Financial crisis ripples through Africa

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Steve Chiotakis: Up to now, Africa’s banking systems have been relatively insulated from the meltdown of global financial markets. A lot of Africans don’t have bank accounts, much less stocks or bonds or retirement accounts tied to global financial systems. But as Gretchen Wilson reports from Johannesburg, the continent is bracing for the ripple effects of the global slowdown.

Gretchen Wilson:
To understand how Africa is feeling the hurt from the financial crisis, start with commodities. In South Africa, platinum mines like this one process tons of mineral-rich earth. Just a few months ago, colossal demand drove global platinum prices to more than $2,200 an ounce.

Africa is rich in natural resources — oil, copper, gold, and coal. David Shapiro is a market analyst with Sasfin Securities, a stock brokerage firm in Johannesburg. He says the recent demand for Africa’s commodities really opened the continent to new development.

David Shapiro: That’s really been driven by growth in emerging markets, particularly Chinese demand, Indian demand, Russian demand, et cetera.

But the meltdown of financial markets cooled global demand for Africa’s resources and pulled back speculation. Commodity prices have crashed. Platinum alone is now trading at less than half of those earlier highs.

Shapiro: It’s been quite a shock therapy for us.

Today, Africa’s businesses and governments are afraid the crash will scare away rich Western investors. The U.N. says foreign direct investment here climbed to $53 billion last year — more than five times what it was just eight years ago.

Dennis Dykes is chief economist at South Africa’s Nedbank Group:

Dennis Dykes: Tied to that was a lot of infrastructure spending coming to the continent in terms of railways and roads, even things like telecommunications infrastructure.

But some governments are putting these big projects on hold. Which means ordinary Africans may have to wait longer for electricity or irrigation systems. Some say they expect to be affected in other ways, too.

Barbara Mfusi is a baker in Johannesburg. Her aunt and uncle live in London, and send her family hundreds of dollars a month.

Barbara Mfusi:
Those people who are overseas, they help us a lot.

The World Bank says $28 billion in remittances were sent to home to Africa last year. Mfusi says that’s bound to shrink if migrant workers lose their jobs.

Mfusi: It worries me because our hope is on them.

The next fear is that penny-pinching in Western countries will also mean shrinking tourism dollars and cuts in foreign aid.

In Johannesburg, I’m Gretchen Wilson for Marketplace.

All reporting by Gretchen L. Wilson, © 2008

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