What Can Africa Expect from Obama's Recession-Hit America? Expectations Are Running High over a New Era of Closer US-African Political and Commercial Ties under President Barack Obama's Tenure, Because of His Kenyan Roots. However, Given the State of the US Economy and Other Urgent Priorities, There Is Unlikely to Be Much Appetite in Washington for Increased Participation in Africa

By Siddiqi, Moin | African Business, March 2009 | Go to article overview

What Can Africa Expect from Obama's Recession-Hit America? Expectations Are Running High over a New Era of Closer US-African Political and Commercial Ties under President Barack Obama's Tenure, Because of His Kenyan Roots. However, Given the State of the US Economy and Other Urgent Priorities, There Is Unlikely to Be Much Appetite in Washington for Increased Participation in Africa


Siddiqi, Moin, African Business


As President Obama puts it: "The recession is deepening and the urgency of our economic crisis is growing. This isn't just an economic concept--this is a continuing disaster for America's working families." So far, 11m US citizens are jobless. The US, until recently the engine of global prosperity, was already in recession from early 2008, according to the non-partisan National Bureau of Economic Research (NBER) and the downturn is forecast to last well into 2010 -making it the longest recession since World War II. Last year saw the shedding of 2.6m jobs. Some economists reckon the real unemployment rate, including those 'discouraged' and part-time workers, is nearly 14% against the 7% official figure.

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A key reason for gloom is the dysfunctional credit markets, despite the $350bn capital injection into the US financial system by the former Bush administration. The credit crunch has spread from the housing market to other subsections, with credit cards, car loans, commercial-property lending as well as business loans all grinding to a virtual halt. The IMF has raised estimates of the potential deterioration in US structured credit assets or so-called Asset-Backed Securities (ABS) and Collateralised Debt Obligations (CDOs) held by banks from $1.4 trillion last October to $2.2 trillion today. It expects the US's real economic activity to contract by 1.6% this year.

Galloping debt pile

George W Bush handed Obama "an absolute fiscal disaster" according to Kent Conrad, chairman of the Senate Budget Committee. Leonard Burman, head of the Tax Policy Center in Washington agreed, saying "We're looking at deficits of over a trillion dollars 10 years from now."

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The dire state of government finances is shocking. The Congressional Budget Office (CBO) reported that the 2009 federal budget deficit at almost $1.2 trillion--equivalent to 8.3% of the US's economic output--would "shatter the previous post-WWII record". The previous record was 6% of GDP, under the Reagan administration in 1983.

The budget watchdog calculates that national debt would surge by 55% between September 2007 and September 2010, with the debt-to-GDP ratio, too, rising from 36.9% to 54.2%--a level last reached in late 1940s.

President Obama, depicting the economy as "very sick", cautioned: "Potentially we've got trillion-dollar deficits for years to come, even with the economic recovery that we are working on at this point." But piling the debt burden on future generations implies less-generous handouts for Third World nations in coming decades.

Stiffer challenges

The new administration's agenda is tilted towards domestic politics--put simply, preventing a severe slump like the Great Depression of 1930s. In fact, the world's superpower is beset by structural problems that demand major reforms of social security, healthcare and the environment--not forgetting the fragile banking system--all of which should hike spending over the longer term. That, in turn, could mean little cash for overseas aid apart from humanitarian relief.

The government has unveiled an $819bn fiscal stimulus package, the largest financial injection in US economic history, aimed at creating 3-4m new jobs by 2011. This plan is worth half of Africa's total GDP and comprises infrastructure upgrading and construction projects such as roads, bridges, improved electricity grid, innovations to 10,000 schools and spending on research and development, coupled with tax cuts for individuals and businesses. Huge investments should ultimately have positive multiplier effects on growth. The CBO argues that without effective policy actions, the economy might decline 2.2% in 2009 with unemployment peaking at 9.2% next year. It also thinks the faltering US economy may not regain its potential growth rate of 2.3% until 2015. Even more money could be needed to save some banks and the auto-industry. …

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What Can Africa Expect from Obama's Recession-Hit America? Expectations Are Running High over a New Era of Closer US-African Political and Commercial Ties under President Barack Obama's Tenure, Because of His Kenyan Roots. However, Given the State of the US Economy and Other Urgent Priorities, There Is Unlikely to Be Much Appetite in Washington for Increased Participation in Africa
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