Western debt crises may tempt Africa to backslide
The debt crises in Europe and the United States could tempt African countries to throw fiscal caution to the wind, threatening hard-won economic gains just as commodity prices tilt lower and cheap borrowing becomes scarce.
Some on the continent are already turning elsewhere for credit, notably to China. But analysts warn such “south-south” tie-ups still cannot replace traditional sources of funding and are not as attractive as they first seem.
“It may be used as a pretext by African governments to not consolidate public finances,” Standard Bank strategist Samir Gadio said of the debt dilema facing Western states used to preaching budget austerity to their African counterparts.
“But just because the U.S. and euro zone have these debt issues, does not mean African countries should do the same, African budgets could be adversely affected by a downturn because they depend on high prices for commodities, like oil.”
Fears of yet more havoc from the euro zone’s debt crisis and of a possible U.S. recession combined this week to wipe $2.5 trillion of the value of world stocks as markets contemplated the prospect of a new global slowdown.
The chill comes just as Africa, had pulled its growth levels back to those seen before the 2008/09 turndown and was looking forward to a healthy rise of nearly six percent in its output in 2012.
While Afro-optimists insist the continent’s long-term fundamentals are still promising, the turn in world markets over the past few days suggests some rocky months ahead as key commodities begin a retreat from their relative highs.
Oil, the core of Africa’s number two and three economies Nigeria and Angola and the foundation of new-producer Ghana’s hopes for a better future, saw a sell-off that was only halted by reports of an oil pipeline explosion in Iran.