When asked about the East Asian financial crisis of the late 1990s, Ethiopian Prime Minister Meles Zenawi reportedly said, “I wish we had their problems.” I was reminded of this quip when thinking about the current financial crisis in the U.S. and its possible impact on Africa. In the U.S., there is a constant fear that turmoil in financial markets will spill over to the real sector—in terms of slow growth and unemployment.
A recent paper by Hamid Davoodi shows that, in Swaziland, the problem is a lack of real-financial sector linkages. Most financial sector indicators—private sector lending, money supply and bank deposits as a percentage of GDP—are going down, not up. One reason may be that about 60 percent of land is owned by tribal chiefs and held in public trust. Since no one has ownership rights, no one can use land as collateral, and so borrowing and lending are limited.