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article imageOp-Ed: Eurozone crisis — An African perspective

By JohnThomas Didymus     Oct 21, 2012 in Business
Western economic prosperity in the twentieth century, relative to the rest of the world, was hinged essentially on a balance of payments advantage, powered by monopoly of technological know-how, that the West enjoyed over the rest of the world.
The current European sovereign-debt crisis has its roots in the momentum toward redressing of the global imbalance with the emergence of a second tier of economic powers.
A chronic crisis of balance of payments deficit was essentially what led to the LDC debt crisis of the 1980s and the implementation of "structural adjustment programs" that only further impoverished citizens of the global South.
As far as Europe is concerned, the immediate cause of the current crisis was balance of payments deficits suffered by the economies of less technologically competitive southern European countries such as Spain, Italy, Greece and Portugal, that rely on the relatively technologically advanced economies of northern Europe such as Germany, France and UK for finished goods import.
These countries, like the LDC countries of the global South, borrowed money to finance sustained imports leading to a bubble that was essentially an unsustainable economic boom. The bubble that spread across the countries of southern Europe stimulated wage increase-pulled pattern of rising operating costs relative to major trading partners such as Germany and further worsened the trade imbalance with these partners.
As it happened in the LDC crisis of the 1980s, a balance of payment deficit is usually addressed by exchange rate depreciation. But in the case of the Eurozone with a common currency, implementation of "austerity measures" to reduce costs and expenditure for owing economies and increased imports to northern European countries was the only solution implementable.
The immediate impact of the Eurozone crisis on African economies, as European powers implement programs to bail out their debt-ridden neighbors and recapitalize ailing financial institutions, has been the fall-out of fiscal policies that result in declining demand for African exports, fall in value of currencies pegged to the euro, reduction in aid, FDI inflows, crucial remittances by Africans in diaspora and other financial intermediaries-mediated effects, including stock markets-related spillover effects.
According to AllAfrica.com, demand for African exports have decreased, European development aid to Africa is down 1.5 percent, yet growth has not slowed in Africa and the overall outlook, all things being equal, remains positive, provided the best is made of the opportunities provided.
Output grew by more than 5 percent in sub-Saharan Africa in 2011 and, according to AllAfrica.com, where growth slowed, it was related to internal political problems and not the Eurozone crisis.
Projections of double-digit growth over the next five years are on course and for the first time in many decades the prospects for some African countries to transform into middle-income countries has never been brighter. ValueWalk.com reports that according to the World Bank and IMF, Africa has one of the best growth prospects for the decade ahead. While developed countries have recorded roughly 2% growth rates, African nations have recorded about 5.5% on average.
Many African countries are seeing an increased interest in their economies, especially among Asian investors and newly emerging economies seeking to expand their global market access. For instance, VOA reports that investors have been showing increasing interest in purchasing sovereign debts of African countries with positive growth.
According to AllAfrica.com, Michael Lalor, director of the Ernst and Young Africa Business Center, said: "All our evidence, both anecdotal and empirical, is that investors are increasingly interested and active in Africa. This is as true for investors from many of the developed markets as it is for the Chinese and Indians. Over the past 4 years, and through the global crisis, FDI projects into Africa from the US and UK, for example, have grown at a compound annual growth rate in excess of 20 percent."
The opportunities for Africa hinge primarily on the fact that the continent still produces a large part of the world’s raw materials. Analysts have commented on the prospects for rise in commodity prices such as gold, as investors rush to secure their assets in the face of global economic crisis. VOA reports that in Namibia, the diamond and uranium mines are experiencing growth.
The continent is experiencing high population growth, with increasing literacy levels. This is in contrast to the demographic crisis facing Europe and some Asian countries. Africans are becoming better educated and skilled.
But the promises will fail if African countries fail to grab the opportunity provided by the Eurozone crisis to shift from their neocolonialist trade orientation toward Europe and the West to newly emerging economic powers such as China.
The major threat to launching leading African countries to middle-income status is in the continued reliance on the neocolonialist economic and financial structures that perpetuate them as dependent appendages to Western economies whose interest it is to sustain their underdeveloped status to their global balance of payments advantage.
African economic planners need to realize that to maximize the opportunities for growth afforded by the Eurozone crisis, a new pathway must be charted by establishment of new trading relationships.
African economies are too dependent on European countries for purchase of their products. With the onset of debt crisis in Europe, demand for their exports will continue to decline. The Eurozone crisis challenges African countries to look beyond the European market at new economic powers such as in Asia where there is growing demand for raw materials. It also requires that African economic planners learn from the long experience of lopsided economic and trading relations with the West designed to perpetuate the producer-consumer relationship that fed the West fat at the expense of rest of world.
The key to the success of African economies in the future is negotiating new trade relationships that come with terms imposing a minimum requirement of technology-transfer investments needed to sustain African economies not as poor consuming nations, but as middle-income nations making reasonable progress in the manufacturing and technological sector.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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