The sky has been about to fall on our heads for weeks, if the
western media is to believed.
After missing deadline after deadline, a Sunday summit
Brussels will finally determine whether Greece is booted out of Europe or not.
The small Mediterranean nation has racked up massive debts –
upto $330b or about three times the size of its economy, that it cannot repay.
In a referendum on Sunday the Greeks rejected an expired proposal offered by
the lenders. It’s a catch 22 situation for the Greeks who, do not want to leave
the Eurozone but do not want to pay the price to stay in – lowering government
spending and raising taxes.
Europe faces a similar dilemma. They would love to be rid of
the Greeks, but Greek exit (Grexit) may create a dangerous precedent that may
tempt other Euro members struggling on the periphery to leave and unravel the
whole European Union project.
"But half way around the world, with not as much ink spent on it as it deserves, China’s stock markets are collapsing around investors’ ears. Since the middle of June they have seen $3.25 trillion wiped off their companies’ value. This the equivalent of three times size of the African economy or the size of the UK’s economy...
For a while now Chinese retail share traders have been
buying shares on credit, leading to an over valuation of the country’s markets.
Recent news that China’s economy has slowed down was enough to burst the
bubble.
Plummeting capital markets often signal problems in the
economy. China’s growing economy drove
the rise in commodity prices to record highs. Its dwindling fortunes has slowed
down its demand for world commodities, reflected in the collapse in the prices
of oil, iron ore and copper among others.
This is not good for African
economies, which have their biggest exports as raw materials.
But right here at home the shilling dropped to sh3,500 to
the dollar for the first time. A combination of lower export receipts, reduced
investment to the oil sector and peak of the dividend remittance by foreign companies
has been at the heart of this latest plunge by the shilling.
The three events are related by one truth: when the laws of
supply and demand are against you it is a matter of time before the market
heads south.
Greece joined the Eurozone and contracted a lot of cheap
debt that was hidden off the books and did not go to the building of economic
generating projects, the EU motivated by politics rather than good economic
sense, bailed out the Greeks several times but this only served to prevent the
Greeks living up to the consequences of their extravagance.
When the markets started to buckle in China, a country with
as much as $4 trillion in reserves, the most of any single country, tried to
support them. But the harder they tried, the harder the market fell.
"And of course back home calls to support the shilling, the well-worn knee jerk reaction to depreciation were swatted away by governor Emmanuel Tumusiime Mutebile this week and rightly so. If we want a strong shilling we need to produce more and export more. For far too long we have pigged out on donor money and while the going was good we put little emphasis on developing our exports and diversifying our markets...
By the way a stronger shilling would be detrimental to our
exports.
Given the example of China, the world’s second largest
economy, of developed-country-soon-to-be third world country, Greece and poor
little us, Uganda, the lesson is clear for everyone to see – don’t mess with
the market.
