In Bamenda, Cameroon’s third city, live dozens of Chinese nationals. Frustrated by difficulties of the business environment while nostalgic of home, they strive to make money with affordable and needed products made-in-China. After hitting instant success, competitions from locals is changing their fortune-tides, but these Chinese are resilient and determine to make it […]Read More
Bureau of Democracy, Human Rights, and Labor 2010 Country Reports on Human Rights Practices April 8, 2011 Cameroon, with a population of approximately 19 million, is a republic dominated by a strong presidency. The country has a multiparty system of government, but the Cameroon People’s Democratic Movement (CPDM) has remained in power since it […]Read More
Overseas Development Institute says knock-on effect of sovereign debt crisis will hit trade, aid and investment
The world’s poorest countries will receive a $238bn (£152bn) hit from Europe’s sovereign debt crisis as the knock-on effects from weak growth and austerity in the single currency zone affect trade, aid, investment and remittances, one of the UK’s development institutes said.
A study by the Overseas Development Institute showed export-dependent emerging nations were vulnerable to a prolonged downturn in Europe triggered by fears of a break-up of monetary union.
Research found weaker demand in Europe for imports from low and low-to-middle income countries would have a marked impact on growth. In what it called a “bombshell” for poor nations, the ODI said the cumulative output loss in 2012 and 2013 would amount to $238bn.
The European Union is the biggest economic unit in the global economy and is the largest export market for countries in the developing world. The ODI said a 1% drop in global export demand could hit growth in poor countries by up to 0.5%, with Mozambique, Kenya, Niger, Cameroon, Cape Verde and Paraguay most at risk from the eurozone crisis.
Many developing countries, including the world’s poorest region, Sub-Saharan Africa, have enjoyed growth in recent years, partly due to the strong demand for their raw material and commodities from China and other fast-growing nations.
Author Isabella Massa said: “There are three broad ways in which the eurozone crisis will affect developing countries – through financial contagion, as a knock-on effect of fiscal consolidation in Europe to meet austerity needs, and through a drop in the value of currencies pegged to the euro.”
The ODI report says, Côte d’Ivoire relies on exports to the EU for over 17% of its GDP, while in Mozambique and Nigeria the figure was about 14% and 10% respectively. Tajikistan was most dependent on remittances in 2010, with up to 40% of GDP coming from citizens abroad.
Liberia and Democratic Republic of the Congo were dependent on foreign direct investment in 2010, with inward FDI as a share of GDP equal to over 25% and 20% respectively. Niger followed with a value of inward FDI as a share of GDP equal to 17%.
Robert Zoellick, outgoing president of the World Bank, warned developing countries that they needed to prepare for a renewed wave of global financial turbulence stemming from Europe, and said they should put their finances in order so they had scope to ease policy.
The Bank has already pencilled in an easing of growth rates in the developing world this year to 5.3%.
Massa said: “Poor countries are vulnerable to the euro crisis not only because of their exposure (due to dependence on trade flows, remittances, private capital flows and aid) but also because of their weaker resilience compared to 2007, before the onset of the global financial crisis.
“The ability of developing countries to respond to the shock waves emanating from the euro area crisis is likely to be constrained if international finance dries up and global conditions deteriorate sharply.”
In order to weather the crisis, the ODI advised developing countries should continue to focus on the goals of solid public finances and economic stability as long-term goals, but should also “spur aggregate domestic demand, promote export diversification in both markets and products, improve financial regulation, endorse long-term growth policies, and strengthen social safety nets.
“For their part, multilateral institutions should ensure that adequate funds and shock facilities are put in place in a coordinated way to provide effective and timely assistance to crisis-affected countries.”
The ODI report said that the ability of developing countries to respond to the shock waves emanating from the euro area crisis was likely to be constrained if flows of international finance dried up and if the global economy took another turn for the worse.
“The escalation of the euro crisis and the fact that growth rates in emerging BRIC (Brazil, Russia, India and China) economies, which have been the engine of the global recovery after the 2008–9 financial crisis, are now slowing down make the current situation really worrying for developing countries.”