By Clive Siachiyako

Global Economic Crisis Impact on Africa

All over the world today, countries are grappling with the current economic crisis and how to deal with it. Recently, the G-20 leaders met in London to share ideas on how to respond to the impact of a potential contraction in the global economy of 1.7 percent and 6 percent drop in the volume of global trade. While it is true that the crisis did not originate in Africa, it is certain that African leaders should play a part in planning how to deal with it. An Expert Group Meeting on Industrial Investment Policies recently held in Addis Ababa observed that Africa is affected by the financial crisis in many ways including reduced trade, financial growth, reduced remittances and stagnation in official development assistance.

Trade reduced due to falling prices and even more by reduced volumes. This means that growth that was fast reduced much faster for most African economies. The Expert Group’s Meeting which sought to address challenges hampering African industrialisation further observed that foreign direct investment (FDI) is falling rapidly than global investment. From empirical evidence, FDI has not been a key driver of investment in Africa. As a proportion of Gross Domestic Product, FDI in Africa it accounts for about 5 percent.

The Meeting indicated that key to growth under the current condition is the ability of the economy to adapt to new changes. The Meeting also added that there was need for Africa to highlight the fact that profitability in manufacturing is as higher at 20 percent than in developed economies and that the major driver of investment under the current global economic crisis is local investment. Africa’s lack of industrialisation is ascribed to inappropriate industrial policies, problems associated with infrastructure, market size, and lack of technology as well as lack of information to support investment policy formulation due to week partnerships between investment promotion stakeholders in both public and private sector which impact negatively on the evolvement of common shared vision.

Worse still, empirical evidence show that the trend in foreign direct investment flows is declining globally, with corporate investment expected to decline more. This will degenerate the dismal performance of global economies especially the economies of developing countries. According to the World Bank economic growth projections, developed countries in 2009 will grow only by 0.3 percent from 2.7 percent in 2007 while developing countries’ growth is expected to drop to 4.5 percent in 2009 from 7.9 percent in 2007. Unlike in previous economic recessions when low income countries (LICs) were not integrated in the world economy, they are now to a great extent more integrated through trade, FDI and remittances. With heavy dependency on one or two commodity exports, developing countries are destined to face harder times as the economic depression continues especially that most of them have feeble direct domestic investment strategies that can insulate them in times of global economic down turns.

Several economists, development analysts and political scientists predict that the world economy will decline by -3 percent while developing countries will stagnate. In addition, world manufacturing is expected to decline by -18 percent, a phenomenon likely to have grave negative impact on economies depending on foreign markets. With such an economic poor performance, it is obvious that countries are hurting and people are yet to lose jobs. But what is more striking is that for each job loss, there is a family whose livelihood is severely threatened, making the already difficult target of meeting most economic targets such as Millennium Development Goals by 2015 even more distant.

In that vein, the Expert Group Meeting held in Addis Ababa recommended that Zambia Development Agency (ZDA) needs to respond to the impact of global economic crisis by evolving new approaches to trade and investment promotion. This entails that ZDA must explore approaches that look at the domestic economic players as a source of investment in order to stimulate an investment promotion strategy that is underpinned by local development.
The Expert Group Meeting also recommended that Zambia Development Agency should heighten its resolve to play a forceful role in collaborating with Government and other stakeholders in the development of national industrialisation and boosting domestic sector investment for Zambia to have a robust supply of services to foreign investors and the general economy.

The Meeting thus endorsed that there was need for Africa to establish mechanisms that ensured that FDI promotion strategies support industrial development through linkages with identified domestic economic players. The Expert Group’s Meeting was attended by African Union, United Nations Industrial Development Organisation, United Nations Development Organisation, United Nations Economic Commission for Africa, African Investment Promotion Agency Network, and strategic ministries and agencies.