Wednesday, October 22, 2008
The Global Financial Crisis: Africa's Blessing In Disguise
So in my economic development seminar, we talk about a lot of things. One of the things we discussed last week was the effect of the financial crisis on African countries. Many of us agreed it might end up doing more harm to African countries and essentially worsen their already bad economic situations. But after some thought I decided to play devil's advocate. What if I said that the global financial crisis might be bad for the rest of the world, but could essentially be a good thing for many African countries? Would you consider me plain ignorant, naive or maybe, an extremist who knows nothing about what she's saying? Probably. I would too. But before you start throwing out the accusations, take a minute to consider a couple of things.
It is expected that the level of global trade will go down over the next couple of months due to the relative lack of capital in the global system and as a result, reduced levels of production.
This will be bad for many African (and developing) nations because they get most of their foreign capital through trade.
Not necessarily. African countries might have to reduce their level of imports, but this might actually be a good thing:
-Firstly, more African countries could concentrate on the consumption of local goods over foreign products (Eg. Ghana produces local rice, however due to the importation of rice from the US, US rice is preferred over local rice...even to the point where local rice is sometimes frowned upon). As a result, the infant industries (developing industries - mainly manufacturing) in these countries could (finally) be given a chance to grow.
-Secondly, the terms of trade offered to many African countries by developed countries are usually not that favorable in the first place. Lower trade with developed countries could actually spare many African countries from these unfavorable terms and help them cut their losses in the long term.
-Thirdly, since trade between developed countries and developing countries might be stifled due to the crisis, this might actually be a grand opportunity for African nations to give regional trading another go. Many of my course mates mentioned that attempts at regional trade in Africa have proved futile in the past....but maybe, its a near catastrophe like the financial crisis that is going to help us actually get it right this time around.
-Fourthly, trade in the general scheme of things, also involves the importation of the foreign country's economic climate to some extent. This is reflective in the influence of prices of imported goods on the domestic market etc. Which African country wants to import the negative effects of the financial crisis to their already unstable economies???
Historically, the amount of foreign aid given out reduces whenever there is an economic downturn. This is another expected result of the financial crisis. Given the spate of wars, famine and other issues on the African continent, lower foreign aid cannot possibly be a good thing.
It is true that a lot of nations are going to suffer from the lowered foreign aid they receive from developed countries. But then again, its about time - that we reduced the amount of foreign aid we receive, I mean. Not the suffering.
- First, most of the foreign aid that African countries receive from developed countries come with conditions -- conditions that ultimately benefit developed countries in the long-run and drive African countries into more debt. It also makes African countries more dependent on the developed world. A break in this parasitic chain might actually be what many African countries need to get on their feet. Don't get me wrong, I know the initial effect will be mind-blowing and a lot of suffering will happen...But where much is given, much is expected in return. By not getting more foreign aid (and its attendant conditions) we might actually realize that we don't have to be dependent on these countries and therefore ensure that we come up with suggestions and policies that are beneficial to our respective countries and not necessarily out of compromise for the lending countries.
- Second, the less foreign aid we receive, the lower the amount of debt we have to pay back. Simple as that.
- Third, a crunch in our monetary reserves might actually make us WAKE UP! African economies do have the capital to do what they have to....they only choose not to...or are forced not to (eg. through conditions given with foreign aid) With the relatively shallow sea of money to swim in, we would be inclined to allocate what money we do have efficiently....meaning, in the long run some people who never got the chance to enjoy basic human rights might actually get to. Of course, this is dependent on whether our governments decide to take a more socialistic approach to handling the situation, instead of going with the overplayed capitalistic notion of "the market will sort itself out". Most African countries have historically socialist-type foundations --and by socialist I mean, the focus is on the entire society and not on the individual -- so this shouldn't be a problem.
I know that many of my responses sound too simple, and do not take a lot of things into consideration, but I guess what I am getting at hear above anything else is that African nations should not sit down and accept out rightly that the financial crisis is a roadblock to us. We need to explore our options and BRAINSTORM BRAINSTORM BRAINSTORM.
Besides, why should we have to take on economic systems that bring us more problems than solutions, and which has ultimately succeeded in baffling and wrecking havoc in the very countries that suggest that we adopt their policies and strategies? (No wonder Goliath turned out to be weaker than he thought he was)
If we do nothing within the next couple of years with regards to our respective economies, we should at least aim for a CHANGE IN IDEOLOGY. Its been way overdue, and maybe, this financial crisis is actually the wake up call we need.
That said, our LEADERS need to become what their titles suggest: LEADERS. Without leaders who are willing to put their personal interests aside and work towards protecting and developing their societies, we are going nowhere. Seriously. So, as much as possible, in any way you can, try to sensitize the leaders in your communities to think OUTSIDE THE BOX! Many of the most significant advancements in thought, invention, systems etc have been born out of "calamities".
Okay, so now I'm done with my little spiel. I also came across an article in the Economist which also looks at the effect of the crisis in Africa from a similar angle. Check it out at: http://www.economist.com/displaystory.cfm?story_id=12376610 .Feel to agree, disagree, suggest alternatives etc....but constructive comments and criticism only. Thanks.
*Photo source: http://lcrcollection-shop.com/repositorioarchivo/?S=A