Global financial crisis could make world economy enter an era of slow growth in trade, and this is particularly detrimental or harmful to low-income countries, and African economy has become the focus of attention.

At the Fourth African Economic Conference held in Addis Ababa, Ethiopia in mid November, participting experts are unanimous in a view that the economy of African nations has suffered a hard blow with the in-depth spread of the world financial crisis. So, there is an urgent need to lessen or dissolve the impact inflicted by the financial crisis upon Africa.

There are two main avenues, by which the global financial crisis has negatively influenced the African economy. First, financial markets in developed countries produce a spillover effect of financial transmission on the finance markets in African countries. Second, an economic downturn in developed countries through trade, remittance, foreign direct investment (FDI) and portfolio investment, commercial loan, official development assistance, and other such channels as capital flow to African countries, have exerted an impact on their economies negatively.

Africa’s financial sector has a limited scale and its integration into the global financial setup remains at a low level. Hence, the impact of financial crisis on the banking sector is relatively less severe. As the financial crisis deepens, non-performing loans in Africa’s financial sector increased. From 2007 to 2009, the credit loss ratio has gone down in several leading African banks and, in case of Standard Bank of South Africa, its credit loss ratio has gone up 100 percent in this three-year period.

Due to bank credit contraction in the industrial sector, the impact of the international financial crisis is magnified. The effect on Africa’s financial sector has been displayed by large swings in currencies against the U.S. dollar. As a matter of fact, most African countries have devaluated their currency to the U.S. dollar by at least 5 percent from July 31, 2008 to Nov. 6, 2009; 21 countries devalued their currencies by more than 10 percent and eight countries by up to 20 percent during the same period. International commodity prices and foreign exchange reserve constitute the main cause of currency devaluation.

African countries are especially concerned about the decline situation with their foreign trade. The African Development Bank forecasted in March that Africa’s export volume in 2009 and 2010 will decline by 251 billion dollars and 277 billion respectively, and United Nations agencies in October predicted that Africa’s import and export volumes were 151.3 billion dollars and 291 billion dollars less in 2009 than in 2008.

Meanwhile, the situation in African countries is also not so optimistic anyhow about the attraction of overseas investment. The International Monetary Foundation (IMF) has predicted that the net flow of FDI would be down by 36.8 percent in 2009 over 2008. Since the early stage of the financial crisis, private equity investment has been cut significantly and the 2009 private portfolio investment could return within a narrow range, as investment risks have been released or set free by a big margin..

Moreover, the global financial crisis has affected negatively, to a varying extent, the energy, tourism, manufacture and agricultural sectors.

Overall, the global financial crisis has indeed wrought risks for a slowdown in economic growth, and the issue on development has turned particularly prominent. Fundamentally speaking, such key issues with respect to increasing domestic investment, enhancing infrastructure development, pressing ahead with economic structure adjustment, exploring newly-emerged export markets and advancing the regional market integration, are all viable options for African nations to cope with their development issues.

By People’s Daily reporter Zhang Chunyu and translated by PD Online