Africa is the hardest hit as the turmoil engulfing Western financial markets is forcing most companies on the continent to shut down mines and factories.
Governments have devalued currencies while the financial sector is reeling from massive capital flight.
The raging global financial crisis has forced commodity prices to nose-dive dealing major blow to mining-based African economies which had registered some positive growth in the last few years. Mining companies in mineral dependent economies in Africa are scaling down operations resulting in massive retrenchments and lay –offs.
Botswana, South Africa, Zambia, the Democratic Republic of Congo and Zimbabwe were some of the hardest hit countries in the southern Africa region.
These countries have registered significant cuts in their export receipts severely affecting revenue flows for the governments.
A sharp decline in commodity prices in the past three months for minerals such as platinum, copper, nickel and gold have slowed down in economic growth and decline in government revenues. Mineral revenue forms the bulk of government’s total revenues and in Botswana mineral revenue accounted for about 35-50% of the total government revenues over the past five years.
Africa boasts of holding 30 percent of the world’s mineral resources including 40 percent of gold, 60 percent cobalt, 90 percent platinum, 72 percent chromium and approximately 65 percent of the world’s diamonds.
In South Africa, Africa’s largest economy, Diamond mining giant De Beers has implemented an extended leave period for workers as a result of the economic downturn, which has seen diamond prices fall by 30 percent in the past three months.
This has negatively affected the world’s biggest diamond producer, Botswana, where the gem accounts for more than one third of GDP and 70 – 80 percent of export earnings.
According to media reports, some 32, 000 workers are facing redundancy on top of another 32, 000 retrenched in the third quarter in South Africa.
Zambia is also reeling from changes to the copper price, which slid from $8, 000 per metric ton to about $3,100 in less than six months. Economics Association of Zambia economist Chibamba Kanyama was quoted saying the international crisis was making it difficult for mines to source capital for further exploration.
“The mining companies are really failing to source working capital, their shareholders are apprehensive about further investment in mining companies,” he said. “The reduction in growth in China has significantly affected demand for both base metals and the platinum family of metals.”
Analysts say the economic downturn and its impact on commodity prices pose a possible disaster for Zambia and other countries that have failed to diversify beyond the mineral wealth that has been a cash cow for governments over the years.
Africa is carrying the heavy burden of this unmitigated disaster with more countries on the continent producing oil, coffee, cocoa, flowers and other agricultural products and others relying on tourism reeling from the effects of the self-made financial crisis.
Across the continent, lack of credit and long-term investment funds has slowed down growth in consumer spending, reduced employment and incomes, as well as causing capital losses on personal savings and other assets.
In Zimbabwe, Zimbabwe Platinum Mines Ltd closed its open cast mine due to falling metal prices since July last year. It was costing Zimplats approximately double to mine a tonne of ore from the open pit than from its underground mines.
Platinum prices plummeted from US$2, 200 per ounce in mid July last year to around US$800 per ounce late last year.
Third quarter earnings for Zimplats, the country’s largest platinum producer fell by 83 percent down from the previous quarter.
European leaders have outlined a battery of measures to bail out their economies backed by a $3,000 billion package to inject capital, purchase banks’ toxic assets and loans, guarantees for savers deposits and guarantees for unsecured bank loans.
The US also unveiled a similar plan, a US$1 trillion to bail out the motor industry, banks, insurance companies and mortgage agencies.
On the contrary, Western countries and their multilateral financial lending institutions are telling African governments not to extend funds to save their companies and banks showing the West’s naked double standards in dealing with the financial meltdown.
“Recent actions of Western countries to counter both the financial crisis and the strong recessionary trends have in many cases gone against their predominant free-market non-interventionist ideology,” said Martin Khor, the renowned Third World Network economic analyst.
“Even more interestingly, their recent policies contrast sharply with the advice which they and the International Monetary Fund that they control gave to Asian countries during their financial crisis a decade ago, revealing clear double standards.”
African countries and most other developing countries in Asia and Latin America have been ordered not to come to the assistance of their ailing local banks and companies on the pretext that this is a waste of public funds that would lead to inefficiency and corruption.
Developing countries are being told to press on with financial liberalization policies which have brought untold hardships in the past two decades in Africa, Asia and Latin America.
In a rare and ‘extraordinary admission,’ the United Nations Conference on Trade and Development (Unctad) admitted recently that market-driven policies had failed in Africa.
Unctad’s report on economic development in Africa clearly stated that market-driven reform under World Bank structural adjustment programmes had messed things up in Africa, particularly in the continent’s most strategic sector, agriculture.
It was reported that reforms have left the industry in tatters – changing the continent from a net food producer before reforms to a net importing region after – and poor African countries increasingly reliant on expensive imports to feed their populations.
Both developed and developing nations need to address what went wrong and caused this global financial crisis that has threatened global prosperity.
African countries need a new international initiative to solve the problem through calls for stronger systems of multinational consultations and surveillance as well as applying ethical dimensions to the global financial system.
Other economists say that tough economic times require resilience, efficiency, diversity and dynamism. They say the crisis should challenge African countries to diversify their economies and increase its internal efficiency and dynamism.
But as the world ponders on the way forward, the crisis, it seems, will for now continue to wreck havoc on African economies pushing more into the depths of poverty.
It is unfair for Africa to bear the brunt of global crisis generated by the rich countries.
Brazilian President Luiz Inacio Lula da Silva aptly summed it up at the third annual India-Brazil-South Africa (IBSA) conference when he said: “It is unfair that poorer nations have to pay for the irresponsibility of speculators who have transformed the world into a gigantic casino.”