The Economic Crisis

Effect of the crisis

Photo: Sophie Mbabazi Kute
A small salon in Uganda struggles to stay in business despite the effects of the economic crisis.

Africa’s integration into the international financial market during the past 10 years has resulted in relatively strong growth, but has also made the continent more vulnerable to the global economic downturn. 

Global trade is expected to decrease by 9 percent in 2009 in both the developed and developing world– slowing down growth and reducing government and household income. The effects are already visible in Africa. Demand for commodities (diamonds, coffee, rubber, etc) are dropping, unemployment is rising and income from remittances is on the decline. 

In the Katanga province of the Democratic Republic of Congo, 60 percent of enterprises have closed and about 300,000 people have been laid off. In South Africa, where migrants from Lesotho and Swaziland also work in the mines, more than 5,000 workers lost their jobs in February 2009 alone. The volume of rubber exports from Liberia declined from 135,000 tonnes in 2007 to 88,000 tonnes in 2008, while in Kenya, remittances declined by 13.3 percent in the 4th quarter of 2008 compared with the same period in 2007.

At the same time, countries that depend on overseas development assistance (ODA) such as Benin, Liberia, Ethiopia, Niger, Comoros and others expect to see a reduction in these flows. Domestic investment is also declining due to higher interest rates, depreciation of national currencies and corresponding rises in input costs. The Nigerian stock exchange, for instance, lost 66 percent of its value during the year to February 2009.

The fall in trade, foreign direct investment and ODA means reduced income to countries for social spending programmes such as education and health, risking the gains made towards the Millennium Development Goals. This will further increase the number of people living under the poverty line.

What are we doing?

UNDP is working with countries to adapt existing poverty reduction programmes to address the economic crisis. In addition, we support analysis of data and provide policy advice to governments on how to mitigate the effects of the crisis – both internal actions as well as with regional and other partners. The support provided to Mauritius in the development of its Additional Stimulus Package in 2008 is one such example, as well as policy advice to countries such as Benin, Togo, Comoros and others. At the same time, UNDP is working with African countries to amplify their voice and position in the global debate on the crisis.