By G. Pascal Zachary
The writer is the author of three books, Endless Frontier, The Diversity Advantage and Married to Africa. He was columnist for The New York Times, was foreign correspondent for the Wall Street Journal and had taught journalism at stanford University and is now a visiting scholar at the University of California’s School of Informintration. He splits his time between Berkeley, California and Nairobi, Kenya.
The US suffers rising job losses. Britain nationalises its banks. Once high-flying small economies, such as Ireland, Hungary, Iceland, break down. Even robust China and India experience slower growth, curtailed ambitions, broken dreams.
Yet in sub-Saharan Africa, there are few hints of the global financial crisis that’s consuming the capitalist world.
In fashionable African cities, residential home prices remain stratospheric. A typical Western-style house in Kampala or Accra, for instance, now costs an astonishing two to three times the prices of a comparable home in, say, Cleveland, Omaha or other cities in the American heartland. While home prices are crashing from Madrid to Dublin and Miami to Los Angeles, African prices remain near or at record-high levels. African banks, meanwhile, are rock-solid compared to their debt-heavy counterparts in the US and Europe. While international bankers went bust by making legions of bad loans, African bankers stuck to earning profits the old-fashioned way: paying very little to depositors, and earning a big ‘spread’ by buying guaranteed government debt, which yielded healthy returns.
Even deficit spending by government – long the bane of Africa – seems positively puny compared to the massive debts that the US and some European countries face. The new Obama administration is proposing spending plans that would create a record US deficit of more than one trillion dollars – and this coming on top of a record deficit engineered by the outgoing Bush administration.
To be sure, there are reasons to think that Africa and its peoples will not be spared the ill effects of the global capitalist financial crisis. From Ghana to Kenya, governments are having a harder time raising money for infrastructure projects – and selling official debt, of bonds.
Foreign investment in sub-Saharan Africa, which reached record levels in recent years, is retreating, evidence of investor caution, not any underlying lack of optimism about the region.
Finally, an important source of African growth – export of raw materials to China, India, Europe and the US – may suffer simply because the global slowdown means less consumption, everywhere.
Add all these factors together and an African financial bust is possible. Popular equity investments, such as shares in Safaricom, are already trading at unexpectedly low levels. If real estate prices were to fall dramatically, a chain reaction could occur, taking down big and small investors alike, and over time causing wide suffering to ordinary Africans.
Even assuming stability in real estate prices, the global capitalist crisis surely will cause a fall in ‘remittances’ – money sent back home by Africans working in good jobs in Europe, the US, Canada, Australia and the Middle East.
Remittances are already believed to be falling – and they should fall because in rich countries immigrants are and will be disproportionately hurt by slowing economic activity. Immigration itself may even slow dramatically, depending on how far and long the economic slowdown goes.
Less Africans working in rich countries will automatically translate into less money circulating in African countries.
The decline in remittances, however, cuts both ways.
Remittances have long spurred inflation in many parts of Africa. The outcome was in some ways unavoidable. A Ugandan doctor working in Norway, for instance, cares little about the cost of a beer in Kampala. He is also willing – and able — to pay more than a local doctor for services and of course a home.
Fewer remittance dollars flowing into Uganda could mean less economic activity – or simply lower prices.
The financial crisis in the US, which seems to have incubated the global crisis, is either coming under control – or threatening to mutate into a new, more virulent form that could destroy not only America’s ‘paper’ economy – of trading and brokering — but its ‘real’
economy – of goods and service too.
The new US president, Barack Obama, is acting as if the latter scenario remains likely – and so he is proposing large-scale government spending to prop up the ‘real’ economy. If his administration succeeds, the chances that Africa will remain a relatively unscathed will grow.
Even if Obama fails, however, Africans should escape the worst of the global crisis – and for both good reasons and bad.
The good reasons all have to do with African self-reliance – and a growing awareness among scholars and policymakers that trade within the region – and especially trade between urban and rural Africa – will ultimately deliver enormous benefits.
Another factor working in Africa’s favour is low dependence on borrowed money – by the privately-owned companies and individual consumers especially. People tend to pay cash for goods and services in Africa – no matter how costly they are. In the US, loans for cars and homes – loans that now aren’t being paid back — are the major factor behind the financial crisis. In Africa, very few people are advanced money for such purchases.
Paying cash for nearly everything has imposed major penalties in the past on Africans. Borrowed money can fuel growth, allowing people to spend more than they have – and thus grow faster than they might.
Yet today, Africa’s pay-as-you-go practices are a significant defense against the global financial contagion.
Cash is king, and nowhere more than in the world’s poorest region.
Another way of looking at Africa’s paradoxical economic position is to admit that the region’s historical financial marginalisation – so costly in times of global plenty – is proving to be an improbable benefit when the wealthiest of the world are sick unto death.