Excerpt: Impact of Financial Crisis

INTRODUCTION

Sub-Saharan Africa: Least integrated but the worst hit by the crisis

The global financial crisis was triggered by the bursting of the United States housing bubble in 2007 and the reverberations of this are now being felt throughout the world. The crisis was greatly exacerbated by the behaviour of banks, which has inevitably made the position of any country that has borrowed money worse off. Sub-Saharan Africa was largely insulated from the initial stages of the financial crisis as the majority of the countries in the region are de-linked from the international financial markets. However, with the worsening of the global financial and economic crisis, the region as a whole has now been exposed to the downturn, and growth estimates have been continually lowered from 5 percent in 2008 to 1.7 percent in April 2009 (IMF, 2009).

Many Sub-Saharan African countries are dependent on foreign finance inflows and are even more dependent on commodity based export growth (Naudé, 2009). This has left them particularly exposed to shocks and World Bank economists are warning that although Africa is the least integrated region, it could actually be the worst hit (Devarajan, 2009a). Given that Africa is already the most conflict ridden continent in the world, an exacerbation of resource scarcity could increase conflict across the continent.

Emerging markets (e.g. South Africa, Nigeria, Ghana and Kenya) were hit first through their stock exchanges and financial links with other regions in the world; but the crisis has now affected the region‟s lower income countries (LICs) through indirect channels and because they are reliant on the stronger regional economies for trade and remittances.

In addition to financial shocks, Sub-Saharan Africa is also reeling from the food and fuel price shocks of 2007-08. Many countries in the region are already making unsatisfactory progress in their efforts to achieve the Millennium Development Goals; this “triple jeopardy” has thrown millions of households into poverty and will further hinder progress (World Bank, 2009).