Egypt’s main index plunged more than 16 percent on Tuesday, mirroring spectacular losses around the world amid worries about European banks and doubts about the 700 billion dollar US bailout package.
The main index in South Africa, the continent’s largest economy, fell by seven percent Monday, but stabilised Tuesday with trading in marginally positive territory.
Other key markets, including oil-exporter Nigeria and Morocco, suffered far less dramatic declines, while some bourses in countries like Ivory Coast have actually posted small gains.
The losses highlighted steady declines all year in major African markets. Johannesburg, the continent’s richest bourse, is down 27 percent this year, while Nigeria is off 31 percent from its March high.
But experts say that many African exchanges, like the one in Abidjan, are insulated from the financial turmoil because of their limited links to the global economy.
“All of Africa represents only one percent of global trade,” Willy Ontsia, head of the Central Africa Stock and Shares Market (BVMAC) in Libreville.
“If the crisis is short, its impact on Africa and emerging market economies will be relatively weak,” he said.
“But if the crisis is prolonged, that will have an impact on several indicators that affect growth in developing countries,” he said, noting that a global slowdown would affect trade in raw materials — the backbone of many of the continent’s economies.
The World Bank says that in recent years Africa has posted its strongest economic gains since the 1970s, with 15 countries posting growth rates of 5.3 percent over the last decade.
Most of the growth has been due to high prices for oil, metals and other resources, but those prices could slip if a global economic slowdown reduces demand across the world.
“Africa is less exposed because of its limited links to the international financial community… but I have reason to worry about the economic effects of the financial crisis on the continent,” said Donald Kaberuka, head of the African Development Bank (ADB).
“It’s the long-term effects that cause us great worry,” he told a press conference in Tunis.
Economies like South Africa, which are more connected to international finance, are more easily affected by the global turmoil, seen in the volatility on the Johannesburg Stock Exchange, said Razia Khan of Standard Charter Bank in London.
“For the rest of Africa, the global financial market rout is likely to mean a rise in risk aversion,” she said, warning that international investors were likely to seek stability rather than the risks posed by emerging markets.
Daniel Makina, a risk management expert at the University of South Africa, said those indirect effects could prove just as damaging for African economies, especially if exports to the rest of the world slow down.
“South Africa does a lot of trade with US and Europe especially,” Makina told AFP. “A recession in the US and Europe will impact on South Africa exports.”
Crude oil accounts for more than 50 percent of Africa’s exports, with Angola and Nigeria the biggest producers, according to the World Bank.
Worries that weak global growth will reduce demand for fuel have already sent oil prices tumbling to eight-month lows.
“All these things have ripple effects that could hurt growth,” Ontsia said. “Our fear is that this crisis will continue.” – Harare Tribune