The Impact of the Global Financial Crisis on African Countries

The Impact of the Global Financial Crisis on African Countries

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NAME: Mohamed Rajani COURSE: ENG 101 INSTRUCTOR: Ms. Marcia Gottschall DATE: November 18, 2008 The Impact of the Global Financial Crisis on African Countries Developed nations across the globe are facing daunting times. Housing prices have plunged and credit markets are virtually frozen. Banks are unwilling to lend for fear of defaults following news of massive foreclosures across the United States and beyond. The increased integration across the globe means the downturn is spreading not only across the developed nations, but also across the emerging markets, albeit at a slower pace. Shares across the global stock markets have plummeted to unprecedented levels. But how has this crisis of such global proportion affected the African continent? Are homeowners in African countries facing foreclosures? Do African banks need their respective governments to bail them out? Are developed nations cutting aid projects as a result of their dwindling economies? Will the crisis put African democracy at risk? Sure, Africa is becoming an integral part of the global market system. Thus, the global economic downturn also affects its ability to develop. However, the African Development Bank’s chief economist Louis Kasekende in an email interview with Reuters stated that African nations were “unlikely to suffer from the first-round effects” of the
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global economic downturn due to their “weak integration into the global financial system” (Thomson). Moreover, the housing markets in most African countries are not extensively regulated by the governments. Africans do not have extensive access to mortgage financing schemes which distances the involvement of financial institutions in the housing market. The May 2006 issue of OPIC News bulletin published by Overseas Private Investment Corporation (OPIC), a U.S. government agency specializing in investments in emerging markets, explained: Mortgage securitization – pooling mortgages to form a security, selling shares to investors and passing on to them cash flows received from the collateral - has enabled the U.S. to develop secondary mortgage markets. In developing countries, however, 70 percent of housing investment takes place through incremental building, which is not acceptable to conventional mortgage financing institutions (OPIC News, Special Issue: Housing Africa 3). Given the minimal exposure of African banks to the sub-prime market, the housing
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The Impact of the Global Financial Crisis on African Countries

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