008. It shows the increase in the amount of assistance during the period of financial crisis.

Source: African Development Banks, World Bank

2.6 Global Business Strategies

Ø Economic Reforms

Ø Adequate Public Spending

Ø Promoting Domestic Investments

Ø Investments In Infrastructure

Ø Domestic Resource Mobilisation

Ø Regional And International Development Partnerships

Ø Political Stability and Sustainable Governance

Ø Effective Poverty Eradicating Policies

Ø Financial Policies

Ø Strengthening the Banking Sector

Ø Economic Reforms

Africa has certain limitations and restrictions to integrate in to global financial system as most of the African countries have restricted certain financial products. The entry of certain products to the African economy has been restricted in many of the countries in the continent. Adequate economic and financial reforms are inevitable in order to adopt progressive changes in current policies. African economy has a unique structure which has been largely dependent on the revenue from the exporting of primary commodities from the continent. In order to attract domestic investment and foreign private investment, certain structural reforms are inevitable.

Ø Adequate Public Spending

It is evident in the political and economic history of Africa that there have been reluctance and inability of the governments to adopt and implement public policies which benefit the common people rather than a chosen few individuals or the government themselves. Inadequate public policies and the failure of the governance to reach the common public have been the main reason in Africa’s current backward conditions. In order to beat the current challenges of the economic crisis Africa needs to address these policy making issues. Developments in basic primary sectors like health, food supply, infrastructure, education are deficient because of the lack of sufficient policy measures and public spending. The very urgent step Africa needs to be taken is the implementation of ample public policies aiming at the well being of the common people in Africa rather than a chosen few individuals or the government themselves.

Ø Promoting Domestic Investments

The private sector plays an important role in the economic growth of a country. African economy has been a land of foreign investors and FDI revenues. The current economic crisis and its impacts on the continent gives the important lessons to Africa including the importance of promoting domestic investments and promoting private sector development , in order to improve the proportion of total domestic investment in Gross Domestic Growth (GDP). Certain structural reforms and policy changes are also very important to attract private investors. The need of the hour seems to be the compliance of the governments in Africa to adopt significant reforms and changes in their economic policy and structures.

Ø Investments in Infrastructure

Lack of ample infrastructure seems to be one of the most important factors in Africa which makes developments inadequate and incomplete. According to African Development Bank (AfDB), recent investment in infrastructure in Africa is 2 to 3 percentage of the GDP. Sufficient infrastructure is an unavoidable factor for both developments and economic growth. The functioning and success of other primary sectors like health, education are profoundly related to the capability of the infrastructure. Inadequate infrastructure in Africa was identified as the constraints in achieving Millennium Development Goals (MDGs). Poverty eradicating agenda, education to all children Africa, and food for all Africans are some of the examples of those programmes that are affected by the lack of infrastructure. These facts portray the need of investments in infrastructure in Africa. Poor infrastructure has a negative effect on the productivity and a further effect on the economic growth. So Africa needs to address the lack of sufficient infrastructure and has to promote investments in infrastructure developments.

Ø Domestic Resource Mobilisation

Increasing domestic resource mobilisation is an important strategy in beating up the financial crisis in Africa. The savings generated from the domestic resources both of public and private sectors can be distributed in various social investments. Increase in domestic resource mobilisation is helping the development processes largely.

Ø Regional and International Development Partnership

The trade between developed and emerging economies can be a source of external revenue for Africa. So the attention to the relationship with emerging economies of the world is an important international business strategy for Africa. International trade relationships of Africa will increase the opportunity to find markets for African commodities and it is an important way to accelerate export revenue especially for the oil and other primary commodity exporting countries in the continent. Increase in these international trade partnerships will make way for private foreign capital inflows to African countries. Trade partnership can be regional or international. Regional trade partnership will be the best way to maintain economic stability in the region. International trade partnership with emerging economies like India and China will help Africa to create more opportunities in international markets and to generate capital inflows to the continent.

Ø Political Stability and Sustainable Governance

Africa has been a land of political instability and internal conflicts for decades. The unstable government and poor governance made Africa a dark continent. Political instability overturned Africa’s opportunities and possibilities in the current world economic order. Political stability in Africa can be an important factor for sustainable economic growth and developments in the continent. A stable government can win the support and the solidarity of the people so that they can adopt and implement various public policies. A stable government and sustainable governance are the key factors of the developments in a country. In most of the African countries unrest wars, dictators, military regimes, internal conflicts civil riots make progress and developments impossible or inadequate. A stable government is inevitable for the implementation of long term public policies to develop basic sectors like health, education, infrastructure etc.

Ø Effective Poverty Eradicating Policies

Poverty in Africa has been the major hazard since long ago to threaten the development processes and economic growth. The eradication of poverty and assurance of food for all African seem to be one of the basic primary targets to be achieved in the way of attaining growth and progress. Economic crisis has deepened the poverty in Africa and the number of poor in the continent has been increased tremendously. The elimination of poverty is highly dependent on the public spending on primary sectors especially in health, safety, education, environment etc. The programmes and policies should have a profound attention on health sector.

Ø Financial policies

African countries need to maintain a strong economic and financial system capable of coping with the current global financial order. The integration of the economies of most of the African countries in to the global financial system is very minimal. The governments of the African countries need to adopt such policies that help in bringing efficiency in economic policies and financial sectors. Some of the countries seem to have maintained certain restriction for particular financial products and a restricted entry to their economic order. These restrictions for global financial products make the growth and integration to current financial order less when compared to other developing and emerging economies like India and China.

Ø Strengthening the Banking Sector

African countries need to take urgent step to strengthen the banking sector in order to maintain the economic stability by reducing the credit risk. Risk assessment and monitoring should be efficient and better capital adequacy requirements are to be persuaded. The reforms and policy changes should aim at encouraging private sector lending and facilitate savings mobilisation. Banking sector should have the ability to cope up with the current pace of the modern developments in the global financial system. Promoting private capital inflows should be an important step to be taken. Capital control strategies should involve promoting capital inflows and private investments in the primary sectors.

Some of the urgent actions need to be taken by the governments of the African countries are given below.

Ø Maintain adequate relationship with international financial institutions

Ø Boosting manufacturing and retailing sectors.

Ø Reduce the cost in order to avoid needless Costs.

Ø Bank rates should be reduced

Ø Attention on GDP growth.

Ø Maintaining high markets share values in stock.

Ø Removing tax composed on excise duties.

Ø Strengthening facilities on agricultural sectors.

Ø Strong initiatives for new industrial firms.

Ø Maintain the so far developments

Ø Bank interest rates should be cut down

Ø Maintaining sustainable financial and economic systems

Ø Improving the capability of imports and exports.

Ø Enhancing the production sectors

Ø Creating more employment opportunities

Ø Proper poverty eradication policies.

Ø Effective utilisation and implementation of funds and policies.

Ø Adequate public spending and political stability.

Ø Coping up with the current global financial system.

Ø Tourist’s taxes should be decreased.

Ø Tourism reform policies to attract more tourists.

Ø Strengthening banking and other financial institutions.

Ø Encouraging development partnerships.

Ø Extending the regional banks for maintain strong financial sector.

Ø Strengthening Small and medium enterprises

Ø Investing on infrastructure developments

Ø Adequate utilisation of FDIs.

Ø Rise in the economies of scales of the African countries.

3 Methodology

The methodology used in this project is the PESTLE analysis in order to evaluate Africa’s Political, Economical, Social, Technological and Environmental factors. The analysis gives an overview of different factors that the African countries have to take in to consideration. In this project the datas are gathered through the literature search procedure using online sources, books, articles, journals etc. The online search was carried out using the key words Africa, economic crisis, African economy, impacts on Africa, global economy and crisis, development challenges etc.

3.1 Political forces

Ø Government

Ø Tax policy

Ø Labour law

Ø Environmental law

Ø Type and Stability of Government

The instability and variations in the types of governments in African countries have been recognised as the major challenges for economic growth and social developments in the continent. Military regime and dictatorships are still prevailing in some of the countries. Political conflicts and unrest internal tribal wars make the governance and progress unsustainable and inadequate in most of the African countries. Studies show that political stability and the priority given to this issue have been decreased day by day.

Ø Tax policy

“The tax system constitutes one of the most important instruments of development policy in any country”, (Bird 1992, p. ix). A strong and healthy system of public finance and tax system is inevitable to maintain a country. Taxation is the major source of revenue for a country.

Ø Labour law

As Africa has been a land of poverty and malnutrition, the continent seems to have the highest number of child labour in the world. In Sub Saharan Africa, children constitute almost one half of the total population. As per the estimations and statistics of the International Labour Organisation (ILO) nearly 80 million children (41 percent of children under age14) are working (Jens Andvig, Norwegian Institute of International Affairs).

Ø Environmental law

Africa is facing certain environmental challenges like deforestation, desertification, degradation, pollution, lose of soil fertility etc. It is important and quite difficult for African countries to attain their national developments while addressing the international environmental laws at the same time. These environmental factors are having a negative impact on the development strategies of Africa. Deforestation causes pollution and destruction of the natural resources of Africa.

3.2 Economic Forces

Ø Economic growth

Ø Interest rates

Ø Exchange rates

Ø Inflation rates

Ø Economic growth

Some of the African countries were reported to have significant economic growth rates prior to the crisis. Out of those countries few of them have achieved a historic growth in their economy. The Gross Domestic Product (GDP) rate of Africa was 5.9% in 2008. But after the crisis made severe blow on African economy the Gross Domestic Product (GDP) has been decreased to 2.8 %.

Ø Interest rates

African countries were forced to reduce the interest rates because of the economic crisis. As Africa is a continent consists of a number countries with a wide range of cultural, social and linguistic disparities; in ordermaintain financial equilibrium and economic stability the interest rates should be decreased. In the year of 1948 the prime interest rate in South Africa was 4.50%. It has been increased again to 12% in 1979 and there has been a further increase to 25% in 1984. In the year 2010 the rate has been decreased to 10%.

Ø Exchange rates

Since the beginning of the economic crisis there has been a decline in the foreign exchange markets of the african countries. The exchange value of the currencies of almost all african countries has experienced a severe decline in foreign exchange markets. The table shows the depreciation of currency of african countries against United States dollar in 2009.

3.3 Social forces

Ø Population

Ø Education

Ø Religion

Ø Population

Africa constitutes almost 10% of the world population. High population density makes the development and progress slow in Africa. The main reason that makes serious threats to the poverty eradication programmes in Africa is the high population. During the period of 2000 and 2005 the population in Africa was 92 million. The population in Africa in 2050 is expected to be 1345 million.

Ø Education

Poor education and low literacy rate have been the major basic development challenges in Africa since long decades. The number of children who are not able to go to school because of various reasons seems to be almost 115 million. These children constitute 18% of the primary school age children all over the world. The number of children in school who may complete their primary education is very high. And further the number of children who complete the primary education and continue to the secondary level is also very less. Africa has the lowest ratio of children who complete their primary education in the world. Very few of the African countries have a better literacy rate (example: Zimbabwe, Tunisia etc).

Ø Religion

Africa has a multifaceted religious culture. Christianity and Islam are the major religions in Africa. There are a number of traditional religious beliefs in Africa. But since the rapid expansion of Islam and Christianity, these traditional beliefs are less in practice.

3.4 Technological forces

Ø Communication system

Ø Transportation

Ø Research and Development

Ø Communication system

African continent is facing challenges in the development of communications system. The proportion of the population who have access to the modern modes communication is very less when compared to that of the rest of the world. Even in South Africa, only 11.6% of the population has access to the internet. Internet is used by only 5.3% of the total population of the continent. Only in countries like Algeria, Egypt, Mauritius, Morocco etc, more than 10% of the population has access to the internet (Helge Rønning, Professor, Department of media and communication, University of Oslo)

Ø Transportation systems in Africa

Transportation in Africa is still an area to be developed. The inefficiency of their transportation system seems to be one of the major obstacles in the way of progress and development. The transportation facilities of the continent constitute has 4000 airports, 45 railways, 62 waterways.

Ø Research and Development

Research and Development in Africa are the most essential factors for innovative policy and programmes. The continent needs to give profound importance to improve scientific and technological faculty and competency in order to cope up with the pace of development in rest of the world.

3.5 Environmental factors

Ø Tourism

Ø Climate change

Ø Natural calamities

Ø Tourism in Africa

Global economy has witnessed a fastest growth in tourism all over the world. Tourism can be a major source of income for many of the African countries. The challenges of the African tourism include mainly the lack of infrastructure an inadequate facilities to attract the tourists. The marketing of the tourism destination needs to be improved profoundly and professionally. The natural diversity and rich reserve of natural resources of Africa are the main attractions of the continent. Adequate tourism packages and infrastructure developments should be the matters of serious concern in African tourism developments.

Ø Climate change

Climate change has been one of the main threats to the sustainable growth and developments in Africa. The changes in climate, especially in raining proportions make severe impacts on the agriculture sector. This makes the food security more vulnerable. The changes in climate lead to temperature variations and as a result the whole continent becomes vulnerable to diseases.

Ø Natural calamities

Natural disasters in Africa which make threats to the lives of the people and the developments of the country include flooding and drought. These affect the food security and availability of clean water in most of the African countries.

3.6 Case Study and Discussion- Crisis Hits Ghana’s Exports

This chapter discusses the case of Ghana and the impacts of the crisis on the exports and revenue from exports in Ghana.

Ø Introduction and Background

Ghana, the world’s second largest cocoa producer is located in the western region of Africa. The country was enjoying a systematic economic growth rate over the past few years. There has been an increase of 8% in GDP during the period of 2008 and 2009. The economic structure of Ghana is highly dependent on the exporting of primary commodities. The main exports of Ghana include cocoa, mining, forestry etc. Since the onset of the crisis there has been a significant short fall in the revenue from the exports as the prices of the commodities declined in the international market.

Ø Decline in export revenue

Ø Decline in foreign trade

Ø Decline in gold price

Ø Decline in cocoa price

Decline in export revenue

There has been an increase of 22% in the export revenue of the Ghana during the year of 2008. It was a considerable increase than the previous years. The highest of the export revenue has been recorded in the second quarter and since then has been decreased. The figure shown below reveals the decline in the export revenue

Export revenue 2007 and 2008 (GH¢ million)

Source: (Charles Godfred Ackah, Ellen Bortei-Dorku Aryeetey and Ernest Aryeetey)

Decline in Foreign Trade

There have been severe declines in the trade with foreign countries as the crisis has made major impacts on the developed countries with which Ghana has trade relationships. The impacts of the crisis in countries like UK, US, Japan, Italy etc made Ghana’s exporting weaker. The table shown indicates the Value of Ghana's exports by major destination from 2002 to 2007.

Decline in gold price

Decline in cocoa price

Conclusion and Recommendations for the case study

The study is evident for the fact that, Ghana has not been separated from the global economic crisis. The country seems to be more vulnerable in the region. Adequate policy measures and economic reforms should be a matter of high priority. It is very important to defend the threat of the crisis to turn down the so far progress and achievements and to preserve the growth and development of the last 15 years. Policies with innovative long term strategies will be productive in the exporting of the country. There should be sincere and effective support and encouragement for investments in exporting sector. Effective marketing and transportation facilities should be improved. In order to survive the international competence, it is important to improve the efficiency and excellence of the commodities.

4. Recommendations

The analysis of the global economic crisis and its impact on Africa leads to the basic issues of development challenges and economic growth crisis in the continent. The basic sectors in Africa are to be redefined by innovative reforms and determined planning. The recommendations I would like to suggest are briefing below.

4.1 Basic segments

Ø Poverty: The first and foremost issue in Africa to be addressed is poverty. Adequate food security measures should be carried out urgently. In order to ensure the availability of food for all, government should consider the issue with apex priority.

Ø Education: Universal and free primary education for all children in Africa should be an important agenda. Growing generation should be capable of coping up with the pace and progress of the current world order. Education should be a fundamental right for each and every African child.

Ø Health: There should be anefficient national health system with a broad and innovative primary health care policy. The effective private public partnership in health care policy is inevitable. Active association with WHO in adopting and executing health care policies and fighting communicable diseases should be a matter of serious concern. HIV/AIDS should be defended with adequate measures ranging from awareness to rehabilitation of the patients.

Ø Employment: Unemployment is a serious threat to the development of the most of the African countries. Unemployment leads to poverty and disease. The government should take urgent steps towards creating employment opportunities. Adequate labour management measures should be adopted. The Mahatma Gandhi National Rural Employment Guarantee Act in India is a best example to be followed in assuring employment opportunities for people.

4.2 Economic reforms

Ø Privatisation: Privatisation in Africa can bring a significant change in the economic performances of many of the African countries. The competition will be high and improved customer services and reduced prices will be available. Privatisation will make way to more investments and a number of employment opportunities.

Ø Trade liberalisation: Most of the African countries have certain trade restrictions such as import duties, export duties, tariff quotas, levies and charges, and other border duties etc. Restricted entry to the economy of Africa makes their integration with the global financial system very less. Africa should make a positive approach to the trade liberalisation.

Ø Open market policy: The advantages of open market can be a significant factor in the economic growth of the African countries. Avoiding the policies of import bans and export prohibitions will be helpful for the growth and development in many of the African countries.

Ø Strengthening partnerships: Improving the international partnership is an important strategy to face the challenges of the economic crisis. Partnership relationships will help to improve the marketing and exporting of the basic commodities. Economic growth can be improved through these partnership relationships.

4.3 Agriculture reforms

Ø Technology for development: The agriculture sector in Africa has been the main source of revenue for many countries. In order to improve the production and distribution there should be an adequate update using the technological support.

Ø Extending land area: There should be more attention on the extension and reforms of the land area of agriculture by considering the availability of water and marketing facilities like roads and transportation.

Ø Adequate water control systems: Water control and water supply should be an important area of consideration. In order to improve the production, the availability of water should be ensured.

Ø Research and Development in agriculture: Research and followed development policies should be encouraged in agricultural sector. Research will improve the technological application in agriculture sector. New methods and scientific approaches can be used in agriculture in order to improve the production, quality, and growth rate.

5. Conclusion

Even though the impact of the global economic crisis on Africa is severe, the region is expected to be recovered soon. With the support of the international financial institutions and donor countries, Africa can make the process of recovery a rapid success. Africa’s hope is largely a matter of demand for their commodities in the global market. The strategies to enhance the demand and to find market should be trailed with an overwhelming international support. As the major impacts of the crisis experienced in trading and capital inflows, the exporting sector and international trade partnerships should be improved with an immense attention. The protection of investors must be a matter of importance. Restrictions and trade directives should be reformed in such a way that helps to pursue the dynamic merits of globalisation and privatisation. The funds and relief packages should be utilised with adequate strategies in which public policies to make the fund available for the common people should be a matter of primary priority. Regional partnerships and trade relationships will bring stability in the whole continent and reduce the regional disparities.

A great deal of efforts should be initiated from the continent itself. Low income countries of the region deserve much attention and support. Without innovative trade and economic reforms and changes Africa can never be able to cope up with the pace and rapid growth of global financial order. While facing the challenges of the crisis, it is equally or much more important to maintain the sustainability of the continuing development strategies and goals at the same time. Infrastructure development should be a primary agenda to be carried out without any delays.

The analysis and close observation I have made through the above chapters lead to the conclusion that, the global strategies will make the efforts to overcome the impacts of the crisis a long term success for the whole Africa. As a consultant of the African Union, the global strategies and suggestions I recommended are strongly aiming at preserving the foundations of long term growth and prosperity in Africa.

6. References

· Dakar & Senegal.(2009) ‘Africa and the Global Economic Crisis: Strategies for Preserving the Foundations of Long-term Growth’ African Development Bank ,pp1-7

· Brambila Macias2 & Isabella Massa.(2009) ‘The global financial crisis and sub-Saharan Africa the effects of slowing private capital inflows on growth’ The Global Financial crisis and sub-Saharan Africa,

· David E. Sahn. (1994) ‘Adjusting to Policy Failure in African Economies’ Contributors Cornell University Press Place of Publication: Ithaca, NY. Publication Year: pp.3.

· E/ECA/COE/28/6, AU/CAMEF/EXP/6(IV), United Nation Economic and Social Council,Economic Commission for Africa, pp.4

· Justin Yifu Lin.(2008) ‘World Bank-the impact of financial crisis on developingcountries,pp10-12

· McCullock Neil.(2008) ‘The Impact of the Financial Crisis on Developing Countries’ Voices from the south, pp 8-10

· Seguino Stephanie.(2009)’The Global Economic Crisis, Its GenderImplications, and Policy Responses Professor, Department of Economics’ University of Vermont Burlington, VT 05401 USA

· Musau Stephen. (2010) ‘Impact of Global Economic Crisis on Health in Africa Africa’s Health in Washington D.C.

· Bradley & Frank. (1942) International marketing strategy: frank Bradley, 3rd ed. P, cm.

· The Commission of Experts on Reforms of the International Monetary and Financial System; 19 March 2009

· Augustine Fosu & Wim Naudé.(2009) Wider Africa’s Recovery from the Global Economic Crisis; Angle newsletter, ISSN 1238-9544

· Grant Bridgman.(2009) Africa: Taking the Gap in Modern Economic Theory

· http://www.uta.edu/faculty/crowder/papers/Chapter18.pdf

· http://www.africanexecutive.com/modules/magazine/articles.php?article=4210

· http://www.africafocus.org/docs09/gec0904c.php

· http://www.cfr.org/publication/18256/world_bank.html

· Baxter Roger, ‘The Global economic crisis and its impact on South Africa and the country mining industry,pp105-115,(http//www.reservebank.co.za)

· Africa: Global Economic Crisis, 3; AFRICAFOCUS Apr 2, 2009

Comments 1 comment

ntobeko mbona 10 months ago

Its helps a lots to understand what was happening in 2008

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