The Vulnerability of sub-Saharan Africa to the Financial Crisis

In the early stages of the crisis, the conventional wisdom was that the financial under-development of the Sub-Saharan African economies may have been a blessing in disguise because it insulated them from the direct effects of the crisis. This paper argues that this may also make African firms, particularly exporters, dangerously more dependent upon foreign finance in the countries to which they export. 

The focus lies on two channels: the income channel and the disruption channel. Exports to crisis-hit countries fall because demand falls in these countries. In addition to this income effect, trade may be disrupted because trade relations depend on a well-functioning financial system, both in the country of origin and in the country of destination.

Paper prepared for the Conference on “Financial markets, adverse shocks and policy responses in fragile countries”, organised by the European Report of Development in Accra, Ghana, 21-23 May, 2009.

European Report on Development 2009

Supported by the European Commission and seven Member States (Finland, France, Germany, Luxembourg, Spain, Sweden and the United Kingdom), the European Report on Development (ERD) is the main output of the "Mobilising European Research for Development Policies" initiative. This flagship report is published since 2009, with the aim of stimulating debate and research on topics of major relevance for development, as well as to enhance the European perspective in the international development arena.