The African Financial Review July-August 2014 | Page 26

and there was a marked reduction of credit levels to private sector.
Rate of unemployment also increased further as government
spending on workers’ recruitment was cut down. In Ghana, as
pointed out in the World Bank Report (2009), the current global
financial crisis has brought about the fuel and food crisis. The
situation has again been exacerbated by the droughts and floods
in the Northern parts of the country. In South Africa, growth in
demand for credit by private sector slowed more than expected
to 14 per cent year-on-year in December 2008. The expansion
of demand for credit dropped from 15.3 percent in November
2008 to 9.5 percent in March 2009 (World Bank, 2009). There

African governments must address and ease
all forms of regulatory obstacles to business
such as barriers to entry, convoluted taxation,
property registration and licensing. Credible
insurance corporations should be capitalized
to be able to absorb financial shock in African
economies.
has also been a sharp decline in both consumer and producer
price inflation. The growth in credit aggregates has come off quite
sharply. This just supports the case for an aggressive rate cut.

Coping with externalities of global financial crisis
in Africa

The devastating effects of the global financial crisis cannot be
allowed to continue unabated. As a result, different stopgap
macro-economic measures have been put in place by African
countries in an attempt to at least cushion the effects of the crisis.
For example, the World Bank (2009) suggested that Nigeria,
whose economy is largely dependent on oil, should urgently device
other aggressive sources of government revenues. This suggestion
becomes necessary in view of the unprecedented decline in the
market price of crude oil to all-time low level of USD 38.5 per
barrel in March 2009. This situation fairly improved to USD
60.23 per barrel in July, 2009.

Again, the banking regulatory authorities, the Central
Bank of Nigeria (CBN) and the National Deposit Insurance
Corporation (NDIC) are mandated to urgently strengthen their
supervisory roles to guarantee banks’ transparency in whatever
assets they declare on their balance sheets.

Another device by the Nigerian government to protect the
economy from further hurt was the slashing of the salaries of
the public office holders. Under this dispensation, for example,
senators and members of House of Representatives have their
constituency allowances slashed from 250 to 125 percent and
150 to 75 percent, respectively.

The Nigerian government also sought and obtained USD
59 billion loan from the World Bank to help her overcome some
of the teething economic problems occasioned by the recent
global financial slowdown. The latest effort by the Central Bank
of Nigeria to address the crisis in the financial sector was the
reduction in the lending rates to banks (monetary policy rate)
from 8.0 to 6.0 percent: a 200 basis point reduction.

The CBN also reintroduced the interest rate corridor of
plus or minus 200 basis points, with the rate on the standing
lending facility at 8 percent and the rate on the standing deposit
facility at 4 percent with immediate effect. It is expected that this

26 | The African Financial Review

measure will help close the gap between the inter-bank rates and
the monetary policy rate. On foreign exchange, the CBN reversed
to Wholesale Dutch Auction System (WDAS) in place of Retail
Dutch Auction System (RDAS). It equally removed all other
restrictions on trade and increased banks’ net open position from
2.5 to 5.0 percent.

As a way out of the present global financial imbroglio, the
Ghanaian government applied for and secured USD 535 million
from the World Bank. The situation was brought about largely
by the fuel and food crisis that resulted from the global financial
and economic mess. Again, the IMF (2009) has canvassed
that all African countries must set aside more money for the
IMF to buoy the Fund’s resources so that it can always come
to the rescue of member nations at times like this. The present
global economic challenge has again provoked, particularly in
Nigeria, the establishment of small-scale entrepreneurship and
microfinance schemes to empower domestic economic operators.
This exercise will surely increase the aggregate domestic output
and household income levels.

To further increase the activities of the entrepreneurs
therefore, governments of African nations must, as a matter
of urgency, address and ease all forms of regulatory obstacles
to business like barriers to entry, convoluted taxation, property
registration and licensing. Again, credible insurance corporations
should be capitalized to be able to absorb the financial shock in
the African economies.

However, it must be emphasized that there is no single
recipe for the financial and economic crisis as it affects African
countries since each economy has its own peculiarities and
priorities.

Conclusion

The global financial crisis is here with us in Africa. People can no
longer pretend about this. But there is the need for the African
governments to channel ways by which to overcome it. This is a
mandate for the African leaders to suppress the devastating effects
of poverty, malnutrition and other social maladies confronting
the African countries. Some stimulus may however, be needed
from the governments of those countries that have the economic
wherewithal. This, if provided in good time and quantities, will
produce the expected stopgap devices to neutralize the effects
of the financial mess. Though there is no single recipe to adopt
as a general solution to the global financial cum economic
problem, good supervisory and regulatory roles by the banks
will ensure a better financial discipline in the banking sectors of
the African economies. Aggressive drives by African leaders in
finding solution s to the current socio-economic mess is necessary
as it will prevent this continent from sinking deeper into brutal
economic recession.

Policy recommendations

Since the circumstances differ across African countries, there is
no single recipe to overcome the effects of global financial crisis.
However, the following policy challenges have been found relevant
by the IMF to all African countries.

This becomes necessary in order to protect the hard-won
improvements in economic fundamentals that is, more sustainable
debt levels, lower inflation, liberalized trade and structural reforms.
The following few principles could guide the economic policies
of African nations particularly at a time like this: