Sunday 28 June 2015

Eurocentrism, Solidarity and the Migrant Crisis

It is easy to see why the large-scale in-flow of migrants to continental European shores is being described as a “crisis” when one considers that 1,700 lives were already lost this year before the end of April during the perilous journey, 800 of them in a single incident. Over the same four-month period, over 21,000 migrants are estimated to have reached Italy with Libya joining the list of last year’s sending countries in 2015. 

Europeans have for decades not only largely based their relations with each other on the idea of solidarity but also maintained a discourse whereby this principle distinguishes the European way. The process of initiating and nurturing a workable supra-national project, the European Union, necessarily entailed delinking identity from intuitive notions of patriotism. Solidarity was just the idea for the job and many of Europe’s publics were already familiar with it through their experience of functioning welfare states. This European understanding of solidarity is, in essence, a combination of caring for the less fortunate, helping fellow citizens tide over misfortunes and balancing inter-generational rights and responsibilities. Solidarity finds expression also in the governance (originally theological) principle of Subsidiarity which seeks to keep local support systems alive in the age of the national and the global. In certain systems it has exerted a determining influence on state-society relations when interest groups organise so that individuals may stand in solidarity with each other to check excesses of power. Indeed it is a matter of pride for many that this marks off Europe from the American USP of eternal youth and unbridled competition. But this self-image built around solidarity has been challenged nationally and pan-Europe in the face of the migrant crisis.

The numbers of asylum applications received by different European countries vary widely with Germany receiving more than double that of the country ranking second, Sweden, which in turn outranks Germany when the figures are calculated as a percentage of population. UK, Ireland and Denmark maintain opt-out option on EU migration policies. Significantly, the humanitarian grounds that constitute the basis for granting of asylum continue to be defined by national legislation and thus vary from one country to another. The difficulty currently is that virtually all of the arriving asylum seekers are in Italy and Spain. This has led to an ongoing war of words between countries at the front-lines of the influx such as Italy and northern neighbours such as France who are extremely reticent when it comes to demands for burden-sharing. The French have refused to process demands for asylum on grounds that the Dublin accords hold the country of first entry explicitly responsible for this. In the past week, this has escalated into a full-blown stand-off at the Franco-Italian border with the French government refusing to back down and allow migrants to cross over.

To resolve the impasse, the European Commission has touted a system of quotas to achieve a more even distribution based on GDP, total population, rate of unemployment and number of refugees accepted between 2010 and 2014. This proposal has met with dogged resistance from the likes of France, United Kingdom and Poland. Statements coming from the Italian government this past week leave no room for doubt that faith in European solidarity as a way to manage and overcome the crisis is at an all-time low.

There is at the same time heated debate on whether the migrants are to be deemed bona fide asylum seekers or economic migrants. Eighty percent of applicants fall below the age of 35 suggesting the possibility of a significant net addition to working-age job-seekers. The fact that migrants who self-identify as asylum seekers still have preferences as to a final destination is being interpreted as weakening their asylum claims and pointing to migration for economic reasons. High pre-existing youth unemployment has predictably triggered a negative response to this prospect, further unravelling the bonds of solidarity even within countries. Regional officials in northern Italy are, for instance, refusing to cooperate with the capital towards achieving a more even spread of asylum seekers, pending a decision on their status, leaving them to suffer in limbo.

EU High Representative for Foreign Affairs and Security Policy, Frederica Mogherini, has acknowledged the need for a multi-pronged solution including development cooperation with “sending” states to curb the push-factors. But she too, like most national leaders, has been careful to couch this in terms of long-term European interest. The single response measure which is thus far agreed on is military action against so-called smuggler networks and discussion on medium and long-term steps has all but disappeared from the public domain. In any case, given the level of discord between European governments and within increasingly inward-looking European societies, this may not be an opportune time to bring up pending issues like large-scale displacement driven by climate change and the consequences of EU’s dogged pursuit of Free Trade Area deals around the world which, however thorny, are at the heart of the current crises and threaten worse to come.

A veritable deluge of statistics is available on sending and receiving countries and how the numbers vary from one year to another. But when the waters of the Mediterranean are somewhat calmer, the priority should shift to reading in between facts and figures to truly introspect on what they reveal about the implications of Europe’s historic immigration and wider economic policies. Europeans would do well to go back several generations and recall the patters of their own outbound migration when they settled the New World. Perhaps then, the Eurocentrism that is currently driving the situation could make way for a sound, reasoned response based on restoration of Solidarity as the guiding principle.

Kalyani Unkule is Assistant Professor and Assistant Dean at Jindal Global Law School


Sunday 21 June 2015

The Precariat: A New Dangerous Class Guy Standing Bloomsbury, Second Edition 2014. ‎(Category: Book Review)

Guy Standing’s Precariat is a cogent, accessible foray into the specific nature of present-day “proletarianisation” of sections of Western society, a process marked by precariousness more than anything else, as the title suggests.
The precariat, as it stands today, is a motley crew of individuals of varying ages but with the shared characteristic of being socially downwardly mobile. Young entrants to the workforce identify with the precariat when they find themselves overqualified for the jobs they are in and experience the accompanying diminution in status. But the author explains that the Precariat is not comprised of the youth alone, nor does it stem exclusively from the rebellious streak frequently associated with this demographic. It is the increasing numbers of middle-aged workers joining the ranks of the insecurely and casually employed that further invites interest in understanding this category. A third set of people who fall within this broad rubric are those with employment security but without job security. This subset refers to cases of long term employees of organisations and civil services who are required to regularly transition into different roles and responsibilities and are expected to develop an appetite for what seems like endless “functional flexibility”. There is also an element of volition involved when members of each sub-category are further classified by the author as “grinners” and “groaners”, with the former having willingly embraced the life of the precariat.  

Of these, the specific condition of the younger precariat is most fully explored, characterised chiefly by the debt incurred in securing an expensive education, dismal employment prospects in the wake of the economic crisis, longer durations of poorly-paid probationary and temporary positions and a sense of resentment for the previous generation. “Remarkably”, says Standing, “more UK youth say they belong to the working class than think their parents belonged to it”. He absolves the younger generation of the charge of insisting on a better work-life balance on the grounds that “for psychological and economic reasons, many cannot afford to be as committed to jobs that could evaporate at short notice”. 


Standing explores both the psychological and social implications of this condition. The psychological cost on the individual can be summed up in the well-known ideas of rootlessness and Marxist anomie. Of greater novelty however is the book’s argument that the precariat cannot enjoy that part of social income which includes informal mutual insurance provided by family and community and accrues from long-term group membership and stable bonds. For adult males in particular, this crisis is exacerbated by the increased feminisation of the work force, coupled with a lack of realistic prospects to fill the traditional role of the breadwinner. For those who evade the extremes of substance abuse and indebtedness, this still means a gradual erosion of ambition and pervasive ennui, and eventually, inability to form lasting relationships.

Leading drivers of precariatisation are identified as the increase in labour supply ensuing from liberalisation and opening up of the Chinese and Indian economies as also the commodification of firms whereby, frequent changes in ownership of firms has been accompanied by a drop in standards of accountability. The resulting re-commodification of labour and the growing trend towards contractual flexibility are discussed as key symptoms of this transformation. Standing does not however view the response to these phenomena in conventional leftist terms. For instance, the anti-capitalist agenda of the precariat does not automatically align them with the trade unionists, whom they perceive as endogenous to the exploitative system rather than posing a challenge to it.

Precariat blends a rearticulating of key points of critique of neo-liberal globalisation with an attempt to delineate the attributes of a novel resistance emerging against it. The introduction presages emergence of a new movement but subsequent chapters manage to establish, at best, a more widespread sense of futility than prevailed a couple of generations ago that manifests itself now as seething anger, now as cold apathy but for the most part, as grudging acceptance. An important opportunity to understand these potentially far-reaching changes is missed when Standing does not dwell at sufficient length on the “grinners” or those who are embracing this lifestyle, as it were, by choice. It is conceivable that more rigorous inquiry into this demographic would yield clues to tomorrow’s world of work and the transformation in individual and social life it portends. One is also struck, on more than one occasion, by the perception of change, whether in the desired direction or not, as a zero sum game with women necessarily imposing costs on men as they become more active participants or with newly industrialising economies achieving growth by means that unavoidably hurt their more advanced counterparts.


In the author’s defence, he acknowledges that “The evolution of the precariat as the agency of a politics of paradise is still to pass from the theatre and visual ideas of emancipation to a set of demands that will engage the state rather than merely puzzle or irritate it”, inspiring him to work on a sequel entitled A Precariat Charter: From Denizens to Citizens.
(Kalyani Unkule is Assistant Professor and Assistant Dean at Jindal Global Law School)

Kalyani Unkule

Assistant Professor, JGLS
Assistant Dean – International Collaborations
 

Tuesday 19 May 2015

UK election 2015: The Outcome (Category- Politics and Institutions)


The UK’s political system embodies the ideal type of republican democracy in many ways and the constitution – for something that was never put down on paper – has provided a remarkable degree of stability. However, the far reaching changes in society and polity that were in evidence pre- and post-election must not be ignored, not least for being instructive as far as what democracies around the world, including India, can expect as they evolve. 

Identities in Politics

Group affiliations and social identities play a strong role in electoral outcomes even in mature democracies. True, the Labour party registered stunning loses within its traditional Scottish base on this occasion. However, this is owing to a perceptible shift in the determining group affiliation from class-based to ethnic/ethno-nationalist. The Guardian’s prescription for Labour that is must learn anew to reach out to the public “in a voice – and perhaps an accent – that speaks to the individual ear” is telling in this regard. 

Ideological spectrum and policy options

Reputed scholars of European politics, among them Tony Judt, have presaged the blurring of the left-right divide which finds its genesis in the region and has long defined electoral battle-lines. Judt describes this as “the disappearance of the old master narratives (Socialism vs Capitalism); proletarians vs owners; imperialists vs revolutionaries)”. Sworn allegiances are admittedly not entirely a thing of the past but it appears that voters increasingly ask themselves: “Who has the right answers on an issue that matters most to me?”, rather than wholesale policy packages and ideological grandstanding. Much of the pre-election public sentiment in the UK was one of chagrin over lack of distinct and clearly articulated policy options anyway. In this situation, voters seem to opt for continuity by default. In stark contrast, post-election commentary has, for instance, taken Labour to task for not being Centrist enough while the dismal Liberal Democrats’ performance at the polls has been blamed on too much Centrism. 

Another emerging trend where this same phenomenon is clearly manifested is the varying fortunes of the far-left and far-right. Thus, while the Eurosceptic UK Independence Party fared well in the 2014 European Parliament elections, it only managed to secure a single seat this time, suggesting, once again, issue-specific suffrage at various levels. 

The public’s pro-continuity bias, leading to successive terms for the same administration more or less, in the case of New Labour, was deemed by many to be a case of going deeper in a certain direction – the wrong one. History will be the judge of Cameroon and his cabinet’s successive stints in government. It is plausible however, that the first term of any government would be spent in course-correction and back-pedaling on perceived faux-pas. A second opportunity to serve in office must be awaited to take any action aimed at moving forward. 

Secession and Devolution

With different parties and political agendas in power at different levels of government one thing seems assured for mature democracies – devolve or perish! Less than a year after the Scottish referendum on independence ended in a No vote, the pro-independence Scottish Nationalist Party bagged 56 of 59 seats occupied by Scots in Westminster. The SNP does not favour the austerity policies that have been at the heart of the last Conservative government. Its MPs will no doubt push Cameroon to deliver on the promise of greater financial autonomy and decision-making authority for Scotland, within the Union. Moving forward, the only options confronting mature democracies are likely to be a willingness to loosen the central government’s stranglehold or be permanently riddled by policy paralysis. 

Brussels, Berlin and Paris must now also be equally willing to negotiate afresh, a place for the UK in the European Union. Although personally not in favour of pushing the exit button, David Cameron must contend with Conservative Eurosceptics as well as the likes of UKIP, whose poor showing at the polls will not deter them from setting the terms of the debate. Whatever be the specifics of the deal that is finally put to vote, this referendum would once again bring to fore thorny issues of identity, immigration and economy and above all entail a re-imagination of the place the UK seeks to occupy in the world and its relationship with its European self and the European other.  

The Rules of Ruling

The outcome of this election has left pollsters somewhat baffled. All per-poll predictions pointed to a neck-and-neck race between the two leading parties. At the very least, nowhere near the kind of majority secured by the Tories was anticipated. Some have attempted to save face by blaming the first-past-the-post system for this surprising result. Reports suggest that underlying the Tory seat share of above 51% is a much less impressive vote share of 37% of the 66% of eligible voters who exercised the ballot. Others have sought redemption by arguing for improved forecasting models. 

A promising supplement to these approaches would be to follow the long-term evolution of democracies and to more fully appreciate the nature of and links between electoral strategies, voter behaviour and social consensus. 


(​Professor Kalyani Unkule is an Assistant Professor at the Jindal Global Law School and Assistant Dean, International Collaborations.)

Tuesday 14 April 2015

China 2015: Resetting the Asian Growth Story? (Category: Politics & Institutions, Trade, Foreign Policy)

 Regional multilateral forums are giving China a solid platform to assert its rising strength. Years of stellar economic performance has allowed Beijing to exert quite the influence in the Asia-Pacific region through these forums.  Initiatives of development bank, regional security grouping, trade deals and economic strategies are announced and underlined in these forums. But as the Chinese economy slows down with reduced growth projections for 2015, Beijing needs multilateralism more than before. After all, success of China’s grand strategies depends on cooperation from the region. But is the region willing to cooperate? Find out.

In recent past China has forged itself to an active multilateral diplomacy alongside its enhanced engagements on bilateral basis. Buoyed with stronger economic growth and increasing foreign exchange reserves, it has been successfully able to pursue its regional diplomacy, leading to a series of regional as well as sub-regional cooperation framework in Asia such as ASEAN Regional Forum (ARF), Asia-Pacific Economic Cooperation (APEC), Asia-Europe Meeting (ASEM), Shanghai Cooperation Organisation (SCO) and more recently Bangladesh-China-India-Myanmar Economic Cooperation (BCIM-EC).


Chinese multilateralism, gives this country a leeway of mobilising its huge cash pile accumulated in the form of foreign reserves to fulfil its objective of rational political and economical order, which can promote peace, development and multipolarisation, while offering security and economic cooperation to the countries concerned.  While this argument holds sound and interesting, the origin of Chinese thought process behind reaching out to outside countries can be correlated with its ‘Going Out’ strategy, when Deng Xiaoping, in his efforts to open up China, stated that China’s economy rested in engagement with the outside world.


Riding on its ‘Going Out’ Strategy


This manifestation was further re-instated by former President Jiang Zemin and Premier Zhu Rongji to further prioritising to liberalise Chinese economy, as a result under their leadership China joined the World Trade Organisation. In fact, Jiang linked international expansion as critical to development, as he stated that, “Foreign funds, resources, technology and skilled personnel, along with privately owned enterprises that are useful supplement to our economy, can and should be put to use for the benefit of socialism.”


Jhu, on the other hand formally invoked the term “going out” (zou chuqu) in a 1999 speech, wherein he asserted a connection between the paucity of resources (particularly oil) and a need to go abroad, asserting, “Domestic development and production of oil can no longer keep pace with the needs of the country’s economic and social development, resulting in and increasing imbalance between oil supply and demand.”


This strategy helped China to boost its economic activity not only to feed its ever increasing energy intensive manufacturing sector but also to support the resultant economic activities. Consequently, China observed three and a half decades of near double digit growth, transforming nation from largely rural and poor society to world’s one of the leading trading nations. This growth further led to increased foreign exchange reserves to as high as $3.5 trillion, facilitating to expand its military expenditure.


Economic Slowdown to Hamper Chinese Dream?


Undoubtedly, with strong ambition of fulfilling its own dream of becoming a the ‘Great Power’ in congruence with promoting peace and development across the world space possible, China has so far led from the front to create several multilateral forums, using its huge cash reserves.


But the romanticism of export led Chinese economy, propelled by property market is now seems to be ending, with current growth registering slowest since past 24 years. Most of the previous stimulus investments policies, since global recession of 2008 were financed heavily by the local governments, having limited resource and heavy debt burdens, which has escalated to an estimated $2 trillion, or 25 per cent GDP at year end 2012. If one scrutinizes August 2014 data ranging from property sales, investments and industrial production, they have shown sudden weakening of growth. The property sales which have fallen 8 per cent so far last year has eaten away the revenues of the local government, due to holding back on land purchase by property developers resulting from lean property markets.


Notably, China’s property sector accounting for 15 per cent of China’s GDP, has become one of the biggest factor slowing down of its economy, affecting overall demand growth of the Chinese which had in the past led to surge in resource quest, particularly the global crude oil. Now, global crude oil price, which fairly remained stable from 2010 until mid 2014 at around $110 a barrel, nose-dived to below $50 a barrel. And with International Monetary Fund further trimming growth forecast for China to 6.3 per cent in its January 2015 World Economic Report updates and Iran hinting of the oil price to fall further to $25 a barrel, leaves no scope of Chinese economy for early recovery.


Now, there is a big question mark on whether China would still be able to continue with its multilateral regional diplomacy and continue to economically pull its weight in strengthening ASEAN, APEC, SCO or even BCIM. With recent economic growth projections of China by international institutions like IMF and World Bank keeping it significantly low at 7 per cent which is even below that of India, which on the contrary is projected to grow from 5.8 per cent from 2014, ensures a scenario where China would be compelled to slow down unless it brings out strong stimulus package to boost its economy. Chinese economy is primarily based on exports and investments accompanied by low personal consumption, making it both energy and mineral intensive. Overseas Investment Key for Chinese Multilateralism


China, in order to deal with current economic impasse has rather preferred to go for reforms instead of coming out with ‘strong economic stimulus’. But some of those reforms are too challenging to be implemented due to limited alternatives to China’s alternative growth model. Though, China believes that its ‘going out’ strategy through overseas investment in series of regional initiatives would support reversing its sluggish economic growth. Such regional initiatives further include, announcement of $40 billion Silk Road fund by President Xi Jinping, to provide financial support for infrastructure construction, resources exploration and industrial cooperation for countries along the “One Belt and One Road” and a proposal of building the Asian Infrastructure Investment Bank (AIIB), to support various regional infrastructure projects through realising inter-connectivity and mutual access of neighbouring countries.


Its ambition is reflected from the fact that China, for the first time in history became a net capital exporter where its outbound investment outnumbered foreign direct investment in 2014. The country’s investors, channelled capital into 6,128 overseas firms in 156 countries and region in 2014, with outbound investment reaching $102.89 billion, up 14.1 per cent from a year earlier, according to a press conference by the Ministry of Commerce (MOC), People’s Republic of China.


This according to China would help in maintaining its political and economic status in the Asia-Pacific region and its leadership in the world, while ensuring that the country gets better returns from such overseas investment projects, through spreading the risks involved in various projects as aforementioned. Therefore, the objectives of building forums like APEC, BRICS, ASEAN and BCIM are optimised and win-win conditions are provided to the member countries.


Dragon looks South via SAARC


The South Asian Association for Regional Cooperation (SAARC), which came into existence in Dhaka, Bangladesh, 1985, is one of the oldest regional organisations. It was constituted with an idea of working together on the common objectives like world peace, security and development. The basis behind any regional cooperation including SAARC has being to reap the benefits of common history and experiences of the past.


Therefore, underlying principle of the SAARC charter was to foster regional cooperation based on mutual trust and respect for the territorial integrity and sovereign authority of each member states. But now there has been a growing perception that since its inception SAARC, despite having all the charters and principles in place, has failed to bring out any concrete outcome out of this framework. And it is often argued that absence of a sound bilateral relationship among the member states and the effective functioning of an association as a whole, will continue to be problematic.


This was clearly witnessed during the 18th SAARC Summit where resurface of standoff between India and Pakistan yet again failed to optimise the benefit accrued to each of the member states, when at least three projects, namely, an electricity grid and trade in electricity, and road and rail connectivity appeared to be a non-starter, due to inconclusive internal process by Pakistan.


Though, it could have been the ongoing border incursion and ceasefire violations by Pakistan during that summit which may have played the spoilsport in clearing of these projects. The border tension, in fact was also reflected in Modi’s speech, where he stated that, “The bonds will grow. Through SAARC or outside it. Among us all or some of us.” Though it was hoped that this SAARC Summit would succeed in breaking new grounds, after some serious efforts made by Prime Minister Modi, while inviting SAARC member countries in the swearing ceremony and putting neigbours at the core of India’s foreign policy agenda. This effort seemed to offer fresh lease of life to the dying SAARC. On the other hand, China, that has long wished to be a member of SAARC and has continued to push for its greater role in South Asian region. For better communication and contact and to maximise the advantage as an observer member, China appointed permanent representative to SAARC. Further, China is being consistently pushing for its greater role with each of the member countries in South Asia, either bilaterally or through multilateral settings, such as China-South Asia Expo, the China-South Asia Business Forum and the China-South Asia Friendship Organizations’ Forum into important platforms.


Exerting Greater Weight Through APEC?


With Asia-Pacific Economic Cooperation (APEC), however, China is able to bring larger structural shift in the eco-politics of the Asian region. A stance to that effect, got clearly manifested in APEC 2014, held in Beijing. At the APEC Summit, President Xi Jinping underlined on “Asia Pacific dream” for open regional economy to boost free trade and investment.


In its Asia Pacific Dream, China has invited everyone including the US and India. Xi-Obama signed historic deal on reducing carbon emissions at the Summit. Both the countries also signed a military accord to avert clashes between each others’ planes and warships off the Chinese coast. There was also an understanding to cut tariffs for technology products and visa deal was agreed upon with potential strategic implications in the long-term. Calling further shots in the Summit, President Xi also proposed “One belt, One Road” plan in a bid to co-opt regional players and consolidate its rising economic profile.


It has been observed that Beijing’s tone and tenor with member-states is changing; inclined more toward cooperation as opposed to coercion. In APEC 2014, Beijing, the host, received Japan warmly. On the sidelines of the Summit, Xi-Abe had a formal meeting aimed at mending ties over their historical and territorial enmity. Russia too received a warm embrace as the two countries, keeping their historical differences aside, met to sign multi-billion dollar energy and resource cooperation. India, non-member of APEC, was invited in the Summit. In addition, Beijing also encouraged New Delhi to become a founding member of AIIB (backed by China).


Therefore, despite economic slowdown, it is expected that by 2015 Summit, China would wield more influence on the world stage. APEC accounts for nearly half of global trade. Beijing used the Summit 2014 to full use by exerting its rising economic and political influence not over merely Asia but also in the Pacific circles. APEC 21-member economies are home to around 2.8 billion people and represented approximately 57 per cent of world GDP and 47 per cent of world trade in 2012. In 2015, it is hoped that China would increase its normative profile, which till now looks like an un-worked patch in the rising-power discourse. 


Beijing: Revising Eco-Politics?


Some assertions were clear by Beijing in APEC-2014, such as the plan of Free Trade Area of the Asia-Pacific (FTAAP) agreement. FTAAP is seen as a response to Washington’s Trans-Pacific Partnership (TPP) that includes 12 APEC nations including Japan and Australia, but not China. Both the countries are jostling with their own plans to turn the Pacific into a free-trade area and test their influence in the region. China however, believes in the “the eventual realisation” of FTAAP.


China is being looked upon as giving APEC an Asian identity which was missing earlier. Or perhaps it is the other way round. The multilateral venue, APEC, is becoming an official platform where China is showcasing its prowess. While APEC 2013, held in Bali, saw China proposing setting up AIIB (set with starting capital of $50 billion), APEC 2014 witnessed China’s launch of Silk Road Fund, with contribution of $40 billion. In proposing these initiatives, China sends out strong signals to the West as well to Asia. AIIB is seen as rival to West’s IMF, World Bank and Asian Development Bank. Further, China with its two funded initiatives, namely, the New Silk Road and BCIM, proposes a better infrastructure, an increased connectivity and more trade among the Asian nations.


The APEC summit, 2014 has been way beyond mere symbolism; it saw weight of China. It is expected that Beijing will be able to sustain its assertive leadership position in the Asia region and among the Pacific marvels even in the coming Summits (Philippines, 2015) and Peru (2016) with its long-term strategic vision.


Further, if one has to believe in the statement of Mr. Liu Zhenmin, Vice Foreign Minister of China, which was given at the opening session of the 18th Summit of the South Asian Association for Regional Cooperation, in Kathmandu, Nepal on November 26, 2014, one can get enough hints about China’s vision for South Asia as well. At this Summit, in order to realize the Chinese dream and making it align with transforming South Asia, Liu Zhenmin, urged for greater cooperation. While citing the importance of the visits been made by President Xi Jingping to countries such as Maldives, Sri Lanka and India, Liu laid emphasis to enhance China-South Asian trade and investment to $150 billion and $30 billion respectively. Clearly, China is leaving no stone unturned to use SAARC as effectively as it is using APEC.


For this China has planned several initiatives in 2015, including, the Seminar for Cadres from South Asian Political Parties, the symposium for promoting South Asian countries’ exports to China, the China-South Asia think tank strategic dialogue and the exchange program for SAARC countries’ radio and TV journalists, producers and hosts. Last year China took series of initiatives such as Economic Belt of Silk Road, 21st century Maritime Silk Road and Community of common destiny between China and ASEAN. The other initiatives included China-Pakistan economic corridor, BCIM Economic Corridor and the Asian Infrastructure Development Bank, along with announcement of the establishment of a $40 billion Silk Road Fund to highlight China plan to take it forward in 2015.


All these initiatives, according to China, would be possible only with the joint efforts of all the countries concerned, which will deepen practical cooperation, promote integration through opening-up and advance development amidst integration. These initiatives will only bolster the connectivity of policy, road, trade, currency and people across the region, providing economic prosperity.


China in ASEAN


Just as APEC, ASEAN (Association of South East Asian Nations), provides regional optimism to China, who as a dialogue partner, emerged as ASEAN’s largest trading partner. As shown in the figure, in 2013, ASEAN’s total trade with China was $350.5 billion that accounted for 14 per cent of ASEAN’s total trade and represented an increase of 9.7 per cent on year-on-year basis. In contrast, ASEAN trade with USA, Japan, EU-28 and Canada posted the lowest annual growth rates from 5 to 7 per cent per annum on an average.


China’s efforts of enhancing economic ties with the 10-member ASEAN countries, through increased trade and  new continental and maritime connectivity has not come a day soon. By deepening economic integration and forging stronger regional ties, China is securing political consensus, and its own securitization in the ASEAN region.


Earlier China worked with ASEAN’s founding member, Singapore, to set up two flagship government-to-government projects, namely, Suzhou Industrial Park and Tianjin Eco-city. It evinced interest in setting up a third project during 2014 ASEAN Summit.  China worked with the Malaysian government, another core ASEAN member, to set up China-Malaysia Qinzhou Industrial Park and announced another project viz, Kuantan Industrial Park in 2013, in  bid to accelerate cross-border movement of manufactured goods.  China’s cross-border cooperation zones with Myanmar and Vietnam is also in progress.


Through these sustained efforts, China not only plans to increase its own economic and political cachet in the region, but also aims to set up a bulwark against the US, which has growing interest in the region. The interest is fuelled by the vibrancy of the South East Asian markets. The US too, wants regional integration and according plans to consolidated position to contain China and its rising influence in the region.


As complex as US and China’s relationship can get in the background of South East Asia, predications too can get complicated.  As a single geopolitical entity will China be favoured or the US? Or will the region seek role of multiple players to safeguard against one nation’s stifling dominance? Will the region itself get strong enough, given the huge disparities in income and structural deficiencies?


ASEAN visions include community-building, economic integration and stronger regional ties. In 2015, the spirit in which economic integration is sought, may not inch forward for ASEAN.  One of the biggest roadblocks would be the ongoing dispute over South China Sea (SCS). Territorial claims in SCS are laid by China and partly by the Philippines, Vietnam, Malaysia, Taiwan and Brunei. In 2012 ASEAN summit, tensions ran high over the issue of SCS, never seen before in ASEAN’s 45-year history.  It is quite likely that the national sentiments will gain precedence over supranational economic integration.  Philippines is already locked in battle with China over it. A decision by the arbitral tribunal at The Hague on the Philippines’ case against China is pending.  China has already ‘rejected’ the arbitral jurisdictions over the sea boundary limitations. The acrimony over SCS continues despite China and ASEAN signing a Declaration on the Conducts of Parties in the South China Sea in 2002, with the goal of promoting peaceful, friendly and harmonious environment. It is unlikely that in 2015 any amicable solution will be attained on this front. Several nations of the region covet the islands of South China Sea driven by the desire of domestic growth and by security concerns.


Nevertheless, China’s role in galvanizing region’s economic success can’t be overlooked. The year 2014 saw negotiations underway to build an upgraded version of the China-ASEAN Free Trade Area (CAFTA), an idea first mooted in 2002 and saw coming into effect first on 2010. In 2015, CAFTA may gain momentum. China is set to launch the fund-raising for ‘China-ASEAN Fund’ on Investment Cooperation. The China Development Bank is also setting up a China-ASEAN special loan for infrastructure development. Further, China-backed AIIB plans to provide financial support to regional infrastructure projects and priortise ASEAN connectivity. China-ASEAN Expo 2014 saw Chinese government and the ASEAN sign a MoU worth about $8.1 million on disaster management, to provide humanitarian assistance to help countries affected by disasters.


In taking lead on setting up these initiatives in the region, China continues to set up framework for political clout as well. This raises significant question: Will a deeper involvement add stability to the region or destabilize it? Regional countries are wary of China’s engagement and assertions. ASEAN Economic Community (AEC) originating from ASEAN Vision 2020, adopted in 1997, aspires to create a single market and production base with a free flow of goods, services, investments, capital and skilled labor by 2020. If AEC is created on its set target period of December 2015, it may add credibility to this group. China may take lead position in AEC. ASEAN since, 1967, has been the most significant multilateral group in Asia. Ironically, it never gained teeth to handle serious economic or security challenges, including disputes in the SCS. There is no formal mechanism yet established to facilitate cooperation or sort out differences. In 2015, the script may not be any different unless ASEAN countries, a region of 600 million people, together work in pooling of funds and gain an equal say on matters. Regional togetherness remains a product of good governance, equal economic strength of nations, robust coordination and structural capacity; ASEAN has to work on all.


New Beginnings with BCIM


BCIM or Southern Silk Road, which is yet another branch of China’s New Silk Road strategy, holds great importance in integrating economies of South Asia.


BCIM Forum for Regional Cooperation, also known as “Kunming Initiative” came into existence in August 1999, a year after Professor Che Zhimin, the then Deputy Director of the Economic and Technological Research Centre of the Yunnan Provincial People’s Government presented a note at a Conference hosted by the Institute of Chinese Studies (ICS) in New Delhi. He defined the scope of the proposed ‘sub-region of China, India, Myanmar and Bangladesh, which can lead to a ‘cooperative zone’.


After more than a decade and greater push by the Chinese the significance of the BCIM re-emerged, when during 2013, China and India spearhead the corridor with their urge to bring some momentum to it. The success of BCIM Car Rally of February 2013 between Kolkata and Kunming brought a decisive momentum to this corridor as a result this project found its mention in all subsequent joint declaration been made during exchange of bilateral visits of Chinese Premier Li Keqiang to India in May 2013 and subsequently by Indian then Prime Minister Manmohan Singh to China in October 2013. These bilateral exchanges then paved way for first JSG meet on December 18-19, 2013 in Kunming.


Recently, the second meeting of the Joint Study Group (JSG) of BCIM-EC on December 17-18, 2014 was successfully convened by bringing on the board modalities of the future course of action of this project.  The initial total estimated cost of BCIM-EC project would be about $22 billion for which 55 per cent may be contributed from the multi-billion dollar fund, while the balance will be borne by the four governments and the private sector. Therefore, though BCIM finally succeeded in covering larger ground with concerted and coherent efforts of India and China, while also having a potential of becoming a model for similar such multilateral initiatives, it remains to be seen if either of these countries are eyeing membership through enhanced cooperative mechanism. The apprehension remains as to whether, China would come out well fighting its own economic crisis through these forum-pushes.


So the first challenge confronting China is the reforms which it wishes to undertake to bring its economy back on track, wherein right kind of reforms would play a major role.  But a host of longstanding economic risks, such as escalating debt levels, waning property market and resultant defaults in the real estate sector, are likely to overshadow gains from lower oil prices. Economic reforms will have a bearing on Beijing’s political tone also. In a bid to obtain regional cooperation, China has to balance economic, political, cultural and diplomatic fronts. The task cut out is tough. But it is never easy for a rising power. Or is it?


Urmila Rao is Executive Editor, India-China Chronicle and Manish Vaid is Junior Fellow at the Observer Research Foundation, New Delhi.

 

Monday 6 April 2015

The Great Recession and its Impact on Africa: Focus on Ghana and South Africa


By: Faith L. Morlu
Abstract
The world observed the deadliest financial crisis since the great depression of the 1930s in 2008. The signs of a financial crisis started becoming visible in the mid-2007 and early 2008 by the demise of stock markets, the failures of big financial institutions in the United States and parts of Europe. Given that banks play a key role in our modern market system due to globalization, the crisis quickly swelled through the whole real economy,which turned a financial crisis of the United States into a global economic crisis. The crisis affected many regions of the world in different ways due to their diverse interaction with the United States. In this paper, I examined the effect of the crisis in Africa more precisely Ghana and South Africa. The impact was analyzed with regards to the performance of Gross Domestic Product, Balance of Payments, Fiscal Deficits, Net Investment Levels, Inflation indices and the Trade statistics of the both countries. 

1.     The great recession of 2007

1.1 Background to the Crisis

The years preceding 2007 are often been referred to by economists as the years of the Great Moderation, since these were years advanced economies witnessed stable growth rate, and  vast macroeconomic stability. In 2001 the US Fed lowered the interest (The Fed fund rate) rate from 6.5% to a drooling 1.75% (Singh, 2011). Thus creating a flood of liquidity in the economy. Bankers and reckless borrowers who didn’t have a permanent income or job came seeking credits due to the overflowing of cheap money. These so-called subprime borrowers came for these loans with the minds of achieving their dreams of owning a home. So, as subprime borrowers increased, so did the prices of homes. This new development made Investment in questionable subprime mortgages seem like a new gold mine.

In 2003 the Fed brought interest rate down to 1%, thus leading to bankers repackaging mortgages into Collateral Debt obligations (CDOs) and selling them off. Subsequently leading to the development of a large subordinate market for the distribution of subprime loans. And then the Security Exchange commission of the US went on minimizing the Net Capital Requirement of the five big investment banks in 2004. Thus making these investment banks to Leverage 30 or 40 times their original investments.

1.2 The Crisis

As of June 2004, the Fed started immensely raising interest rates so much that by June 2006 interest rates had peaked 5.25%.(IMF, 2009)This vastly increased in interest rates led to the start of borrowers defaulting on their loans, causing a bad start of the year 2007 with so many subprime lenders claiming bankruptcy. According to Singh (Singh, 2011), hedge funds and some financial firms held more than 1 trillion in securities that were backed by these failing subprime mortgages,making the situation alarming enough to start a global financial crisis if more and more borrowers kept defaulting.

August 2007 came with the clarity that the subprime crisis could not be solved single handed by the US financial markets, and soon the crisis started spreading beyond the borders of the US. Then came the freezing of the inter-bank markets,due to the speculations among other banks. The Fed came into the situation by the slashing of the Fed funds rate as well as the discount rate in an effort to solve the problem, but the worst kept happening.  The worst started by the filing of bankruptcy by Lehman Brothers, followed by  collapsing of Indymac bank, the acquisition of Bear Stearns by JP Morgan Chase, the selling of Merrill Lynch to Bank of America, and the US Federal government controlling of Fannie Mae and Freddie Mac.

By October 2008, the cross border spillover had deepened in many regions of the world due to inter-linkage of markets and financial institutions with the high correlation of risks. During which time the US Fed reduced the funds and discount rates to 1% and 1.75%. Bigger economies Central Banks like China, England, Canada, Switzerland, Sweden, and the European Central bank took measures to help the global economy from further crashing by cutting down their rates. But the cutting down of rates alone was insufficient to halt such extensive global financial collapse. 

2     The Impact of the crisis on Africa

2.1 Africa Before the Crisis

Granted that Africa is indeed a diverse region and that, not necessarily all economies have coped well. But prior to the 2007 recession, Africa economies were generally flourishing, they grew at an average of approximately 6%, inflation collapsed into a single digit level below 5%. This was before the food and fuel price shock of 2008 (IMF, 2009).These positive growth was attributed to the favorability of the external environment, strong macroeconomic policies, the rise in commodity prices from 2002-2007, and the massive inflows of grant/AIDS and debt reliefs from the international community.

Figure 1.SSA GDP and Exports growth in percentage before the Crisis
Source: IMF data, Author’s accumulation
The graph portrays that the region experience economic growth at an average of 6.5% per year amid 2002 and 2007. The increase in the demand for Africa primary commodities such as natural resources, particularly oil and minerals was a key drive to the growth of the continent between these periods. This excess demand was encouragedby the growth in industrialized countries and the rise of emerging market economies like china and India.  Granted that Africa growth during that period was driven by commodity boom, but many other factors such as; increase in FDI, Net private capital flow, portfolio flows, remittances, was anticipated to have expanded between the years.(UNCTAD, 2009)  In many other African countries, there was an increase in productivity and domestic demand in terms of telecommunications, as the use of mobile phone and internet services grew from 2002-2008. All these trends were aided by enhanced economic governance, fiscal restraint, efficient banking policies, International debt relief programs, and the decline in the number of civil war and insurgences made the continent quite striking for foreign investments.

2.2 Impact of the Crisis on Africa

The recession that started in the US financial markets was a bit slower in affecting African economies, but it gradually did. Right after the fuel and food price shock of 2008, the hard sustained economic gains that Africa had managed to sustain over the years were at risk. Just as in other parts of the world, Africa started experiencing the waves of the financial crisis in 2009. The continent saw a great decrease in the demand of its export, decrease in commodity prices, and the flow of remittances to the continent also started declining. As the situation got at its height, International trade got more costly, foreign direct investors got frightened leading to a fall in FDI, and a tighter international investor and credit risk aversion led to the reversal of portfolio flows. Even fragile states like Liberia, Guinea-Bissau and Burundi whose social and political situation at the time were vulnerable, felt the impact of the crisis due to their dependence on concessional financing. (Bourdin, 2009)

Figure 2.  Percentage of SSA Real GDP, Exports, Imports and Current Account Balance\


Source: IMF data, Author’s accumulation

Granting that Africa is the least assimilated region in the world in terms of global trade, but it was unable to drift away from the effect of the global economic crisis. Despite the continent low contribution of approximately 2% to global trade, but the majority of its economies depend on the exportof their primary commodities for survival. Figure 2 shows a decline from 5.4% in 2008 to 1.3% in 2009 in the total real GDP of South Sahara Africa. Imports, which the continent depends on heavily due to their poor production and manufacturing activities, fell from 8% in 2008 to -4% in 2009 due to the decline in global productions. Due to the continent exposure to industrialized economies, there was a decrease in the demand for African exports leading to exports falling from 8% in 2007 to -0.071% in 2008, and -5.6% in 2009.

The IMF data indicates a general fall in Africa's economic growth by nearly4%percentage in 2009.The mixture of poor export demand, the decline in private capital flows,worse commodity prices, decrease in remittances, the cutting down in tourism revenues, and fragile government revenues were all reasons that the continent economic growth fell by close to four percentage in 2009. The continent emerging markets or middleincome countries thatwere more assimilated into the global markets were the hardest hit: with growth slipping by about 4.5% in 2009.But in the normal course of events, disparities in economic growth across sub-Saharan Africa areintenselyconnected with eccentricshocks which were also a reason for the fall in the continent growth. What started with the decline of commodity prices and in some countries affecting the wages ofthe workforce and even farmers, quickly led to an exit for a total economic collapse and the intensification of the class struggle.

1 3  Why Ghana and South Africa?

I choose Ghana and South Africa because they are both growing economies and emerging markets in Africa. And these economies with financially developed markets were the first to feel the effects of the global financial crisis because they were more assimilated into the global financial market by the connection of capital flows, exchange rates and stock market investors. Given that the first four economies that were hit by the crisis in Africa are; Nigeria, South Africa, Ghana and Kenya, which led to capital flow reversals, a fall in their equity markets, and exchange rate compression, I decided to analyze the Ghanaian economy being from the west, and the South African economy being from the South.

2   Ghana and the Global Financial Crisis

3.1 Trends before the Crisis

There have been a lot of changes in the Ghanaian economy since their independence from the British in 1957. Their economy has gone through so many changes ranging from the poor economic performance from the 1980s that was marked by the coup and lack of market principles in the National economic policy. For the most fact, before the economy started enjoying a period of strong economic growth, they struggled with the issues of low productivity, high interest rates, high and volatile prices, and high interest rates thus leading to a very abnormal growth during those years.These issues lead to many difficulties such as: limited access to International Credit, reduction in foreign direct investment, declining exchange rate and International trade.

The country came back on the track of unprecedented economic growth in the early 1990s, when they took up the multi-party, the neo-liberal project of the IMF and World Bank, and constitutional rule. This return was marked by an increase in the prices of the Ghanaian traditional products (Cocoa and Gold) compiled with a series of market reforms which enable the environment for the growth of the private sector. With the improvements in both the microeconomics and the political conditions, the country has been standing firm on the grounds of a solid economic performance over the past years.

Figure 3. Ghana growth measure by the percentage change and real GDP and Inflation
Source: IMF data, Author’s accumulation

The World Bank data show a growth rate of about 5% per year in the Ghanaian economy over the last 20 years. Within the last few years, the country has been pursuing a more outward trade policy that recognizes export as a key engine for economic growth and prosperity. In figure 3, we see that the period after 2003 was a very spectacular one with a GDP growth rate averaging approximately 5.9% from 2003 to 2007. The proper implementation of macroeconomics policies leads to Inflation staying below an average of 15% throughout these years of boom.

The government of Ghana principal objective from 2000 was to reduce its domestic debts and stabilized the balance in terms of GDP performance. This objective was realized from 2001-2005as gradual improvement was seen in the overall performance of the budget balance. But as for fiscal deficits, it was very low due to the new measure of improvement in revenue expansion, and economic expansion.

But with all the improved growth level in the Ghanaian economy, the Current Account balance did speak an actual different story. Figure 4 indicates a current account deficit that kept growing from 2002 to 2007. Aneconomythat is being run on a current account deficit is due to the increase in the value of imports of goods, investment, services, than that of the value of exports. It is sometimes referred to as a trade deficit.

Figure 4. Inflow of FDI as percentage of GDP and C/A balance as percentage of GDP
Source: IMF & ITC data, Author’s accumulation

And this was the case of Ghana during these years, Ackah et al, in their 2009 paper reveals that during 2003-2007 imports increased from $3232.8 million to $8073.57 million. While exports increase just from $2562.4 million in 2003 to $4194.7 million in 2007. (Ackah et al, 2009)But the issue of low export during these years cannot only be attributed to the economy huge dependence on primary commodities. But I can argue that it was attributed to the economy’s heavy dependence on a constricted range of primary commodities without diversification, just like other African economies. I argue this because; Ghana primary commodity in International trade that constitutes approximately 60% of its exports is largely Cocoa and gold. See figure 5 below.

Figure 5. Ghana Trade statistics, Imports and Exports as a percentage of GDP over the years

Source: World’s Bank data, Author’s accumulation

3.2       The impact of the Crisis
Due to the country’s past 25 years of aggressive exports led industrialization, and their enactment of the IMF and World Bank neoliberal policies, they became significantly integrated into the global economy in terms of international trade. So they were not spared from the external shocks of the crisis. Figure 5, shows an increase in Inflation from in 2007 to 16.5% in 2008. This increase can be attributed on account of the external shocks and the strong domestic demand. Just after a brief fall, to single-digits in 2006, inflation gallopedin 2007–2008, which reflected the impact of the global food and fuel price shocks, marking the beginning of the global financial crisis late 2008. But the graph indicates that by January-May 2009, inflation did stabilized a bit by 20% percent that is it dropped from 16.5% in 2008 to 14.5% in 2009.

Figure 6. Real GDP (annual % change), FDI Inflow (% of GDP), C/A balance (% of GDP)and Inflation (Annual % change)
Source: IMF & ITC data, Author’s accumulation

The graph also shows the shifts in the flow of FDI in the economy from 2008-2010. FDI plays a key role in the Ghanaian economy, by means of capital flows as well as employment generation. The decrease in FDI was due to the tension on global capital, by the crisis. This led to a fall in FDI from 9.5% in 2008 to 9.1% in 2009 and it further fell to 7.9% in 2010 (percentage of GDP). The fall in FDI can also be related to that of the decrease in aid/grants and remittances. As many of the industrialized nations that grant aids were pressed by the crisis, the number of aid flow into the economy rapidly decreased from 2007-2009. The crisis also had an impact on exchange rates. The Ghanaian cedis started depreciating against all other major currencies as of mid-2008.

As the global financial crisis brought a fall in the prices of commodities due to the fall in demand by international companies, the exports of concerned countries began falling. The bank of Ghana reported a fall in the price of the country’s main export which is gold in 2009. The price fell from $965.90 in 2008 to $803.91 in 2009. Gold wasn’t the only export that was affected; exports such as cocoa and other commodity prices as well started declining during the same period.  While there were continuous poor performance of exports during that period, Imports on the other hand was increasing due to the export led strategy that made it to produce what was not consumable and consume what was not produced in the economy. See figure 5.
  
1    Impact of the crisis on South Africa

4.1       Trends before the Crisis

South Africa has been Africa’s wealthiest major economy for years, (until recently Nigeria took over) has been a key player in the role of emerging market economies that have helped transform the global economy over the years. The South African growth trends started by their political transmission from the Apartheid regime to the most peaceful political regime in Africa since early 1990s.An intense reformation of the economy did bear a successful fruit in the form of macro-economic stability, flourishing exports and improvement in productivity in capital and labor.This transmission came along with vibrant economic growth that was sustained for almost a decade. The growth was due to the country’s record of a sustained macroeconomic farsightedness that was added to a supportive global environment. The country sustained a GDP growth at a stable pace until the global financial crisis of 2008 and 2009. The sustained GDP growth was also accompanied by the improvement in fiscal balances, leading to the decrease in the government gross debts. Due to the sound policies implemented, the collection of revenue quadrupled and the number of taxpayers increased fivefold between 1996 and 2007. (World Bank)

Figure 7.Real GDP (annual % change), FDI Inflow (% of GDP), C/A balance (% of GDP)and Inflation (Annual % change)


Figure 7 indicates the growth trend in South Africa from 2002 to 2007. As shown in figure 7, South Africa's real GDP rose by 3.6% in 2002, 3.1% in 2003, 4.8% in 2004, 4.9% in 2005, 5.3% in 2006, which has been cited as the highest 1981 and 5% in 2007. This growth can be attributed to the effectiveness of thebold macroeconomic reforms that have enhanced competitiveness, employment creation and opening South Africa to the multilateral trading system. The country saw its inflation rate going down from 5.8% in 2003 to 1.3% in 2004 but peak again in 2005 to 3.3% which was due to the primary increase in food prices.  All these trends were driven by household consumption, private and public fixed investment on the demand side, financial and business services, construction, and wholesale years and retail trade on the supply side.

Figure 8.South Africa Trade statistics, Imports and Exports as a percentage of GDP over the
                                    Source: World’s Bank data, Author’s accumulation

After the country’s integration into the global economy, their trading statistics were subjected to enormous changes as figure 8 rightly portrays. Exports and Imports of South Africa started an actual boom from 2004 to 2008 given that exports rose by 26% in 2004, 27% in 2005, 30% in 2006, 31% in 2007 and 36% in 2008. Imports on the other hand, rose by 7% in 2004, 28% in 2005, 32% in 2006, 34% in 2007 and 30% in 2008. The change in the country’s volume of trade can be ascribed to those reforms that were mainly concerned with at achieving greater economic stability and liberalization. These reforms increased the country’s productivity, favoring trade, and foreign capital flows as never before in the economy.

4.2 Impact of the crisis on South Africa

The crisis made a severe impact on the South African economy, given that the economy suffered its first recession in 2008/2009 since 17years of economic growth and development. The year 2009 was marked as the largest slowdown in the South African economy, and its impact was even larger than that experienced by some industrialized and emerging economies.The financial crisis was said to have been transmitted into the economy primarily via the financial markets, tightening of bank lending standards and trade linkages due to their integration into the world economy. In South Africa, the financial sector experienced a failure of asset prices, intense increases in the cost of capital along with a severe contraction in loaning. Millions became jobless in 2009 as the result of the crisis. Besides the increase in unemployment, the effect of the crisis was also seen through the increase in consumer demand and consumer credit, the fall of imports and exports, and the sad story of net financial inflows turning into net financial outflow thus resulting in share prices dropping.

Figure 9.Real GDP (annual % change), FDI Inflow (% of GDP), C/A balance (% of GDP)and Inflation (Annual % change)
Source: IMF & ITC data, Author’s accumulation
Source: IMF & ITC data, Author’s accumulation

Figure 9, shows the impact of the crisis on the economy from 2008 to 2010. Real GDP was seen to drop from 3% in 2008 to -2.1% in 2009. The fall in the real GDP in 2009 was a bit narrower as compared to other emerging markets. The fall was quite lower because of the South African economy did not experience any major bank failures or bankruptcy, and the OECD proclaimed this declined to be counterbalanced by the strong growth in the construction industry and cheap oil prices during that period. (OECD, 2010) The graph also shows the impact of the crisis on the inflow of FDI in the economy. FDI fell from 3.6% in 2008 to 2.7% in 2009 because of the decrease in the level of confidence of investors. This decrease in the level of confidence of investors led to foreign portfolio investment flows to other emerging countries to be reversed. Additionally the impact of an unstable global capital market and a very poor investment or banking environment placed a downward pressure on the volumes of business and also had a negative effected on fee income. So investment income further dropped due to the poor performance of the global equity markets. Subsequently, the current account balance indicates a decrease in the trade deficit from -7.4% in 2008 to -4.9% in 2009. Inflation, on the other hand, as portray by the chart, fell from 11.5 in 2008 to 7.1 in 2009.

Just as International trade jumped during the global crisis, South African exports of goods (see figure 8 on pg. 11) and services fell sharply as a result. According to Kershoff (2009:8-9), South Africa was hit really hard by the drop in the international demand for vehicles and non-food commodities (industrial raw materials) mainly because these items dominate the country’s exports. Figure 11 shows a fall in exports from 36% in 2008 to 27% in 2009, and imports also fell from 39% in 2008 to 28 in 2009.

Another significant impact on the South African economy was the increased in the rate of Unemployment. The country had previously been suffering from the issue of unemployment and this crisis, unemployment only added up and intensified the existing regional economic inequalities. In mid-2009, South Africa labor force statistics reveals that there were 7 of the 9 provinces that unemployment rate had exceeded  the national rate of 24.3%, making it the highest in South Africa poorest provinces with a large rural population.

1    Conclusion

With Africa least integration into the global economy, it was hit hard by the global economic crisis.The continent economic growth went from 5.2 percent in 2008 to 1.6 percent in 2009. Luckily, Africa responded by upholding those good policies that had brought some level of growth in the past, and they continent started recovering in 2010.Notwithstanding, with all the many challenges facing the continent, ranging from an enormous infrastructure deficit,weak initial conditions for the 2015 Millennium Development Goals,low agricultural productivity, and a very poor governance,but Africa’s performance has recently given us cause for optimism.

The 2008 financial crisis was more global than any other period of financial turmoil since the great depression. The degree and severity of the crisis echoed a combination of several factors, some of which are common to previous crises and others are new.In previous financial havoc, the pre-crisis period, was mainlyconsidered by the surging asset prices proving unsustainable, anextended credit expansion that led to theincreasein debt, marked by the beginning of new types of financial instruments and the failure of regulators to keep them up.

The slowdown in economic activity that came as a result of thegreat recession of 2009, left Ghana and South Africa under immense pressure to build their economy back to its pre-crisis level.Many Corporations were affected directly through higher financing costs, as well as secondarily that is through the impact of the crisis on their customers and, their balance sheets. Exports were under pressure due to the decline in world trade, and many jobs were lost in some industries, and in other industries the pressure onwages combined with the costs of production remained high.Even though all financial criseshas similarities with previous crises (Great depression, amongst others) in some features, but the effects or the impact of the global financial crisis of 2009 remains the worst ever experienced since the great depression and therefore it remains significantly different.


2.     References:

1.     Ackah, GodfredChales, Dorku, Bortei Ellen, and Aryeetey, Ernest “Global Financial Crisis Discussion Series: Ghana”, May 2009, Overseas Development Institute 111 Westminster Bridge Road

2.     IMF, “Regional Economic Outlook Sub Sahara Africa, April 2009, Can be found here http://www.imf.org/external/pubs/ft/reo/2009/AFR/eng/sreo0409.pdf

3.     Otoo, KwabenaNyarko, and Adjaye, Prince Asafu“The effects of the Global economic and Financial crisis on the Ghanian economy and Labour Market”, Labour Research and Policy institute November, 2009


4.     Paulo, Drummond and Gustavo Ramirez,“Spillovers from the rest of the World into Sub Sahara Countries”, IMF working paper 2009

5.     World Bank “Africa’s Paulse: An analyses of trends shaping Africa Economic feature” April 2010, can be found here http://siteresources.worldbank.org/INTAFRICA/Resources/Africas-Pulse-brochure_Vol1.pdf


6.     World Bank “Overview of South Africa’s economy” http://www.worldbank.org/en/country/southafrica/overview

7.     IMF “Regional Economic Outlook, Sub-Shara Africa; Staying the course” October 2014

8.     N'zue, Felix Fofana“Impact of the Global Financial Crisis on Trade and Economic Policy Making in Africa” African center for economic transformation, 5th GTA report can be found here http://www.globaltradealert.org/sites/default/files/GTA5_Nzue.pdf


10.  International Trade Center “Data and Statistics” http://www.intracen.org/


  (Faith L. Morlu is a Masters student at Jindal School of International Affairs)