A Look at the Global Economic Crisis
The Effect of the Economic Crisis on Developing Nations
Feb 27, 2009
Undoubtedly, 2008 would go down in history as the time that the bottom basically fell out of the international financial market. The recessionary pressures felt by the global North are being equally felt in the global South- with longer term consequences. The International Organization for Migration’s (IOM) January 2009 policy brief on the financial crisis, The Impact of the Global Financial Crisis on Migration, considered the effects of the crisis on migratory patterns. The brief recognises that during economic slumps migrant workers are frequently the first ones to join the ranks of the unemployed. It goes on to point out that ... “policies aimed at sending migrant workers home are not the solution and could have potentially disastrous consequences for development, given the scale of remittances – expected to reach USD 283 billion to developing countries in 2008 – and the already high levels of unemployment in developing countries.”
In the last 14 years, South Africa has proven itself to be a force to be reckoned both economically and politically. Current financial pressures and political developments in the country threaten to damage the inroads that have been made. Failure would have terrible consequences for the region.
South Africa and Global Financial Crisis
Notwithstanding its economic prowess and its influential status, South Africa has many of its own internal challenges. Unreasonably high-levels of poverty, unemployment and violence largely shape the political landscape. With elections looming in less than 2 months, there is a degree of political flux.
The January 2009 South African Chamber of Commerce and Industry (SACCI) Business Confidence Index dropped to even lower than that of 2008. SACCI interprets this as a reflection of global conditions and the apparent vulnerability of the South African economy. Michael Appel’s article in BuaNews in “Growth in demand for credit slows 1.75%” on the 27 February 2009 points to a slowdown in the South African economy which is suggested by the drop in credit extended to the private sector. Appel argues that dismal low growth rates “...along with higher than expected inflation figures and a drop in credit demand from commercial banks could lean heavily on the Reserve Bank’s Monetary Policy Committee (MPC) to convene an emergency meeting to cut interest rates and try boost the economy.” The Reserve Bank’s Governor, however, has indicated that meeting has been scheduled as yet.
In its 2009 budget, South Africa, has however tried to respond to the challenges brought about by the crisis as well meet it political mandate. For instance, it has built in personal income tax relief and savings incentives as well as providing a sizable amount for infrastructure spending. Whether what has been provided is enough to stem the tide of recession in the country has yet to be seen. With a relatively high migrant population and ever-increasing regional obligations, recession in South Africa would be devastating to entire Southern African region.
Concluding Notes
One of the key drivers of the economies of developing nations is trade with more developed nations. Not ensuring that such trade is equitable and sustained, would lead to higher aid dependence and increased unrest.
In his 3rd February 2009 article in the Guardian which examined possible ways forward for the G20 in the current financial crisis in, “The Perils of More Globalization”, John Hilary said something that very apt: “...we need a completely new approach to the world economy – not more of the same.”
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