Can forgotten Africa weather financial crash?

Posted: 15 October 2008

Author: John Madeley

In all the media coverage of the global financial and economic crisis, very little has been said about the likely impact of events on the people of Africa. Contributing Editor, John Madeley, says there is, in fact, some good news - fuel and food prices have fallen steeply. And if the opportunity is taken to focus on African agricultural potential some long-term good might come out of the crisis.

The looming slowdown in worldwide economic activity has led to the price of oil dropping from US$145 a barrel in July to under US$80 inmid-October. Oil now costs little more than half what it cost only three months ago. This is good news for Africa as most countries on the continent are importers of the fuel. Some traders believe the price could continue down to US$60, and maybe even lower.

Fertilizing maize, Burkina Faso. Credit: FAO/D. Debert
Fertilizing maize, Burkina Faso. Credit: FAO/D. Debert
Fertilizing maize, Burkina Faso.© FAO/D. Debert
The drop in oil prices has also reduced the cost of fertiliser. The rising fertiliser price, earlier this year, was one the reasons for the rise in food prices.

Food prices have now fallen, again benefiting most African countries, as most import more food than they export. The prices of wheat and maize (corn), have dropped more than 40 per cent, rice is down by over 30 per cent. Generally good harvests of cereals this year have also helped to lower prices.

The rise in food prices earlier this year was said by the UN Food and Agriculture Organization (FAO) in July to have plunged an additional 75 million people into poverty. This figure should now be lower, although millions of people will still be desperately short of food.

But exporters of agriculture produce, like for example, coffee, also face lower prices. Some 25 African countries export raw coffee beans. The world price of coffee has fallen in the last three weeks from 126 US cents a lb. to 110 US cents a lb.

Nonetheless the fall in fuel and food prices will generally help African people in the immediate future. Beyond the immediate, however, the outlook is hardly good.

Aid prospects

If the global economy slides into recession, there could be lower prices for Africa's minerals, and less demand for its exports. Commodities such as aluminium, copper, nickel and platinum have fallen sharply in price over the last two months. Recession could also see Western countries resort to projectionist policies, buying less from Africa.

Many African countries have enjoyed growth rates of over 5 per cent in the last few years but these are expected to slow down, with a knock-on effect on jobs.

Development aid too, could now come under pressure. The policy of Western governments to find money for their banks could lead them to renege of their promises of more aid.

At the summit of G8 leaders in Gleneagles in 2005, Western countries committed to increasing aid for developing countries by US$50 billiona year by 2010. Aid from the G8 countries was US$80 billion in 2004. It should therefore be around US$130 billion in 2010. The total amountof aid in 2007 was US$103 billion, a reasonable start, but the question is what happens now.

Fighting AIDS

The French researchers who discovered the AIDS virus, Luc Montagnier and Francoise Barre-Sinoussi, have expressed concern that both research and international funding to fight AIDS could be cut.

African countries are likely to continue to remind Western countries of their commitments. The Group of 24 developing countries, which includes developing and emerging countries in Africa, Asia, Latin America and the Middle East, met recently and warned of the consequences of the West not meeting aid pledges.

"Developed countries have the means to deal with the problem, but we who are developing countries, or emerging countries, could collapse under the weight of such a crisis," points out the G24 chair Jean-Claude Masangu Mulongo, governor of the central bank of the Democratic Republic of Congo.

UN Secretary-General Ban Ki-moon has expressed concern that the current global financial crisis will hamper efforts to meet the Millennium Development Goals, which include targets to curb the spread of diseases like HIV/AIDS, tuberculosis and malaria. Ban said he is "deeply concerned" about the impact "particularly on the poorest of the poor and the serious setback this is likely to have on efforts to meet major goals."

Oxfam points out that the proposed Wall Street bailout of US$700 billion is almost five times the annual amount of extra aid needed to achieve all the Millennium Development Goals.

With unemployment on the rise in western countries, as a result of recession, personal giving to aid and development charities may also fall. Some British-based charities are thought to be reducing budgets by between 10 and 15 per cent for 2009.

Fewer tourists could mean less damage to the environment, but also lower foreign earnings.

New opportunities

Can African offset the effects of crisis and even turn it into an opportunity?

Many countries are likely to look more to Asian markets, especially to China, It remains to be seen, however, whether Asian economies are better placed to weather the current crisis than their Western counterparts.

Women pounding millet, Dogon Plateau, Eastern Mali. Photo: © Paul Harrison
Women pounding millet, Dogon Plateau, Eastern Mali. Photo: © Paul Harrison
Women pounding millet, Dogon Plateau, Eastern Mali© Paul Harrison
African countries could also give priority to regional trade, increasing trade among themselves, and also more priority to domestic production.

Dr. Peter Hartmann, the Director-General of one of Africa's leading agricultural research bodies, the Nigeria-based International Institute of Tropical Agriculture, believes the current crisis could be the wakeup call Africa needs, a "big chance to turn its food and agricultural sectors around."

Hartmann said the recent food crises, compounded by the energy crises, and now the potential for a major financial failure, offers an opportunity for African governments to change the face of agriculture. Africa, he says has many underused, powerful assets that can trigger an agricultural and economic turnaround if fully exploited.

At a recent conference in in Kenya, Dr Hartmann said one way to solve the food crisis was for countries to boost agricultural production. The crisis "underscores the need to energise local production. We see the food price factor was not so damaging in Ghana and Uganda, for example, because they are essentially food self-sufficient and less dependent on traded grains", said Dr Hartmann. The approach by the two countries is a powerful model to follow for any food crop in Africa, as it "helps to maintain locally consumed commodities, reduce foreign currency needs that limit a country's purchasing power, and stimulates rural economies to benefit both the rural and urban poor".

With the right policies, it seems that at least in agriculture, Africa could even emerge stronger from the crisis, and more able to feed its rapidly growing population.

Note: Five months after countries pledged to give more than $12bn (£6.9bn) to address the global food emergency, less than $1bn has been given, according to Oxfam. "Rich countries are directing their attention to high fuel prices and turmoil in the financial sector, but the number of malnourished people in the world rose by 44 million in 2008," Oxfam said today. "Nearly one billion people are now going hungry. When you consider the speed of the world's response to the credit crisis, the delay in acting is shocking."