Ghana like most of the developing world, is linked to the fortunes of the developed economy and any economic crisis that the developed world will go through is likely to affect both the economic and political directions of the developing world.
According to reports from various international wire services such as Reuters, Associated Press, AFP and the international media, the word economy is expected to experience more pain in the near term as bleak economic reports roll in, signaling more bankruptcies, bad debts and layoffs with more sleepless nights for everyone, from central bankers to consumers.
The biggest financial crisis in 80 years, sparked by the meltdown of the risky US sub-prime mortgage market, made last year one of the worst ever for investors, as recession stalked the global economy.
The effects of this financial crisis will begin to manifest between now and 2010. It has been reported that about 25 million people worldwide will lose their jobs between now and 2010.
According to a report prepared by the Overseas Development Institute, the global financial crisis is bound to have a major impact on developing countries, including those in Africa. It said the International Monetary Fund (IMF) has downgraded its growth forecasts for 2009 by nearly two per cent points over the last two months for both developed and developing countries. World growth is expected to be only 2.7 per cent in 2009 (compared to five per cent in 2007) and world trade is likely to stagnate.
Many suggest that it will be a deep and long recession. While African countries are expected to grow, this is hardly enough to keep up with population growth. IMF forecasts for African growth for 2008 and 2009 have been downgraded by between one and two per cent points to 5.5 per cent in 2008 and 5.1 per cent in 2009.
The revision represents a reduction in GDP per capita of up to $20 for every person in sub-Saharan Africa due to the financial crisis. Some countries will be at risk of backsliding.
The global financial turmoil will affect developing countries in two ways. First, through the stock markets; banking sector (borrowing from advanced economies, foreign ownership of banks, exposure to sub-prime markets); and foreign direct investments. The other way will include remittances which are very dear to the heart of developing countries; exports of our raw materials such as our primary products, imports, terms of trade; and of course aid.
This means that African countries must find new ways of raising revenue and better ways of expending these revenues to obtain the best rate of returns. Anything short of that will send the economies of African countries deep into crisis. Foreign remittances that most developing countries depend on are likely to shrink due to job cuts and losses that will take place in advanced economies.
Currently, the world is enjoying low crude oil prices. What level of savings are African countries, for that matter Ghana, channeling into other important areas that will enhance the economic development of the continent.
It has again been reported that at least 600,000 jobs are likely to go in the UK in 2009. According to the Chartered Institute of Personnel and Development (CIPS), even those who escape redundancy are likely to face pay freezes.
The report said that while total unemployment would not hit three million in the UK, the time between New Year and Easter would be the worst for job losses since 1991. This report should send shivers down the spine of African countries, as most Africans are working in various capacities in the UK and in other parts of the world. The first line of cut will be Africans, then followed by Asians.
Big corporate institutions worldwide have started recording dips in their net profits.
“It has been a shocking year, hardly anything was spared in the market carnage,” said Michael Heffernan, senior client advisor and strategist at Austock Group in Australia.
The slump has wiped out nearly $14 trillion in market value, according to the benchmark MSCI world index of larger companies.
For all markets, the damage was probably much worse. The World Federation of Exchanges, which tracks stock markets in 53 developed and emerging economies, said some $30 trillion in market value evaporated by the end of November 2008.
The crisis also radically changed the landscape of global finance, bringing down big US investment banks such as Bear Stearns and Lehman Brothers, saddling many other international banks with huge losses and crippling the credit system that keeps the world economy humming.
The US S&P 500 benchmark lost about 40 per cent with just one trading day left in 2008. Its biggest yearly drop was in 1931 during the Great Depression, when it fell 47.1 per cent.
No sector has been spared, from global banks to autos to resources, and even corner stores.
Victims of the crisis are still pilling up, with announcements almost daily of fresh company losses, more layoffs and slumping prices for assets, from cars to homes.
Gold was one of the few commodities to end the year higher, gaining four per cent, as panicky investors fled the stock markets for assets which are seen as safer during times of trouble.
Mounting job losses are raising fears of growing social unrest in some countries and pilling pressure on governments to act quickly, even if it means huge deficits and debts that will have to be paid off in the future.
Investors are now looking to January 2009, which will bring a new US administration when Barack Obama is sworn in as president on January 20. He is expected to unveil a new government spending programme which sources say could range from $675 billion to $775 billion over two years.
The new year will also mark attempts by policy makers to overhaul outdated regulatory systems to head off future crises and give them more power to oversee increasingly complex financial products such as derivatives which have complicated efforts to fix the latest financial mess.
Outgoing US Treasury Secretary, Hank Paulson said the US government had to battle the financial crisis without the tools needed to do the job effectively, the Financial Times newspaper reported.
Credit: Loyd Evans
Source: Daily Graphic