Recession in Africa-Pouring Water on a Drowned Mouse

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Recession in Africa:

Pouring water on adrowned mouse

Shati Itminan

ID: 2008-2-10-121

Section: 5

Md. Ashrafuzzaman

ID: 2008-2-10-136

Section: 5



“Recession” or the financial crisis is the most common buzzword in the global arena of

business and trade world today. Since 2008, much of the industrialized countries of the

world entered into a recession which was mainly originated from the rapid increase of the

value of real property like housing in USA. Securitilization and deregulation of real estate

mortgaze also triggered the problem. This incident got sharp by the increase in oil and

food price. As a result, most of the countries of the world suffered a rise in

unemployment, fall in GDP (gross domestic product), slumping commodity prices and

the increasing inequality.

Recession affected almost all the countries of all continents. However, all the countries

were not the worst sufferers. It affected the countries of North America and Europe

badly. It also affected Africa but not in much extent. African economies have been

primarily affected by reduced global demand and lower prices of commodities such as

oil, platinum, nickel, gold, and copper. Several under-developed countries like Nigeria ,

Uganda , Ethiopia faced a problem of not getting sufficient aids from the developed

countries. South Africa was the first country to fall in recession in Africa.

Recession- what is it?

According to the Encyclopedia Britannica, recession or financial crisis is adownward

tend in the business cycle characterized by a decline in production and unemployment,

which in turn causes the income and spending of households to decline. Even though not

all households and business experience actual decline in income, their expectations about

the future becomes less certain during a recession and cause them to delay in making a

large amount of purchase or invesments.[1] There are many reasons for a recession to

start. Something might happen with the stock market or in the business world that scares

consumers, which we all are in some way or another. Something that makes people hangs

on to their money instead of spending it.Reduced spending by the consumer means

companies have to reduce their output. If this happens for long enough it will mean a

reduction of jobs. When people become unemployed, they typically stop spending. The



more jobs are lost, the less the consumers consume. The fewer consumers consume, the

more jobs are lost. It turns into a vicious cycle.

Recession or financial crisis can affect a country’s economy by some ways. It may

increase the inflation rate, raise unemployment level, lower the gross domestic product

(GDP) and make a misconception about the future.

The financial crisis of 2008 also known as the “recession of 2008” affected all the

countries of world more or less. Like all other continents, it also affected the poor

countries of Africa.

Pre recession scenario of Africa:

Africa also known as the “Dark

continent” is the world's poorest

inhabited continent. As of 2006,

approximately 922 million people were

living in Africa in 54 different

countries. From the beginning of the

history, African countries are lagging

behind in economy. Twenty five

countries of Africa have been ranked

lowest amongst the natons of the

world. The decolonization of

Africa was fraught with instability

aggravated by cold war conflict. Since

mid-20th century the Cold War and increased corruption and despotism have also

contributed to Africa's poor economy. Much of Africa has stagnated and even regressedin terms of foreign trade,investment, per capita income, and other economic

growth measures. Poverty has had widespread effects, including low life

expectancy, violence, and instability, which in turn have perpetuated the continent's

growth problems. Most of the countries in Africa have the National GDP per capita

below 4000 us dollars. Here the picture shows that only a few countries like Angola,

Figure- 1: The GDP of African Countries [2]



Sudan, Mauritania, South Africa has GDP over 4000. African countries are also suffering

from high inflation followed by low wage rate and high unemployment rate. However,

recent data suggest some parts of the continent are experiencing faster growth. [3]

Effect of Financial Crisis in Africa: Financial crisis had a multi-lateral effect on the

economy of Africa. It affected Africa in many ways. African countries, specifically those

who strongly rely on the export of their natural resources, are feeling the crunch of the

global economic crisis. African countries were affected in several ways. For example-

reduced GDP, higher inflation and unemployment rate , not getting sufficient aid from

donor countries etc.

Fall in GDP: Although Africa is the poorest continent, Africa showed a promising

improvement in GDP. After a half a decade of strong economic growth, the worldwide

crisis is threatening Africa's economic, political and social perspectives. According to the

report of “African Economic Outlook”, the current global economic downturn has

seriously affected African economies with GDP falling down from a projected 6.6% to

2.3% in 2009 (as of May). The report covers 47 African countries, up from 35 last year.

With a projected growth rate of only 2.3%, and a bias on the downside, many people will

fall back into poverty.[4]

The annual percentages of change in GDP are almost 5%. Thefall in GDP is nothing but an effect of the

global financial crisis. The poor countries

magnaged to evade from the effect of low

GDP. However, they all were affected by

the change in GDP. Analysis showed that

the countries that had a comparatively high

GDP, suffered more than the countries

with lower GDP. South Africa experienced

the biggest change of GDP among the

African countries. Figure- 2: Annual % change of GDP[5]



18.4% respectively. Essentially, African economies remain overly exposed to global

commodity price volatilities with high dependence on imports; which made domestic

inflation across country to be sensitive to local currency depreciation, global inflation,

and global commodity price upswings. As pressures to these indicators remain high

across countries, we expect average inflation to further increase in the third quarter albeit

marginally.

Zimbabwe, a country of Africa had an “incalculable” inflation rate. It had inflation rate

about 8000% recently, which is worlds highest. Other reports suggest the rate could be at

near 15,000% and the International Monetary Fund had warned it could reach 100,000%

by the end of the year. Zimbabwe’s official exchange rate is almost ZW$30000 = US$1

now. [7]

Rise in Unemployment:

Like USA, Australia and other developed countries, financial crisis caused the high

unemployment rate in the African countries. In Africa the unemployment rate is the

highest in the world. In a period of financial crisis or recession, organization do not

Figure- 4: World’s unemployment Rate [8]



usually take any major and large investments. They also lay off their employees to

maintain the equilibrium rate of cost and demand. So the unemployment rate rises. The

same scenario took place in Africa. Zimbabwe's unemployment rate has spiked to 94

percent, meaning that fewer than half a million people in the country are formally

employed."At close of 2008, only six percent of the population was formally employed,

down from 30 percent in 2003," said a report from the UN's Office for the Coordination

of Humanitarian Affairs (OCHA).Out of the country's 12 million people, only 480,000

have formal jobs, down from 3.6 million in 2003, the report said. Kenya, Zambia,

Mozambique had unemployment rate of 40%, 50% and 60% respectively[9].

Although

being a developed country, South Africa faced the worst unemployment rate ever in

2008-2009. The jobless rate increased to 23.5 percent from 21.9 percent in the previous

three months, Statistics South Africa said in a report released in Pretoria today. The

number of people out of work rose to 4.18 million from 3.87 million.[10]

Passive Effects of Finanacial crisis: Our study revealed that, there may be some passive

effects of financial crisis on Africa. This effects include, health problem, aid problem

etc. The world is in recession. Governments are worried about finding solutions to their

economic woes. This has led to an overlooked big question; what will happen of

providing aid for Africa? While millions of individuals in the West watched their stock

portfolios decline by precipitous amounts, there were millions of others in Africa that had

no idea the world was in an economic flux. This might have been fine if it were not for

the fact that much of the aid coming into Africa arrives from Western states, especially

those who are members of the G-8: The United States, Russia, Germany, France, Britain,

Italy, Canada, and Japan. As the world began to experience a deepening recession,

government bailouts counted in the billions of dollars, and concern over domestic job

loss, there was the beginning murmur of concern about foreign aid. The donor countries

can not provide adequate aid for the African countries. As the African countries are

largely dependent on the aid, economists think that Africa will face a problem of

healthcare, education, social stability etc. [11]



No doubt, Africa is the poorest continent of the world. Almost all of the countries there

lie below the poverty line. This continent has been dogged by the creepy hand of

deficiency for years and the global financial crisis of 2008- 2009 made Africa worser

than before. Africa’s GDP, Inflation, Unemployment all were badly affected by the

recession. Most of the countries became the victim and their economy became shocking

than the past. In a word, the financial crisis made the poor countries of Africa poorer.

Recession in Africa: Pouring water on a drowned mouse- our title focuses this.

Since the economy moves to the waterfall, no one can stop this. Some will profit from it,

many will suffer losses, some great losses, but at least, it will lead to a bright blessed day.

We hope that Africa will be better prepared to handle it and wait for the better days in

future.



References:

1. “Recession” , page: 977, The New Encyclopedia Britannica, Volume – 9, 15th edition.

2. http://en.wikipedia.org/wiki/File:Africa_by_gdp.png

3. http://en.wikipedia.org/wiki/Economy_of_Africa.html

4.http://www.financialnigeria.com/DEVELOPMENT/developmentreport_category_item

_detail.aspx?categoryid=10&item=138

5. http://www.un.org/ecosocdev/geninfo/afrec/vol22no4/gdp-graph.gif

6.http://www.databankgroup.com/privatecontent/File/knowledgebank/Africa%20Inflatio

n%20Update,%20August2008.pdf

7.http://www.databankgroup.com/privatecontent/File/knowledgebank/Africa%20Inflatio

n%20Update,%20August2008 .pdf

8.http://blogs.worldbank.org/files/growth/image/World%20and%20Regional%20Female

%20Youth%20Unemployment%20Rates%20by%20sex,%202006_.JPG

9. http://en.wikipedia.org/wiki/List_of_countries_by_unemployment_rate.htm

10. http://www.bloomberg.com/apps/news?pid=20601116&sid=aoB7RbcZCRfU.htm

11. http://www.scienceinafrica.co.za/2009/february/health%20care%20Africa.htm

Recession in Africa-Pouring Water on a Drowned Mouse

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