The Impacts of the Global Recession of 2008-2009

The world recession of 2008 to 2009 was caused ultimately by global imbalances in trade and capital flows, globalization of financial markets, the trend towards a new finance-led capitalism and the related pattern of income distribution. The effects of the recession on Africa were tremendous and are still being felt today. Africa is homeland to numerous natural resources. Contrary to this, it is one of poorest regions in the world constituting almost 10% of the world’s population and ravaged by high crime rates and the HIV and AIDS pandemic.

The worldwide economic crisis of late 2008 and 2009 made significant economic and social developmental challenges for African countries. Even if the impact of the economic crisis on Africa was expected initially to be less severe, its challenges have now been estimated to be profound. The profit Africa gained from the exports and imports of natural resources and commodities has reduced substantially. Trade with China and the United States of America became significantly feeble. Interestingly, the outcome of the recession seems to vary from country to country.

However, there have been common economic impacts seen from those countries which participate in large scale exportation. Therefore, this essay serves the main purpose of identifying the impacts made by the recession on Africa. These aspects include, impacts made on the tourism, agriculture, hospitality, banking, health, oil and mining sectors. In addition, it identifies the effects on the economy namely, global trade, foreign direct investment, remittances, foreign aid flow and over above this, the exacerbation of poverty as well the positive impacts and changes the recession brought.

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To make a start with this subject, the consequences of the global economic crisis have been manifold. The crisis has brought a profound economic decline in the economies of African countries and the growth rates have dropped. Furthermore, the impacts brought about by the recession hit all major economic goals, causing a down turn in the natural resources sector and recent development strategies.

International trade has played a pivotal role in the economic growth of African countries, with the demand of African commodities increasingly growing in the global market. When the recession had worsened, the most immediate effect was a decline in the exporting and demand of African commodities. In 2009, global trade experienced the sharpest drop in seventy years especially trade in iron, steel and manufacturers and industrial machinery were affected severely. 60 percent of African exports go to the European Union as well as the United States. 1] Thus, considering the fact that America and European countries were adversely affected by the financial crisis, where imports fell by 2 and 5 percent respectively and a substantial fall in the prices of commodities such as copper and oil, African countries were the most vulnerable. As a result, there has been a major decrease in the economic growth rates and account balances. This is saddening, considering the fact that many countries depend on the exporting revenue of natural resources such as oil and minerals.

By way of example, mineral exporting countries such as Zimbabwe, Zambia and the Democratic Republic of Congo dropped approximately 6 billion US dollars in 2009. Furthermore, countries such as Nigeria and Angola saw a deficit of about 79 million dollars and Uganda, the second largest coffee producer and exporter in Africa, experienced a shortfall from 36. 3 million to 23. 9 million. Moreover, South Africa’s total exports decreased significantly in 2009. The most affected product being wine which experienced a large drop in total volumes.

Pursuing this point further, the decline in the price of African commodities led to a major loss in trade and trade tax revenue. For instance, crude oil which plays a vital role in making products such as paint, diesel fuel, heating oil and make up has been reported to be the most affected commodity in Africa. There have been numerous statistics showing its decline by 50 % between 2008 and 2009. [2] Over and above this, there has been a 20% fall in the prices of coffee, sugar, copper and cotton during this period.

According to statistics given by the African Development Bank, Africa has experienced a decline of 15 billion US dollars in trade tax which accounts for 4. 6 % of government revenue and 1% of Gross Domestic Product. Moreover, the major African oil producers Angola and Nigeria together suffered a loss of 4. 6 billion US dollars in their oil exports. In fact, this has been the largest loss for oil exporting countries of Africa. With regards to the oil, the demand for international market has been reduced by a large margin, coupled with a decline in oil prices.

These are the circumstances that have lead to a decline in the oil sector. Oil is a major source of energy in Nigeria and the world at large. As the mainstay of the Nigerian economy and by playing a pivotal role in shaping the economic and political destiny, the reduction of oil exporting revenue consequently affects the economy at large. [3] In the case of both Nigeria and Angola there was a decline in government revenues from 30% in 2007 to 22% in 2009. This in turn significantly reduced the value of the currency. By way of example, we shall look at the impact the recession had on the tourism and hospitality sector.

Tourism is key sector for triggering economic growth and in addition, it is a major source of foreign currency and its labour intensive nature ensures that there is employment. Countries like Morocco, Mauritius, Uganda and Kenya are largely dependent on their tourism revenues. Most notably, Botswana’s tourism sector is one of the counties major economic contributors, with tourist attractions like the Chobe National Park, Central Kalahari Game Reserve, Gemsbok National Park to mention but a few. Like numerous other industries, this sector was adversely affected by the global economic crisis.

Mainly hotel reservations dropped immensely and Mauritius and Tanzania faced numerous tour cancellations. Consequently, a decline in tourism revenue affects food security, purchasing power and potential for expansion. Moreover, in Kenya we see a steady fall in remittances in October 2008 from 61 million dollars to 39 million dollars in January 2009. In fact, tourism receipts went down by 13% in the last quarter of 2008. Additionally, tourism in Zimbabwe was amongst the fastest growing sectors of the economy by contributing significantly to Zimbabwe’s Gross Domestic Product during the period 1980 to 2000.

However, as a result of the recession, tourism was the third largest foreign exchange earner in Zimbabwe after tobacco and gold. [4a] In spite of many economic and political hindrances, Zimbabwe is host to one of the Seven Wonders of the World, the Victoria Falls and is home to many tourist attractions such as Lake Kariba, the Eastern Highlands, Great Zimbabwe ruins and boasts of a favourable warm climate. This explains why tourism has historically been an important sector in the Zimbabwean economy. The industry currently employs a significant percentage of the working population.

This leads us to the issue of unemployment. Unemployment rose quite drastically in 2009, between 13 and 18 million jobs were lost according to the ILO. [4] Unemployment is rising as a result of the laying off of workers in export orientated industries. Furthermore, the continuing decline in the consumers’ purchasing power reduces demand for manufactured goods, such as household items, clothing and food. In the DRC, 100 000 workers lost jobs following the closing of 40 mines and as a result of 17 mining firms leaving the country.

In addition, 80 000 workers in Zambia’s copper belt were left jobless. Many Zimbabwean citizens go abroad in search of greener pastures, and remit money to their families back home, with the sole purpose of investing and consuming. Most of these citizens are either living in South Africa or the United Kingdom. Thus, the world recession reduced employment opportunities to those citizens working abroad. Moreover, there has been a rapid decline in remittances since rising unemployment in Europe is compressing the demand for migrants.

The estimated $15 billion dollars sent to Africa as remittances each year dropped significantly by 11%. A decline in remittances also affects household income security. It is of adequate importance to note that these remittances comprise of capital inflows, which are the main source of Africa’s external revenue. These include foreign aid, migrant workers’ remittances and charities. As far as foreign aid is concerned, the majority of African countries largely depend on foreign aid and other charities from the international communities such as Aid for Africa as well as the United Nations. 5] Before the crisis arose, many African countries saw an increase in their annual aid and received a lump sum of money and commodities from many of the countries who form the G8, as a result of the their 2005 summit. However, when the crisis had a profound impact on the American and European economies a number of these developed countries were either forced to withdraw or reduce their aid to Africa. As far as the Organisation for Economic Cooperation and Development (OECD) is concerned, Africa is getting the world’s maximum total amount of foreign development support which comprises of almost 27. 19 billion US dollars. 6] It would be a phenomenon if the African agricultural sector were to be left intact by the recession, especially those African countries that have agriculture as the backbone of their economy . Agriculture dependent economies such as the Ethiopian, Burundian and Malian saw a short fall in their agricultural products, leading to the reduction of their export revenues. [7] In light of this, many countries failed to reach their prescribed goals for production and exportation. As a result, farmers have been left helpless and mostly unemployed as the price of buying fertilizers, agricultural machinery and seeds increased drastically.

This has led to a decrease in cultivation. Consequently, the less crops produced trigger an increase in food prices. The economic turmoil made the farmers helpless as they were unable to purchase seeds and fertilizers. This has lead to a decrease in cultivation and the export of products, hence worsening the impact on the food crisis. In this light, African governments have experienced a short fall in revenue which has threatened food security in Africa. To make matters worse, food aids to Africa have been considerably lower, therefore, the number of people facing food insecurity has increased tremendously.

There is no doubt that the mining sector in many African countries was affected by the recession, considering the fact that Africa is rich in terms of mineral wealth. Botswana has an open economy which has the mining sector as its backbone. However, the global recession saw a decline in export demand and a reduction in prices of minerals such as nickel, diamonds as well as copper. As a result of this, there was a reduction in public revenue and company sales which lead to massive unemployment. The immediate result of this massive unemployment meant lower household expenditure and savings.

On the whole, Botswana’s mining sector is characterized by production cuts, staff retrenchment and lengthy plant shutdowns. STOPPED While there is unemployment one should take into account the immediate effect of unemployment which is poverty. In Africa, women bear most of the economic hardships as they are in many instances widowed as a result of the HIV and AIDS pandemic and immediately take on the role of the bread winner. Regardless of this, due to the recession women are the first to lose their jobs, because men are regarded as the ‘legitimate’ jobholders. 8] Alas, many are left at a dead end, facing an increase in food prices coupled with unemployment. This usually leads to an increase in the cases of malnourished individuals and the most vulnerable being children. Having said this, it is important to note that some parts of Africa are less pronounced than others depending on the strength of the economy. In fact, because of women’s unequal position in the household and the workplace, girls are also more likely to be taken out of school first or not given medical treatment in order to cut down on family costs.

In the same vein, the health sector which was already in a state of commotion prior to the recession has been further weakened. The health sector is reliant on aid from foreign organisations as well as financial packages. This aid can be in the form of money, drugs, machinery, medical and surgical implements and sundries and toiletries. The World Health Organisation and the Overseas Development Association are the main donors. Prior to the crisis, the African health sector had developed considerably although it faced many challenges but as the crisis worsened so did the condition of the sector.

This can be illustrated by a cut down of all financial and social programmes, reduction in investment in the health sector as well as the decrease in supply and delivery of health care and other social services. The Overseas Development Association is the main organisation that deals with Aids victims by funding their medical needs. Thus a cut in this aid increases the rate of mortalities as well as the rate at which the pandemic spreads. From the onset of the crisis, African stock markets have been vulnerable and hence suffered severely.

In Egypt and Nigeria the declines were reported to be 67% whilst many other African countries faced similar situations, these countries include Mauritius, Zambia, Kenya and Botswana. [9]In truth, most immediate effects of a crippled stock market are threats to the banking sector. Bearing this in mind, many banks have primarily felt the impacts of the economic turmoil. Surprisingly, African countries have suffered more losses than developed countries. Firstly, the balance sheet of banks was severely bruised. This takes place when borrowers are unable to meet their debt obligations due to a weakened economy and low income.

Prior to the recession, well performing banks could afford to issue out loans, however, due to the financial crisis they faced because of the recession these prominent banks became bankrupt. Besides this, the IMF reports that the flow in nonperforming loans has caused huge profit losses in the banking sector. One can agree that the global recession was coupled with devastating impacts on society as a whole. However, the aftermath of the recession has paved way for economic strategies to prepare us for future crises. Whilst the effects of the recession subside there has been a massive decline in global food and energy prices.

Moreover, there has been stabilization in this regard which has come as blessing for countries such as Botswana and South Africa this can be seen by an affordable and stabilised level of food prices and energy. With regards to unemployment the South African government created 500,000 ‘job opportunities in 2010 mainly through a public-works programme which was also done in preparation for the 2010 FIFA World Cup in South Africa. Furthermore, the government has set a target of 4 million new jobs by 2014. The government insists it will create ‘decent work’, even if hese jobs are only temporary as part and parcel of the Expanded Public Works Programme. However the government has reassured the public that these jobs are just a stepping stone for what is to come and a bridge to pave way for permanent, rights based employment. Additionally African governments namely Botswana, Namibia, Tanzania and South Africa have embarked on programmes such as negotiating a framework for a unified response by business, government and trade unions, with an emphasis on avoiding, where possible, retrenchments. [10] There has also been a reduction of interest rates.

On the issue of interest rates, as a 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.

Contrary to this observation the Democratic republic of Congo is the only country that has not complied with strategy. Instead, Congolese banks have actually increased their interest rates. In South Africa the government has taken advantage of the situation by initiating policies and programmes which have reduced the negative effect of the crisis on child poverty and large scale poverty. These programmes will also provide emergency relief to households in distress in this regard although poverty is still problematic, many African countries have taken up social grants, most notably the child-support grant, as well as old-age pensions.

Approximately 13 million south Africans benefit from the social grant system, also South Africa ranks among the as one of the most extensive in middle-income countries. [11] Similarly, Botswana and Namibia have taken up various grants with the main aim of fighting against the deepening of poverty and distress for the foreseeable future. Many banks went bankrupt during the recession and in order to prevent a similar scenario some African countries have taken several measures to ensure that there is a constant flow of credit in banks.

This has been done by increasing the liquidity to banks and other financial firms in countries like Togo, Niger, Mali and Benin to name but a few. [12] Other countries have resorted to financial packages and new credit facilities to mobilize cash flow. This has been done in Tunisia, Cameroon and Liberia. International trade has played a vital role in the economic growth of African countries as a source of external revenue. So it is thus of adequate importance to solidify and pay attention to Africa’s relationship with the emerging economies of the world which is a handy and important business strategy.

This helps Africa to find new markets to advertise and sell African commodities, over and above this it is a strategic way to accelerate export revenue mainly for the oil and other primary commodity exporting countries. On the whole it is encouraged to maintain strong ties with countries such as India and China in order to create opportunities in international market and to bring capital into Africa. As a result of the crisis a greater effort has been put to promote women’s equality and many donors have ensure that women’s voices are heard in high level discussions, conferences and forums, namely the G20 and G8 meetings.

Furthermore aid has been increased significantly and an adequate amount t has been directed to cater for women and to support women’s empowerment programmes. Generally there has been an increase in organisations that strive for a world where women are equal, secure, respected and proud. Womankind works together with women’s organisations around the world to reduce violence against women, and to ensure women actively participate in society and ensure that their sole purpose of fighting for women’s rights is upheld. As a final remark, Africa has suffered severe impacts as a result of the recession, but will recover quite soon.

Even if the general impact on exports was severe, it was not evenly distributed among sectors, regions and types of enterprise. With the help of the United Nations and many other donors and organisation Africa is at the brink of recovery. Additionally, Africa is in an advantageous position considering its numerous mineral wealth, hence we should rely on these commodities to safeguard our future. Considering the fact that the crisis abruptly affected trade African countries should implement strategies to enhance the demand of their products and to find more markets.

Thus it is important to maintain close ties with international trade partners in order to have a constant flow of capital. I urge governments most notably the Zimbabwean government to to actively participate in economic activities and capital generating schemes, which Increase agricultural productivity which in turn raise output and lower food prices, hence reduce inflationary pressures and the demand for imports. Secondly, these governments should also carry out further research to prevent future crises or better preparation for future crises.

This research should tackle the areas most affected by the recession such as employment, social welfare support, the health, agricultural, mining and tourism sectors and social prevention for vulnerable groups such as farmers, women, children and the labour force in general. Above all, I strongly feel that aid, funds and relief packages are not given to the appropriate people. Realistically speaking many government officials abuse their privileges and sell these packages for their own benefit, thus there needs to be a strict policy that ensures that these packages are readily available for the needy.

From this research, I have concluded that in order for Africa to overcome the impacts of the recession, global strategies are a necessity in order to preserve the foundations of growth and wealth in Africa.

END NOTES

1. R. Triffin, The International Accounts of the United States and their Impact upon the Rest of the World, La Banque Internationale de Luxembourg, Luxembourg, 1985,pp. 12-30
2. R. J. Shiller, The economy and why it matters for global capitalism, Princeton University Press, New Jersey, 2010, pp. 17-51.
3. S. A. Madujibeya, “Oil and Nigeria's Economic Development”, African affairs, Vol. 75, No. 300, Massachusetts Amherst, Massachusetts,1976, pp. 284-316.
4. M. T. Hadjimichael, “Growth in Sub- Saharan Africa,” IMF Staff Papers, Vol. 43, Zimbabwe, 2009, pp. 605–633.
5. R. Triffin, The International Accounts of the United States and their Impact upon the Rest of the World, La Banque Internationale de Luxembourg, Luxembourg, 1985,pp. 28-43.
6.  Ibid
7.  S. Seguino, The Global Crisis, Its Gender Implications and Policy Responses, Burlington, Vermont, 2009, pp. 1-25
8. R. A. Posner, A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression, Harvard University Press, Cambridge, 2009, pp. 16-28.
9. S. A. Madujibeya, opcit, pp. 317-321
10. D. Sahn, Adjusting to Policy Failure in African Economies, Cornell University, New York, 2010, pp. 3-19.
11.  Ibid
12. Ibid, pp. 27-37.

BIBLIOGRAPHY

1. M. T. Hadjimichael, “Growth in Sub- Saharan Africa,” IMF Staff Papers, Vol. 43, Zimbabwe,2009, pp. 605–633.
2. S. A. Madujibeya , “Oil and Nigeria's Economic Development”, African affairs, Vol. 75, No. 300, Massachusetts Amherst, Massachusetts,1976. R. A.
3. Posner, A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression, Harvard University Press, Cambridge, 2009.
4. D. Sahn, Adjusting to Policy Failure in African Economies, Cornell University, New York, 2010.
5. S. Seguino, The Global Crisis, Its Gender Implications and Policy Responses, Burlington, Vermont, 2009.
6. R. J. Shiller, The economy and why it matters for global capitalism, Princeton University Press, New Jersey, 2010.
7. R. Triffin, The International Accounts of the United States and their Impact upon the Rest of the World, La Banque Internationale de Luxembourg, Luxembourg, 1985.

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