Rich economies are in freefall. But things may be a bit brighter for the world's worst offby Paul Collier / March 1, 2009 / Leave a comment
Published in March 2009 issue of Prospect Magazine
In my book, The Bottom Billion (2007), I argued that some 60 low-income countries, with a population of about a billion people, have missed out on the recent decades of global prosperity. But does their exclusion from growth mean that the worst of the economic crisis will pass them by too?
Sadly not. The countries at the bottom still suffer from what economists call “transmission shocks” from the west. These forces are not the same as those devastating our own economies. Poorer countries were never sufficiently creditworthy to benefit from substantial private credit: during the wild, late phase of irrational exuberance our bankers were only just preparing to begin lending to them, but few transactions were consummated. So what they never had, they are not going to miss. Nor did the web of global financial interconnectedness stretch to these banking systems. African banks are not stuffed with toxic assets and opaque derivatives and so they have not been dragged down.
They have, however, been affected by the puncturing of the commodity boom. Not only is the oil boom over, but so are those for all other minerals. Commodity exports are only significant for around half of the countries of the bottom billion, but for them the losses have been big. On average, commodity prices have more than halved, leading to declines in national income often much higher than 10 per cent. There have been over 200,000 jobs culled in the Democratic Republic of Congo as a result of the collapse in the price of cobalt, copper and other minerals. South Africa is also anticipating up to 50,000 mining job losses in 2009. And the collapse in prices has also stopped a wave of new mineral prospecting that had been beginning to reveal valuable hidden sub-soil assets. Such undiscovered natural assets can transform economies, but now there is no capital being invested in discovering them.