Tuesday, March 17, 2009

Infected by the virus?

Yes, I admit that I’ve given up on looking into detail about the recent financial jargons in the global media which basically portrays the global economic and financial trends in the 21st Century.

The FTSE Index. The Dow Jones. Subprime Mortgages. Bank Bailouts. Wall Street. Credit Crunch...YIKES! The list goes on and on. Over the past months, these words have been bandied about by a frenzied, mainly western media descending upon us. Investors are in panic, financial traders are in depression, hitherto great banks are in meltdown and savers are worried as to what happens next to their savings and pension funds. Looks like the major western economies are in serious trouble, and it is spreading around like a nasty worm virus. I think only my uncle Agyemfra and his folks are safe now.

The medium through which this global financial turmoil affects developing countries include financial channels and real channels. Financial channels include effects through: stock markets, banking sector (borrowing from advanced economies, foreign ownership of banks, exposure to sub-prime market), and foreign direct investment. Real channels include effects through remittances, exports, imports, terms of trade, and aid.

According to Antoinette Sayeh, Africa’s Director of the International Monetary Finance (IMF) “there is a drop in global demand for goods and services produced in Africa. Import demand in the EU, the US and emerging Asia which together account for Africa`s exports - is falling sharply. The drop in export prices will also affect trade and current account balances.”

Foreign direct investment (FDI), and remittances, which are an important source of foreign exchange for some African countries, are also at risk of declining. Such a decrease is likely to compromise the financing of many infrastructure projects on the African continent.

Ghana is equally at risk since we have a significant share of foreign owned banks and our economies strongly rely on foreign direct investment. These may probable result in pressure on budget as government revenues decline.

G20 finance ministers have pledged to make a sustained effort to beat the recession after they met on Saturday 14th March 2009, but much effort is required by each country on the continent. Each developing country needs to set up a crisis task force to consider the best possible policy responses – short term and long term economic and social policy responses.

Raila Odinga, Prime Minister of Kenya, once said “they say that when America sneezes, Europe catches cold, Asia develops pneumonia and Africa’s tubercolosis gets worse. This is what we are beginning to see.” But I know my uncle Agyemfra will not agree with Raila.

My uncle Agya Kwaku Agyemfra, who lives in a very modest, simple house in my village (not mortgaged, of course), with his wife and six grandchildren. He does not draw a pension. He lives off his small farm, has never held a bank account, and has never sought or been offered a bank loan for obvious reasons. Of course, all those other fancy financial terms do not mean anything to him, for he lives entirely outside the system. Since he enjoys no electricity, he has no TV or any other modern gadgetry, his major luxury being a constantly malfunctioning battery-operated transistor radio. The concept of rising bills is therefore beyond his grasp. He only relies on a trusty, if rather charming, rickety bicycle to get along, so rising fuel prices are not much of an issue for him.

Whiles others toss in bed at night worried about the security of their home, their savings and their jobs, My uncle Agyemfra, in contrast, continues to sleep soundly at night, I suppose, not infected by any virus.

© Harry Tetteh

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