Some African Countries to Suffer 50 Percent Drop in Income Due to Financial Crisis
Africa will suffer a huge drop in income because of the financial crisis, with the worst affected countries seeing a fall in income of up to 50 percent, according to a new ActionAid report.
Read the report, “Where Does it Hurt? The Impact of the Financial Crisis on Developing Countries.”
Gakobwa Esperance is a Batwa woman of the Twa tribe in Burundi.
Copyright © Antonio Olmos/ActionAid
In it, ActionAid examines the different ways the crisis is affecting developing countries’ economies. The countries that will be hit the hardest, according to the report, are those which significantly opened up their financial sectors in recent years. The research predicts that Africa will suffer a drop of income of up to $49 billion, as calculated between 2007 and the end of this year.
ActionAid argues that the fall is due to both the financial crisis and the global recession - $22 billion due to the financial crisis, and $27 billion attributed to a drop in export earnings, aid and income from wealthier countries. This is equal to a 10 percent pay cut for the entire continent. However, in the worst affected countries such as South Africa, the drop in income could be as much as 50 percent.
“Although developing countries didn't make this crisis, it has become all too clear that they are in the firing line when it comes to suffering its worst effects,” said Claire Melamed, head of policy at ActionAid. “There is a real risk that development will start to go backwards in many countries as the money dries up and that the recession will lead to worsening poverty and terrible consequences for the men, women and children caught in its grip.”
The World Bank's chief economist for Africa has already predicted that 700,000 children may die over the next few years as a result of the financial crisis and the ensuing recession.
How the financial crisis is playing out in specific countries
ActionAid’s report looks specifically at how the financial crisis and the recession are playing out in middle and low income countries including South Africa, Ghana, Uganda, Mali, Brazil, India and China.
Gertruida Baartman from South Africa is 39-year-old single mother with three children.
Copyright © Eric Miller/ Panos Pictures/ ActionAid
Unsurprisingly, countries that purchased most heavily into the rhetoric of financial liberalisation, and that were big enough to attract significant sums of capital from richer countries, will be most affected by the financial crisis.
For example, the report says that South Africa, which has been a paragon of free market economics since the end of apartheid, is likely to suffer a fall in financial flows from abroad equivalent to around a fifth of its entire GDP.
The report predicts that China will fare better because the government has restricted flows of foreign capital, while most Chinese investments are generated from within the country.
“The financial system hasn't been working for development for a long time,” Melamed said. “Countries that have opened up their economies to global finance subjected themselves to massive risks but didn't get much of a pay-off in development terms.
“But developing countries do need finance from somewhere and we need a system that can give them what they need without running the huge risk of another financial crisis.”
