Impact And Implications of Economic Meltdown On Common Wealth States

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The recent economic crisis experienced across the globe has challenged the ability of most countries to meet their development targets and objectives. This problem is particularly acute for the league of developing nations, which the majority of Commonwealth member states belong. The economies of these countries are especially vulnerable owing mainly to their over-reliance on mono-export products, unstable and dwindling world prices for the primary products/commodities they export; weak national economic structures and institutions: and, inherent trading imbalances with their better-developed mercantile partners.

A general slowing down of the global economy predicted in 2008 coincided with a number of poignant developments. The developments included a dramatic slide in crude oil prices, down from over US$160 per barrel to below US$50 within that year. There was also a major cataclysm in the global financial industry, which witnessed technical failure of a number of the largest, and most high profile, US and UK financial and insurance institutions. Furthermore, there has been a weakening of major export commodity prices of sub-Saharan African origin in the world market.

These developments are all set against a backdrop of expectations of some expansion in sub-Saharan Africa, where economic growth was projected at 6.5 per cent in 2008, but which an equally impressive 5.4 per cent was recorded (IMF, March 2008 and January 2009). This growth was principally driven by increase in oil exports, occasioned by expanded activities and improvements in that sector and the curbing or inflation within the same period. Expanding domestic demand was buoyed by increased government consumption of goods and services fueled, expectedly, by higher national revenues. Other factors that helped in bolstering this expansion included larger revenue pools f3cilitated by debt relief and the gains of savings recorded from reforms in government business in a number of the countries. These positive developments were only surpassed by the experience of China and Asia Pacific.

The growth in economic output in the sub-Saharan African region is projected to decelerate down to 3.5 per cent during 2009. However, this index should pick up and stabilise at 5 per cent in 2010 (IMF, 2009). This indicates an expectation of only 8 temporary shock on the (economic system of the region. In comparative terms sub-Saharan Africa fares better than advanced nations ‘in terns of economic’ output where only 2.7 per cent and 1 per cent growth were recorded in 2007 and 2008 respectively in the latter.  Projected picture of economic output for the advanced economies shows a reversal of growth by growth by 2 per cent in 2009 and a marginal recovery to 1.1 per cent during 2010 (IMF, January 2009).

The implication of this statistics is that the impact of the current global economic melt-down had started taking root and manifesting its upcoming effect on global economy beginning with the advanced economies from around 2007. The rigidities in the economic systems and structures of most sub­-Saharan African countries have arguably shielded such economies, albeit temporarily, from the full and immediate impact of the economic melt down. There may also be a lack of correlation between the economies of sub-Saharan Africa and advanced countries that have helped in displacing the direct impact this economic melt-down should ordinarily have had on countries in the region. The seeming cushion this insulation offers should nevertheless be taken for granted.

A melt-down commonly describes the melting or dissolving of the outer protective case surrounding something. In the context of an economy, a melt-down will involve a gradual destruction or deconstruction of the building blocks or fabric of the system of financial and other structures of society The scale of the current economic melt-down is large and far-reaching, with implication for all constituent economies of the global village. It has the potential of not just slowing down the recent progress made by the economics of sub-Saharan Africa, but reversing the gains that have been accumulated thus far. For sub-Saharan African nations, this would be catastrophic as the momentum of economic growth that has been gathering in the past three or more years needs consolidation and can only best be maintained by an extended period of unbroken or continuous development.

Because of the inter-relatedness of the world economic system, crises in advanced economies will usually have significant effects on the financial sector, stock, commodity and foreign exchange markets of emerging economies. And, in view of the current banking crises in advanced economies, the impact of reduction in capital flow into the sub-Saharan African region, by way of credit and trade finance, can be both deep and protracted (Danninger, Balakrishnan, Elekdag and Tytell, 2009). When the consequences of contracted trade flows, occasioned by weakening demand in advanced economies are added to this picture, a dismal scenario regarding the scope of the problem at hand begins to emerge. Informed sources, including the World Bank, are of the opinion that a sharper recession is still possible, with the prospects of substantial disruptions and turmoil, which may include bank failures and currency crises occurring in a wide range of developing countries.

Besides its effect on the economic well-being of countries of sub-Sahara Africa, the current economic crises threatens the realisation of the Millennium Development Goals (MDGs), which is central to raising the standards and capacity of people of the region. Under the circumstances, there is urgent need to focus efforts on tackling the problem through coordinated strategy and policy responses. However, there must be a clear recognition of the fact that the scope and implications of the economic crises will vary widely across the region according to the nature, structure, responsiveness and linkage of each country’s economy to the global economic grid.

The objectives of this paper are to:

(i) Examine the process or methodology that strategies need to follow in order to enable nations, especially those with vulnerable economies, become sufficiently proactive and responsive in terms of economic positioning in normal and crises times.

(ii) Proffer suggestions on how countries of the sub-Sahara African Region should take appropriate advantage of the current melt-down to advance their own economic interests in international trade.

Strategy is arguably at the centre of all coordinated, integrated and cohesive corporate effort. It seeks to resolve three key issues. For a country the questions will be: Where are we now? Where do we want to be? How do we intend to get there? Just as effective business organisations are the ones that make conscious efforts at envisioning and defining their pattern of activities towards realising long-term goals, so do nations require clear strategies in order to excel. Clarity of the strategy, and therefore its enabling policies, is necessary in all ramifications of national development; be it in financial sector policies, monetary and fiscal policies, social security, health, education, infrastructures or macro-economic stabilisation measures: Whatever the strategy focus, it is important to understand the critical role that early response plays in ensuring optimal results. While costs of proactive strategy intervention may be large in the short-run, it is unarguable that the cost of inaction or reaction can be much higher. Preparedness therefore is the key to eliminating emergency, quick-fix actions in times of turbulence.

Duke is a lawmaker

 

Joe Duke