THE GLOBAL RECESSION: Which one first the good news or the bad news?

The word ‘global recession’ has become the economic forecast of 2008. Certainly these words are true for the United States of America and the Euro zone as well as countries that have unwisely pegged their futures with these two largest global markets. Simply put a decline in a country’s gross domestic product [GDP} or negative real economic growth over a given period of time is a recession.

The current recession in the US and the EU, which has somehow become global, is caused by increased costs of oil, food, gold, inflation and a credit crunch caused by the implosion of a rather dubious form of mortgages called sub-prime lending.

The ‘developed’ world that happens to be our largest market is in recession but what does that mean for a country like Rwanda? The bad news first. Tourism might record a decline in visitors as their clients no longer have enough disposable income to take trips abroad. Similarly, demand for tea and coffee will drop and this may in turn drive prices for these agricultural products down. In this respect, tax revenues for 2008 will not be as high as previously hoped for.

However, if the taxman will be less than thrilled in 2008, consumers will be happier because consumer goods in the west will become cheaper to cater for reduced disposable incomes. Thus every consumable imported will be cheaper. That is, until the high petroleum costs kick in.

Another benefit of the recession is the resulting effect it has had on the US dollar which has been losing its strength due to domestic inflation. This means that the Rwandan Franc has been more or less stable for the last two years. This helps put a brake on inflation as the value remains constant. This means that the banks in Rwanda do not have to increase their interest rates in turn and produce a credit crunch of their own. It also translates into increased earnings for people with funds in treasury bills, savings accounts and fixed-deposit accounts.

The global recession is also an opportunity for the African continent to increase intra-continental trade. African countries benefiting from the high prices in oil and gold can use their increased revenues to develop their own markets and maybe even invest in the rest of the continent. It is also an impetus for Rwanda to make use of its methane gas in order to reduce energy costs and if it’s as vast as it is said to be, exportation of gas in its original form or as electricity would be a boost to the economy and reduce our demand on petroleum.

Taken as a whole, the recession of 2008 is an opportunity for Rwanda and the continent to, at least, beginning the journey to coming into their own as a viable global economic unit. It may require some adjustments, not all of them pleasant, which will ultimately pay off.

by Oscar Kabatende

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