The Global Financial Crisis is an opportunity for developing nations and a lesson as well

The world, as we know it, has changed in many ways. Markets are interconnected and related. That interconnectivity is, in essence, the real meaning of ‘globalisation’. In a nutshell, what transpires in the minutes of meetings in the various financial capitals, like London, Tokyo and, of course, New York, practically translates into either poverty or prosperity in Africa. Big business there is in hot water. Most of the financial entities in North America and Europe are in bad shape and we, here in Africa, are starting to feel the pinch. Some of the largest and most influential financial institutions and employers are crumbling under their own weight. In the United States the list, of troubled companies, reads like the Forbes top 200. It includes the car-makers, GM; major banking institutions like Bank of America, CitiGroup and HSBC to mention just a few. Every business has been affected, from Wall Street to Main Street, to even those with “no streets” as U.N. head Ban Ki Moon was quoted as saying. It is a crisis with no borders and worse still, one that no one quite knows how to fix. Take, for example, the giant insurer, the American International Group (AIG). This is an institution that the American government considers “too big to lose.” It literally has its tentacles in each and every enterprise in that country. It recently reported a quarterly loss of $62 billion and yet its assets continue to decline in value by the minute. It reported a loss of 99 billion in 2008 thus single-handedly forcing the government to restructure the bailout package. It has come to be described as a ‘black hole that no one understands’. In the U.S. the ominous signs of economic disaster began with the now infamous mortgage crisis, which began around 2004. Lending institutions began dishing out loans, which came to be known as ‘sub-prime loans’, like it was a free for all. Sub prime lending involves financial institutions lending to borrowers who do not meet prime underwriting guidelines. These borrowers are more likely not to pay the money back. The motivation behind this was greed from the profits made through fees, high interest rates and the reselling of the loans. Some of the best philosophical minds in the world have used the prevailing crisis to bash capitalism, claiming that it as lost its way. Arundhati Roy, an Indian writer and activist who won the Booker Prize in 1997 for her novel, The God of Small Things, said that “soviet-style communism failed, not because it was intrinsically evil, but because it was flawed, it allowed too few people to usurp too much power, twenty-first century market capitalism, American style ,will fail for the same reasons. Both are edifices crafted by human intelligence, undone by human nature.” Others believe it may also be as a result of the natural cycle of free market economics and we just happen to be dipping as opposed to peaking. In Africa and, more especially, Rwanda, we have to make crucial changes to weather this storm. It is important to note that, as much as we have blame for this whole mess, we are still within striking distance of the meltdown. This could not have come at a worse time given Sub-Saharan’s unprecedented growth in recent years. We were finally appearing to be making strides towards financial solvency- Africa’s annual economic growth rate had peaked at an all-time high of 6.8% two years ago before it started to dip to 5.5% in 2008 and is now it is expected to be below 5% -which is in tandem with the rest of the developing world. Despite the international hue and cry, Sub-Saharan Africa economies are the polar opposites of those in the West. The Rwandan housing market is moving, full steam ahead, and the banking industry has only gotten better, as banks such as the Kenya Commercial Bank, FINA Bank and ECOBANK will attest. The question then becomes, if our housing and financial sectors are so healthy, how shall we be affected? For starters, we are definitely taking a hit with regards to foreign direct investment (FDI). This almost goes without saying- the less money the ‘big guns’ have the less money there are going to invest elsewhere. Africa attracted $53 billion in FDI but that is likely to change as investors seek security in U.S and European bonds. There is also the issue of official development aid (ODI) as ironic as it may sound. That too will be slashed dramatically. Our foreign exchange rates too may bear the brunt of this economic fallout, although that is not expected to be too significant. Remittances from the African Diaspora will be expected to decrease given the slower economies in the West; this is an important resource for Sub-Saharan Africa given its impact on our economies. Furthermore income earned from African export commodities is expected to decrease due to a decline in demand. These and other such implications of the global financial crisis will undoubtedly make it more difficult for us to achieve the Millennium Development Goal. This, however, should not dull our efforts; in fact, we can turn adversity into opportunity. Changes are going to have to be made and the wheel will have to be re-invented for a great many Sub-Saharan countries. It is in times of adversity that one really discovers one’s inner strengths. It Africa’s time. We have to do everything in our power so as to maintain and improve economic status quo, hard won over the past couple of years. On top of that Africans need to view and approach this crisis for what it is- an opportunity. African leaders have to learn to work together, share resources and even power; after all that is the purpose of entities such as East African Community. The E.U. is tackling this problem as one, so are the Asians, why not the one continent that perhaps stands to benefit the greatest from a joint approach? Additionally, infrastructural development as well as investment in education is an imperative if we are to actualize long-term sustainable growth. The transition from raw material export-based economies to manufacturing industries has to step up. In Rwanda, different avenues are being pursued such as the establishing of credit and savings settlements at various levels and capital markets where locals can access bonds and buy shares in different companies, savings mobilizations just to mention a few. In many ways we have to revert to basic banking practices that articulate clear and succinct contracts. These and other actions coupled with attitudinal shifts such as the development of a more self-reliant economical mindset should see us ride out this storm and come out stronger. Ends