Even though it is the least integrated with the global economy, Africa may be the worst hit region by the global economic crisis. Each of the four channels through which the crisis is affecting Africa has a particularly nefarious impact.
- Private capital flows, which in 2007 had surged to $53 billion—for the first time exceeding foreign aid to the continent—are declining. Since last year, African stock markets have fallen by an average of 40 percent, with some such as Nigeria's falling by over 60 percent. Ghana and Kenya have postponed sovereign bond offerings worth over $800 million, delaying the construction of toll-roads and gas pipelines. The Democratic Republic of Congo has lowered its expected foreign direct investment by $1.8 billion. These flows were financing much-needed infrastructure and commodity-based investments. More importantly, the surge in capital inflows had raised expectations that African economies had “turned the corner”—only to have those expectations deflated for reasons that are not remotely the fault of Africans.
- Remittances, which had peaked at about $20 billion a year in 2008, are expected to decline by 4.4 percent this year. Typically, remittances are counter-cyclical: when your family is having difficulties, you send them more money. But this time the crisis is in the remittance-sending countries. Over 77 percent of Africa's remittances come from the U.S.
