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Dr Chigunta warns of adverse effects from US financial crisis

Dr Chigunta warns of adverse effects from US financial crisis
By Kabanda Chulu
Monday September 22, 2008 [04:00]

UNIVERSITY of Zambia (UNZA) development studies lecturer Dr Francis Chigunta has said Zambia might feel the financial crisis of the USA through trade, investment and donor linkages.

And Dr Chigunta expressed optimism that the Bank of Zambia (BoZ) is prepared to handle any possible fallout from the current financial crisis in terms of regulation given the smallness of the financial markets in Zambia.

Commenting on the financial crisis that has rocked the United States and is now spreading to Europe and the Asian markets yesterday, Dr Chigunta said the direct impact from the financial market losses will be minimal.

"Holdings of mortgage-related structured credits by Zambian banks and government in the West are negligible but a channel for any potential financial impact on Zambia will be through trade, investment and donor linkages," Dr Chigunta said. "There is consensus that, as a result of these linkages, the financial crisis in the United States is expected to adversely affect most African countries, including Zambia and the impact of the US financial crisis will be particularly hard on Africa's emerging markets."

Recently, the IMF named eight African countries, including Zambia, as constituting the next frontier of emerging markets and Zambia, like other African countries, is highly dependent on Western markets for its exports.

"This dependence is basically in two forms, first, Zambia exports some commodities directly to the Western market and secondly, Zambia is increasingly becoming dependent on China whose growth is dependent on demand in the West, especially in the USA," Dr Chigunta said. "China's growth is an opportunity for commodity producers in emerging markets like Zambia but should demand in the USA decline as a result of the current financial crisis, this is likely to affect production in China. In turn, this may have an impact on Chinese demand for copper, which may adversely affect countries like Zambia."

He observed that the crisis is likely to negatively affect the inflow of investment into Zambia.

"Already, there is a flight to safety among investors in the West. Investors in Europe and the United States are currently retrenching capital and this will not help countries like Zambia. But this will largely be dependent on what happens to China as a result of the financial crisis," he said.

He said the Bank of Zambia was prepared to handle any possible fallout from the current financial crisis in terms of regulation given the smallness of the financial markets in Zambia.

"The financial market and the stock market in Zambia are small and the supervision by BoZ, and the Securities Commission, is quite robust, however, BoZ will be powerless to address the adverse consequences of reduced investment and foreign currency inflows," said Dr Chigunta.

Labels: BOZ, FRANCIS CHIGUNTA, RECESSION

posted by MrK @ 4:58 PM