Anxious Africa awaits fallout from US downgrade

Recent years of encouraging economic performance in sub-Saharan Africa could unravel in the aftermath of the US credit rating downgrade. A flagging world economy might drag down commodity prices, dismantling the foundation of Africa’s recovery.

Global institutional investors have already disclosed their verdict by scuttling the share price of the world’s largest commodities trader, Glencore. By close of business last Friday, the company had lost almost 25% of the valuation at its high profile London flotation less than three months ago.

Copperbelt communities in Zambia, coffee farmers in Ethiopia and the uranium miners of Niger will be amongst those across the continent whose prospects may be at the mercy of commodity markets over coming months.

Governments in these countries will also be nervous of their dependence on foreign aid for a significant share of their national budgets. This is another revenue source at risk as economies in North America and Western Europe tighten their belts.

“With an economy heavily reliant on copper mining, the looming recession might threaten Zambia’s economic growth prospects,” said Malcolm Jhala, a Zambian financial consultant based in London. “The government has not done enough to provide us with a safe landing in the event that the copper bubble bursts,” he said in a video blog.

Major oil economies such as Nigeria and Angola will be equally concerned about weak oil prices evident towards the end of last week. A fall in the value of the dollar would compound the exposure. In 2010, dollar-priced oil revenues contributed 89% of Nigeria’s exports.

Countries exporting precious metals have reacted more positively to recent developments. The traditional flight to safety for investors has boosted the price of gold to a record high of just under $1700 per ounce.

“The division being witnessed in the US Congress over the debt ceiling is bringing huge dividend to Ghana,” wrote Edward Nyarko in the Daily Guide. Gold is Ghana’s second largest export after cocoa.

Observers in Botswana are more wary about the country’s diamond resources. But the Weekend Post was reassured by an expert from De Beers. “Whatever might happen, there is robust consumption of our goods,” said Tom Tweedy in Johannesburg.

The multilateral development banks appear to be mounting a joint strategy of promoting Africa as the potential beneficiary of the crisis, a haven for investors fed up with flaccid management of the established economies.

Speaking in Washington at the 2011 World Congress of the Society for International Development, the World Bank’s President, Robert B. Zoellick, said: “there are great opportunities but they have to be seized and we have to figure out how developed and emerging markets work together in a different way than they did in the past.”

Similar sentiments about alternative investment destinations, expressed by Zoellick’s opposite number at the African Development Bank, Donald Kaberuka, have been widely quoted since the US downgrade. “Investors should be looking south – to Africa,” he said in an interview with AFP.

A planned $500 million Zambian bond could be the perfect test of the appetite of international investors for African fare. Standard and Poor’s, the rating agency responsible for the controversial US downgrade, took the opposite view of Zambia in March, upgrading the country’s credit rating to B+.

Although the bond has no set date for launch and its rating is below the a key threshold for safer investments, the B+ rating is sufficient for Zambia to contemplate entry into commercial markets, a move inconceivable until very recently.

For three decades following the 1970s, Africa’s sovereign states were forced to beg for relief from excessive debts loaded on them by the old economies in Europe and North America. Now the phrase “sovereign debt crisis” has performed a summersault.

One benefit of the narrowing gap between global economies will be the introduction of fresh African metaphors into the dry business of economic commentary.

In describing the importance of movements between the Ghanaian currency and the US dollar, Edward Nyarko writes: “when two elephants fight, it is the grass that suffers.”


this article was first published in the OneWorld section of Yahoo World News