October 20, 2008

Africa less affected by financial crisis

In this Economist.com article, that I came across through dialogin.com, I read this:
”..there is a reasonable chance that Africa may survive the current world financial crisis less bruised and battered than some other parts of the world. The very factors that damaged the continent in the past may now be working in its favour. Take the banking sector. Businessmen and budding entrepreneurs have always moaned about the excessive regulations and conservatism of African banks. Controls on foreign exchange often prevent them raising more money by investing in exciting financial instruments in the West. Foreign ownership of banks is unusually limited (to less than 5% in Nigeria and South Africa). Now, however, this very de-linkage from the Western financial system has turned out to Africa’s advantage. Its banks have almost no exposure to the subprime market causing such havoc elsewhere in the world. Benedicte Christensen, deputy director of the IMF’s African Department, says confidently that there is “no systemic risk that we can see in any African country in terms of banking." No one doubts that Africa will feel the effects of the crisis eventually. As world trade contracts, so will the demand for Africa’s oil and minerals, the main commodities behind its current boom. Oil prices dipped under $90 a barrel this week, down about 40% from earlier in the year; that will dramatically hobble the development of a country like Angola. The price of copper has been tumbling, which will sharply affect the futures of Zambia and Congo. And the foreign capital that African countries have relied on so much for their development will be in shorter supply; in the West, investors will have a decidedly smaller appetite for risk. The supply of aid money, too, will probably decline.”



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