THE CREDIT CRISIS HAS HIT OUR SHORES

Anyone who watches business TV can’t help but be overwhelmed with the extent of the devastation being wrecked by the global financial crisis.

That the US government has committed $180b – or about thrice the size of the east African community economy, to save insurance giant AIG from bankruptcy. AIG last week announced it made an annual loss of $60b last year. Or that the US government has spent more than a trillion dollars so far to stabilize the situation and plans to spend more. And that Japan has suffered its worst economic contraction in more than a decade. We have gone beyond being depressed, now we are shell shocked.

So the workshop for economic journalists organized by the Commonwealth Secretariat in Lusaka, Zambia last week was a great help not only in understanding the genesis of the crisis but to get a grip of where Africa fits in the larger picture.

From attendees in workshop who were from as far a field as Sierra Leone and Mauritius, one thing was clear – the fallout global financial crisis has hit our shores.

So it was a shocker when it was demonstrated that no one, least of all the International Monetary Fund (IMF) have an idea as to the extent of or when the crisis will play itself out.

To step back a bit, the current global financial crisis has been triggered by debts going bad in the US banking industry. With banks in other parts of the world buying these distressed banks’ assets they have found themselves roped into the crisis and are now also fighting for their survival. As a basic explanation I believe that will do.

Now Africa through no fault of its own is already suffering the back lash of the crisis.

Our hosts Zambia who rely on copper exports for 80% of their foreign earnings have seen prices plummet from $9,000 in 2005 to $3000 a ton. To keep afloat mining companies have started laying off workers and closures are a real possibility.

During tea with President Rupiah Zambia at the end of the course, he restated his commitment to do whatever it takes to keep the mines open and also revealed they had reallocated resources from non-strategic areas of the budget to help the Zambian economy overcome the crisis.

In Kenya the shilling has depreciated sharply and the Nairobi Stock Exchange is hemorrhaging value at an alarming rate. In South Africa the automotive industry is coming under a lot of pressure with car sales falling through the floor as are house prices and banks are tightening on credit and squeezing growth. In Uganda export receipts are down, inflation is up, the currency is down and the roads have disappeared. Growth projections have been cut across the continent with dire consequences for poverty eradication programs.

Course coordinator professor Nixon Kariithi was adamant that for Africa this was the crux of the matter.

Speaking about the financial crisis’ affect on the Africa’s poor he said, “They matter because they are the worst affected; our coverage of the crisis is incomplete without reflections on their lives”

Looking forward Robert Bunyi, a Kenyan investment advisor with Mavuno Capital, said he worries that a lot of business on the continent have buried their heads in the sand and continue with business as usual.

“In such circumstances cash will be key to survival, business need to review their business plans, cut waste out ruthlessly and collect payables aggressively … the estimates are that this crisis will bottom out in 2010 but the experts have been wrong before and this may last a lot longer than they think,” he told workshop participants.

Ignorance is bliss but knowledge is power.

“The commonwealth secretariat strongly believes that well trained business and economics journalists play a very important role in providing credible information upon which individuals, business people and policy makers can make informed decision,” Julius Mucunguzi and assistant spokesperson at the secretariat said.

There is a time lag between the events in the US and Europe and how they affect us so the prudent businessman should watch the international business news channels to get an indication of where we are going. So far it does not look good.

But on a lighter note a Kenyan friend who lives in Chicago wrote recently, “I don’t get this panic about lack of credit, in Africa we have been operating on cash and its all we know.”


Published March 2008, New Vision