Business Daily (Nairobi)
Sam Makinda
22 May 2008
column
The international economy has experienced several significant problems since the start of this year, and many of these troubles have the potential to hurt Kenya and other African states seriously.
The global credit crunch, the spiralling oil prices and the looming food shortage have their origins outside Africa, but their effects are likely to be felt more severely in Africa than elsewhere.
The current credit squeeze has been blamed on sub-prime lending in the United States, and despite the fact that central banks in the US, Canada, Europe and Australia pumped more money into the global financial system, some commercial banks and other financial institutions collapsed.
The dramatic rescue of Bear Sterns in the US in March seemed to provide a turning point, but many financial institutions are still unwilling to lend to each other.
The International Monetary Fund speculated recently that the total losses from the credit crunch would be $1 trillion.
The IMF also argued that "it is now clear that the current turmoil is more than simply a liquidity event, reflecting deep-seated balance-sheet fragilities and weak capital bases, which means its effects are likely to be broader, deeper and more protracted."
While this financial instability has been severest in Western countries, it could have an effect on the level of incomes and the ability of Westerners to import goods from Africa or visit African countries as tourists.
As if the financial crisis has not wreaked much havoc, the recent spike in oil prices is likely to hit Kenyans and other Africans brutally.
Blame speculators
Unlike previous oil price rises, which were due to shortages of production, the current high prices have been caused by speculators.
During his recent visit to Saudi Arabia and other parts of the Middle East, US President George W. Bush is said to have urged the Saudi leaders to increase production of crude oil.
However, it would matter little if Saudi Arabia and other members of the Organisation of Petroleum Exporting Countries (OPEC) increased production of oil.
In large measure, it is the desire for profit by traders from non-OPEC states that has driven petrol prices in Kenya to more than Sh.100 per litre.
Besides the credit squeeze and higher oil prices, a new threat of hunger is looming in Africa and other parts of the world.
It is estimated that 37 countries around the world have food shortages.
Moreover, the prices of most grains have gone up by at least 40 per cent in the last year, with rice increasing by 130 per cent.
The United Nations has called for urgent action, implying that the problem could result in severe social and political instability in the global system.
The causes of the crisis are numerous, ranging from rapid population growth, droughts, floods and misguided policies in both the developed and developing worlds.
As an example of a misguided policy, it is estimated that about 100 million tonnes of grain will be diverted to produce biofuels this year.
The three global challenges that revolve around a credit squeeze, higher oil prices and food shortages, are beyond the ability of Kenyan and other African policy makers to manage on their own.
However, our leaders need innovative and forward-looking policies if they are to mitigate some of the effects of these threats.
Prof Makinda is the chair of Security, Terrorism and Counter-Terrorism Studies, Murdoch University, Australia.
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