Saturday, 24 October 2009

Impact of the financial crisis on Africa (by Nkanyiso Sibanda)

The global financial crisis, which was brewing for a while, really started to show its effects in the middle of 2007 and into 2008. It is, at its core, the result of a speculative bubble in the housing market that began to burst in the United States in 2006 and has now caused ruptures across many other countries in the form of financial failures and a global credit crunch (Shiller, 2008). The crisis has set in motion some changes that affect consumer habits and values among other things. Stock markets have fallen, large financial institutions collapsed or were bought out, remittances have been reduced, import and exports have slowed down and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. Advanced economies are suffering their deepest recession since World War II (Kato, 2009). Just like the crisis of the 70s, which ‘was not uniform in time or intensity’ (Cox, 1987), the same can be said of the current global financial crisis. It has differing intensities on countries depending on the depth and intensity of their involvement in the global economy.

Major emerging market economies such as China, India, and Brazil are now expected to experience much lower growth than in recent years, dragged down by falling export demand, subdued capital inflows, and lower commodity prices (Kato, 2009). World economic growth is generally expected to slow down significantly in 2009 as a result of the global financial crisis. In order to analyse how the crisis will impact Africa, it is important to understand what globalisation is and how it has dissolved national borders and economies, resulting in the ripple effects of the crisis engulfing even the African continent in one way or another. This is because the financial crisis can not be simply attributed to monetary issues or sub-prime mortgage problems alone, or any other form of credit crunch, but mainly to the spread of contagion effects due to ‘financial’ globalization (Murinde, 2009). In other words, a reference to globalization is necessary in order to understand how the financial crisis, which did not begin in Africa, is infact, impacting Africa.

Globalization is a fashionable concept in the social sciences, a core dictum in the prescriptions of management gurus, and a catchphrase for journalists and politicians of every stripe (Hirst and Thompson, 1999:1). While the term is a relatively recent one, what it describes is not new at all. It emerged as a buzzword in the 1990s, but the phenomena that it describes are not entirely new (Keohane and Nye, 2000). According to Keohane and Nye (2000), globalization refers to the shrinkage of distance on a large scale, and can be contrasted with localization, nationalization or regionalization. Scholte (2005:59) identifies globalization as the spread of the transplanetary – and in recent times also more particularly supraterritorial – connections between people. It involves the reductions of barriers to such transworld social contacts (Scholte, 2005:59).

Because of globalization, people have become more able to engage with each other wherever they are on the planet. It has had effects on communication, movement of people and goods, production processes, markets, consumption as well as world economics. The hallmark of globalization is increased international trade and financial flows (Palley, 1999). It has enhanced inter and intra state dependence and interdependence. The increased international trade and financial flows have in turn produced an increase in economic dependence (Palley, 1999). What happens in one part of the world has the potential to affect directly or indirectly what happens in another part of the world, more particularly if it occurs on a large scale. According to Pillay (1997), the Asian crisis showed that world economic interdependence is so advanced that an occurrence in one part has the potential to threaten another part of the world through various expanded global transmission mechanisms such as international trade.

Globalization has led to numerous globalized items including, among others, a globalized economy. It has resulted in the intertwining and integration of the Global Financial System. Here, distinct national economies were subsumed and rearticulated into one system by international processes and transactions (Hirst and Thompson, 1999). The economy has thus become borderless (Ohmae, 1995). It is no longer confined to largely politically defined and circumscribed landscapes of nation states. With the speed and volume of transactions in the global capital market, national governments cannot control exchange rates or protect their currencies, and political leaders increasingly find themselves at the mercy of people and institutions making economic choices over which they have no control (Ohmane, 1995). Because of this, when a crisis strikes, entire regions can now be pulled down, with the ripple effect reaching to other countries and other continents as well.

Whereas the science of economics emphasizes the efficient allocation of scarce resources and the absolute gains enjoyed by everyone from economic activities, international political economy emphasizes the distributive and reverberative consequences of economic activities (Gilpin, 2002). The current Global Financial Crisis[1] is a case in point. Because of the resultant integration of the Global Financial System as a result of Globalization, the contagious Global Financial Crises has affected, directly and indirectly, every economy in the world. Its effects have spread to and are still spreading to other countries. It has caused, and is still causing a slowdown in growth in most developed and developing countries. The integration of financial markets has accentuated the rapid flow of capital across borders as well as magnified the contagious effects of a financial crisis, with wide implications for transmission of financial policies on the domestic economy and internationally (Hussain et al, n.d.).

The fragile financial links that African economies have with the rest of the world have limited the impact of the systemic banking sector crisis in advanced economies on the continent. However, Africa is and still will be hard hit by the effects of the ensuing slowdown in global economic growth (Kato, 2009).

Having described and conceptualised ‘globalization,’ it is also important to describe and conceptualise what is here meant by ‘financial crisis.’ It is essential to note from the outset that there is a distinction between a crisis and a cyclical downturn. According to Cox (1987), the economy must undergo some structural change in order to emerge from a crisis; in a cyclical downturn, the same structure contains the seeds of its own revival. Crisis signifies a fundamental disequilibrium; the cyclical downturn, a moment in the diachrony of equilibrium (Cox, 1987). Based on this assertion by Cox, it can be concluded that the world is going through and recovering from a financial crisis.

According to Mishkin (2006), when a financial system is unable to cope with the problems raised by asymmetric information, it is unable to fulfil its crucial function of allocating capital efficiently from savers to those with productive investment opportunities. As the system breaks down, asymmetric information problems intensify and multiply until there is a full-blown financial crisis in which the financial system becomes inoperable and economic activity collapses (Mishkin, 2006). History has shown that financial crises originate from the good times that precede the collapse – good economic performance of markets and high economic growth with low inflation levels. This can also be said of the current global financial crisis.

The current global financial crisis has its roots in a banking practice called sub-prime lending or sub-prime mortgage lending in the USA (Shiller, 2008). It is traceable to a set of complex banking problems that developed over time, caused specifically by housing and credit markets’ mis-match, poor judgement by borrowers and/or the lenders, inability of home owners to make mortgage payments, speculation and overbuilding during the boom period, risky mortgage products (financial innovations with concealed default risks), high personal and corporate debt profiles and inactive/weak central bank policies (Central Bank of Nigeria, 2008).

Like bubbles breaking through the surface of a volcanic swamp, swelling and swelling until they burst, so assert bubbles regularly formed in the financial markets, in shares, in housing and certain commodities such as oil (Gamble, 2009:1). More and more individuals were sucked into the spending spree, spending and borrowing escalated and consumers, whatever their income and ability to pay, were bombarded with offers to take out more loan and accept credit cards (Gamble, 2009:1). This ultimately led to a burst resulting in the current financial crisis. According to Shiller (2008), it was the bursting of the housing bubble that brought the whole global financial structure crashing down in 2008 and plunged the world into recession.

When emerging market countries open up in an effort to globalize, they have high hopes that globalization will stimulate economic growth and eventually make them rich (Mishkin, 2006). The current global financial crisis has however shown that globalization can, and has infact spread the effects of the crisis to other parts of the world such as Africa, that had no bearing in the commencement of the crisis. Because of globalization, the spiralling effects of a depressed world economy, global demand and prices for commodities that are depressed, capital flows are declining and economic growth prospects have slowed down throughout the region (IMF, 2009).

As is characteristic of past financial crises, the current global financial crisis took place after a period of world wide economic boom, which was based on speculation and dubious lending practices. One of the main reasons for this was the collapse of the US sub-prime mortgage market. The mortgages had a high credit risk but the banks hid this by bundling them with more secure mortgages (Balchin, 2009). When sub-prime mortgage holders started defaulting in their payments, the banking industry was affected and it filed for bankruptcy. The nature of the global economy meant that the debt on these loans was tied up in investment programs and securities around the world (Balchin, 2009). When the sub-prime mortgages went under, so did the investments and as a result, ordinary businesses across the world, with no direct connection whatsoever to US subprime, started facing economic difficulties (Balchin, 2009).

International relations of production mediated either by the market or through the internal transactions of multinational corporations, have spread to most parts of the world (Epstein and Braunstein, 1999) as a result of globalization. Analysing the impact of the financial crisis on Sub-Saharan Africa does not as yet give definite results. This is because the growth forecasts of the IMF and the World Bank have constantly been revised downwards since October 2008. The April 2009 IMF/Global Economic Outlook predicted a Sub-Saharan growth rate of 2%, compared to the 5% of 2008 (Holmquist, 2009). This implied a negative growth rate in per capita terms for Africa. It can be observed that the current financial crisis is slowly turning back the clock on progress achieved during decades of reforms that have geared economic policy toward ensuring that Africa is a more attractive destination for private capital (World Bank, 2008). The crisis has triggered quick depreciation of currencies and major declines in stock market prices with foreign investors in securities and equities selling off large shares of their holdings (World Bank, 2008).

According to the International Monetary Fund (2009), sub-Saharan African countries have so far been resilient to the global financial crisis. Some African countries’ currencies have continued functioning properly despite pressure on capital markets, currencies as a result of the crisis. The relative stability reflects several factors—among them, the limited though increasing, integration with global financial markets, minimal exposure to complex financial instruments, relatively high bank liquidity, limited reliance on foreign funding, and low leverage in financial institutions (IMF, 2009). However, it is evident that the secondary ripple effects of the slowdown have crept into and are still slowly creeping onto the continent as the world wrestles with one of the worst financial crises in history. The Nigerian stock exchange fell by 37 per cent this year, representing the steepest quarterly decline in more than a decade and the sharpest decline in the world (IMF, 2009). Last year, 2008, the Johannesburg Stock Exchange ended with a 25.7 per cent loss (IMF, 2009).

The World Bank Chief Economist for Africa, Shanta Devarajan, forwards that the impact of the financial crisis on Africa will be three fold – a slowdown in private capital flows, which will adversely affect economies that had been relying on these flows to finance much needed investment; commodity prices are falling, which hurts exporters but helps importers and; the flow of remittances into Africa is going to slump.

The global financial crisis has affected every economy on the African continent directly and or indirectly. It has already caused a significant slowdown in many countries. Currently however, Africa enjoys relative stability as compared to its richer and more developed counterparts, although the effects of the crisis are slowly creeping in. As a result, it has been spared a lot of the primary effects of the initial financial crisis but is suffering and will still suffer the secondary effects of the crisis. In general terms, the short-term effects of the crisis on many African countries have been mitigated by the fact that most countries on the continent are relatively de-linked from the global financial system (Balchin, 2009). Moreover, the nascent banking systems in many African countries, typically characterized by simplistic structures, conservatism, prudent financial management regulations, controls on foreign exchange and very limited exposure to subprime loans and credit default swaps, have shielded the continent’s financial structures from the full effects of the crisis (Balchin, 2009).

Towards the end of 2008, Benedicte Christensen, deputy director of the IMF’s African Department remarked that there is ‘no systemic risk that can be seen in any African country in terms of banking.’ This relative stability will however likely not last as the brunt of the recession reverberates through the continent. This was expressed at the 119th meeting of the International Conference Centre in Geneva (CICG), Switzerland organized by the Inter-Parliament Union (IPU) (Central Bank of Nigeria, 2009). While Africa has not suffered the direct primary effects of the crisis, she has however not been immune to the after-effects of the turmoil.

The impact of the financial crisis is however not uniform across all African countries. It is varied transversely on the continent depending on each country’s exposure to and involvement in the international financial system, each country’s production and export structures as well as each country’s capacity to use policy tools to cushion it from the adverse effects of the crisis (Balchin, 2009). The impact is much more significant in countries whose economic ties with the international system are much more than those whose ties are not as strong. According to the IMF (2009), African countries with financially more developed markets such as Nigeria, Botswana, Ghana, were the first to feel the effects of the crisis. Weaker financial linkages with the rest of the world may have limited the impact of the systemic banking sector crisis in advanced economies on Africa, but the continent has not been spared the secondary effects of the ensuing slowdown in global economic growth (Kato, 2009).

There are several ways through which the global economic crisis is going to or has already impact/ed on Africa. According to Kato (2009), these ways include, but are not limited to,
· Reduction in demand for exports from Africa, as a result of lower global growth, which will push commodity prices down and curtail the flow of remittances from abroad.
· The reduction of capital inflows because of the reduced and tightened global credit, curtailing the availability of trade finance. In some instances, this has caused donors to reduce their aid to Africa.
· The resultant economic slowdown has affected the quality of the credit portfolios of financial institutions and imposed losses on other financial assets, such as deposits with troubled foreign correspondent banks or capital repatriations by troubled parent banks – which are often foreign owned.
· The resultant slowdown in trade has reduced government revenues, subsequently worsening the fiscal position in many countries. Most African governments are unable to meet heightened expectations of their populations for progress in reducing poverty and investing in infrastructure.

Before the onset of the Global Financial Crisis, Sub-Saharan Africa had enjoyed significant growth. This was, with the exception of some countries, as a result of internal and external factors such as relative peace, formation of regional peace and economic agreements. Macias and Massa (2009) forward that several factors contributed towards attracting investors to sub-Saharan Africa - many countries strengthened their macro-economic performance and reformed their economies, leading to fiscal consolidation, reduced deficits, lower inflation rates and an improved business environment. Second, political stability was realised in a number of countries and democratic transitions were embarked upon in many countries where it did not exist before; third, the vast natural resource endowment of some countries attracted the rapidly growing emerging markets, especially from China (Macias and Massa, 2009). On the other hand, external factors like debt relief and commodities boom added to the attractiveness of sub-Saharan Africa (Macias and Massa, 2009). These factors made the continent an attractive destination for foreign investors in search of high yields.

African countries are bearing the brunt of the crunch since they are financially not well insulated. According to Macias and Massa (2009), growth in Sub-Saharan Africa dropped from 6.9% in 2007 to 5.5% in 2008; in January 2009, the International Monetary Fund once more cut its forecast for growth for this year by 1.6 percentage points to 3.5%. They assert further that in April 2009, the International Monetary Fund revised again its forecast, leading to a new projection for Sub-Saharan Africa growth in 2009, equal to 1.7%. The initially huge capital inflows that were coming to Sub-Saharan Africa dropped sharply from the third quarter of 2008. This was as a result of reduced capability and propensity to invest on the part of foreign investors. Although Foreign Direct Investments have continued, the pace has slowed down markedly.

The crisis has also led to and resulted in the tightening of domestic financial markets as well as increasing the risk premiums that African countries face in global capital markets. Some African countries are experiencing difficulties in obtaining funds from international capital markets (United Nations, 2009). For example, Kenya, Nigeria, Uganda and Tanzania, have all cancelled plans to raise funds in international capital markets (United Nations, 2009). The resultant failure by countries to access money from international markets is a serious setback for Africa as the money would have been used to finance infrastructural development and boost growth. Because of the decline in global economic growth, opportunities for trade and investment have become scarce. This has inevitably had an effect on Africa’s traditional sources of development (IMF, 2009). For example, commodity prices on which numerous African countries depend for foreign exchange took a big hit – the price of crude oil fell by more than 50 per cent between February 2008 and February 2009 (United Nations, 2009). The prices of Africa’s raw materials such as copper, cotton, sugar and coffee have also declined noticeably.

Portfolio equity flows have slowed down and in some instances, reversed, consistent with sharp falls in stock markets in South Africa, Nigeria, Kenya, Mauritius and Cote d’Ivoire. According to Holmquist (2009), the main channels through which Africa is affected by this crisis are trade, extraction industry (mining, forestry etc) foreign direct investments, remittances, tourism, loss of access to international markets and aid.
Remittances and flow of aid
Analysing the impact of the global economic crisis on Africa’s remittances is not easy. This is because the remittances are still not well and clearly measured (Holmquist, 2009). This is as a result of official and unofficial avenues of sending remittances to Africa. In 2007 however, Sub-Saharan Africa received almost $12 billion in remittances and this number represents the recorded official figures alone (World Bank, 2008). With informal flows, the amount was certainly much higher than the official figure. Nigeria, Kenya, Sudan, Uganda and South Africa received the highest volume of remittances while in smaller countries such as Lesotho, remittances represent up to a quarter of the GDP (Devarajan, 2008). Remittances are significantly higher for Africa as compared to other continents. They have generally been counter-cyclical, increasing when the receiving country experiences adverse events (Devarajan, 2008).

Remittances from the US have slowed down (Devarajan, 2008). The world bank (2009) indicated that remittance inflows to Africa could fall by anything between 1% and 6% this year, from last year. Remittances to Africa had been rising steadily since 1995, increasing by about 11% between 2006 and 2007. In 2007, Sub=Saharan Africa took in $19 billion in remittances (Makoye, 2009). This, according to the World Bank, was equivalent to 2.5% of gross domestic product. However, the global financial crisis has hurt the capacity of migrants to send money leading to a fall in the amount of remittances received.
The global financial crisis will very likely touch the lives of many Africans, further impoverishing many and leading to the deaths of thousands of children, according to a United Nations study (UN, 2009). Reduced growth in 2009 will cost the 390 million people in sub-Saharan Africa living in extreme poverty around $18 billion, or $46 per person, warned the report by the UN Educational, Scientific and Cultural Organization (UNESCO, 2009). Countries that have been dependant on remittances will face a significant reduction in remittances from their citizens in the diaspora. The World Bank (2008) has predicted that remittances will drop between 5 to 8 per cent in 2009.

The reduction in the flow of remittances from Africans in the diaspora is likely to push many Africans even further below the poverty line. This is because remittances had become a source of income for many families and homes. Capital inflows, tourism receipts and remittances are all declining in parallel, and trade financing is drying up (Ali, 2009). This will significantly impact negatively on growth and will further increase poverty. This likelihood was spelt out in the International Monetary Fund’s World Outlook report in 2008 (International Monetary Fund, 2008). Here, it was stated that a fall in world growth of just one percent could result in a 0.5 percentage point decline in Africa’s gross domestic product (Balchin, 2009). Already, the IMF is predicting that growth in Sub-Saharan Africa will slow from close to 5.25 % in 2008 to approximately 3.2 % in 2009 (Balchin, 2009).
Exports, Imports and growth
The global financial crisis has impacted negatively on Africa’s imports and exports. This will reverse decades of growth that the continent was experiencing. The IMF (2009) is already predicting that growth in sub-Saharan Africa will slow from close to 5.25 percent in 2008 to approximately 3.25 percent in 2009. This is because there is now less demand for raw materials as countries struggle to contain the negative economic effects of the crisis. This is as a result of the slowdown in global growth, coupled with a decline in global industrial production. The export of raw materials has been one of the main drivers of growth in numerous African countries. Demand for raw material in developed and developing countries had seen a growing demand in raw materials. However, the crisis has resulted in less demand for raw materials which in turn has led to the falling of commodity prices. According to Ali (2009), African economies will likely suffer about $578 billion in lost export earnings over the next two years. This represents 18.4 per cent of GDP and five times the aid to the region over the two year period.

African countries that export oil will suffer the most. This is as a result of falling demand for oil. Between July and December in 2008, oil prices fell by 69 per cent. In 2009, the expected decline is 42 per cent while in 2010, it is likely to be 43 per cent (Ali, 2009). Angola’s growth is projected to decline from 20.9 percent in 2007 to 7.6 percent in 2009 (World Bank, 2007). East Africa will grow at a rate of 6 percent in 2009, down from 8.4 percent in 2007 (World Bank, 2007). In Zambia, the fall in copper prices resulted in a significant drop of export receipts for Zambia and a considerable reduction in its foreign exchange reserves (IMF, 2009). Since the second half of 2008, the volume of reserves generated by the mining sector dropped by 30% from $649 million during the first half of 2008 to $454.5 million during the second semester of that year (World Bank Global Economic Prospects, 2009). In Burkina Faso, export growth dropped from 6.9% in 2007 to 3.5% in 2008, following the fall in cotton production an the decline in lint cotton export (World Bank Global Economic Prospects, 2009).

Slowly but surely, the global financial crisis is taking its toll on Africa. After many years of significant growth, the IMF (2009) observed that growth fell from nearly 7 per cent in 2007 to under 5.5 per cent in 2008 (See figure 1.2 below). The growth effects were felt mainly in oil and other commodity exporters as well as middle income countries (IMF, 2009). The African Development Bank (2009) has stated that in 2009, real GDP growth is expected to slow from 6.2 per cent in 2007 to 4.6 per cent in 2009. According to the Bank, Southern Africa will be hardest hit as its growth rate is going to slow down to as low as 4.0 per cent in 2009. Angola, an oil producing and exporting country, will see its growth fall to 6 per cent from 8.4 per cent in 2007. According to the African Bank (2009), countries’ fiscal balances are expected to deteriorate as tax revenues decline.

Foreign Direct Investment (FDI) has significantly reduced because capital inflows to Africa have slowed down. This is affecting development in African countries that relied on such external funds to finance projects as well as fund infrastructure construction (Balchin, 2009). In Mozambique for example, FDI related to expansions of hydro-electric mining projects has been delayed or suspended (Balchin, 2009). All this will slow down African Countries’ progress in meeting their Millennium Development Goals.

Furthermore, the fall in export revenues is likely to have negative spillover effects in terms of reducing government revenues, thereby worsening the already tenuous fiscal position in many African countries (Ali, 2009). The tightening of global credit as a result of global credit as a result of the crisis has also led to an enormous reduction in private investment flows and bank financing, resulting in reduced capital flows and a curtailing of the availability of trade finance (Ali, 2009).

Impact on the banking system
The low level of African economies’ integration into the global financial system insulated the continent from the primary effects of the crisis. As a result, Africa found itself shielded from the impact of the 2007 subprime and the summer 2008 banking crisis that affected the very foundations of international financial markets (African Development Bank, 2009). Although low integration into the global financial markets has mildly shielded Africa, the crisis continues to exert significant pressures on money, currency and capital markets. Despite the pressure from the crisis, money, currency and capital markets continue to function normally (IMF, World Economic and Financial Surveys, 2009). Currently, there is no country in Africa that has announced a bank rescue plan at the magnitude that was observed in many rich first world countries. Few banks and investment firms in Africa have held derivatives backed by sub prime mortgages (or ‘toxic assets’) (IMF, World Economic and Financial Surveys, 2009). African banks have not engaged in complex derivative products and are not heavily dependent on external financing (IMF, 2009).

The banking sector dominates African financial systems, and the role played by financial markets is weak and sometimes non-existent. Exchange control regulations regulate borrowing from financial banks (IMF, 2009). Off balance sheet exposure is not widespread in Africa, in contrast to industrialized countries that have complex financial sucurization instruments such as the ones that triggered the sub-prime crisis (African Development Bank Group, 2009). The contagion effects of the crisis on banking in Africa may be enhanced by the presence of foreign banks in some African countries such as Madagascar, Swaziland and Mozambique. The headquarters of these banks are in the first world countries where the crisis hit the most. The losses suffered by the parent banks however was not passed down to their African branches. Some branches of foreign banks in Africa infact saw considerable gains in their market capitalization. For example, Swaziland Nedbank, Bank of Africa Benin and Standard Bank of Ghana saw their market capitalization increase between July 2007 and January 2009 (African Development Bank, 2009).

According to the World Bank (2009), inflation will fall from about 11.5 % in 2008 to 10.5 % in 2009 and to about 7 % in 2010, as a result of the decline in commodity prices and global demand. In comparison with the other rich developed world, the decline is gradual in Africa because of incomplete pass through of the previous surge in international oil and food prices.
The financial crisis has resulted in a drop in incomes of people in developed and emerging countries. These are the countries where Africa gets the majority of its tourists from, who bring the much needed foreign currency. In many countries such as Egypt, Seychelles and Kenya, tourism represents a notable share of government revenues. However, because of the crisis, tourist arrivals have declined. In the beginning of the year, Kenya announced a decline of between 25% and 30% in tourist arrivals (African Development Bank, 2009). Kenya Airways posted a 62.7% drop in profit for the half year at the end of September 2008 (African Development Bank, 2009). Egypt announced a cancellation of hotel reservations while Seychelles announced a 10% fall in tourism revenue (African Development Bank, 2009).

In what started as a localized crisis in the US, the credit/financial contagion has spread to the real economy and there is now a strongly synchronized global economic contraction unfolding (UN, 2009). Just like every other continent, Africa is not spared. The initial conventional wisdom was that African countries were unlikely to be hard hit but unfortunately, events on the ground show otherwise. The global financial crisis is threatening years of growth that Africa was experiencing.

Africa’s hard won economic gains are now at risk. It has resulted in a slowdown in investments, remittances, exports, prices of raw materials which in turn has resulted in a reduction in export earnings. The crisis has also negatively affected tourism which accounts for government revenue in some countries in Africa. The slow down in growth as a result of the crisis has been accompanied by a reduction of fiscal revenues and of public expenditure.The IMF (2009) notes that after hitting first the advanced economies and then the emerging economies, a third wave from the global financial crisis is now hitting the world’s poorest and most vulnerable countries. There is increased risk to Africa’s exports, foreign investment, credit, banking systems, budgets as well as to the balance of payments. According to the African Bank (2009), fiscal deficits are expected to worsen because of the decrease in export revenues as well as the need to increase social spending and safety nets and to provide fiscal stimulus required to mitigate the worst consequences of the financial crisis.

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[1]Herein refferred to as the financial crisis.
[2] Unedited.

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