PDF Print E-mail
Friday, 01 April 2011 10:37

Crisis in Japan Leaves Regional Economies Shaking

 By Mwaura Kimani

NAIROBI, Kenya, April 1, 2011 (The Nation) — The current nuclear crisis in Japan, billed as world's worst in 25 years, has many observers asking: Could this be yet another knockout punch for the world economy, especially the East African markets whose links with the Asian giant continue to tighten?

 

Japan is one of Africa's critical trade and aid partners, with Japan-Africa trade tripling from $8.8 billion in 2001 to $24 billion in 2010.

 

The impact the nuclear crisis will have on the recovering economies in the East African Community is uncertain, but it is worrying business executives, politicians and policymakers.

 

For Kenya -- currently among the largest African importers of used vehicles from Japan -- the aftershocks have dealers worried that a prolonged crisis could hurt their business by pushing up prices -- in the process hurting Uganda, Tanzania and Burundi.

 

Over the past three years, Japan has displayed a clear bias towards supporting regional projects within the EAC where formal integration is arguably more advanced than other regional blocs on the continent.

 

The country is also a key contributor to the EAC Partnership Fund. It is such links between Japan and EAC economies which have analysts convinced that the bloc will not escape unscathed especially if the crisis worsens in coming weeks.

 

Kenya-Japan trade

 

Statistics from Kenya's 2010 Economic Survey show that Kenya's exports to Japan stood at Ksh2 billion ($25 million) in 2009 from fish fillet, cut flowers, coffee, tea and nuts.

 

During the same period, Japan shipped to Kenya Ksh48 billion ($600 million) worth of goods that include lorries, small vehicles, machinery and a wide range of electronic goods such as television sets, refrigerators, air conditioners, cookers and cameras.

 

Economists at Standard Bank are warning that Africa should brace itself for a decline in aid and trade flows with the world's third-largest economy following the crisis.

 

Simon Freemantle and Jeremy Stevens, research analysts at Standard Bank, warned the crisis could have negative economic spillover effects on African markets and economies because of the considerable links between Japan and Africa.

 

"African countries must prepare for an inevitable decrease in trade and aid volumes with Japan in the near and perhaps even medium-term," said Freemantle and Stevens in a research note released last week.

 

"The linkages between Japan and Africa -- both direct and indirect -- are certainly substantial. Therefore, any renewed bout of risk aversion, dent in external demand, shelving of investment, swings in terms of trade, and fall in aid commitments will be harmful," they added.

 

The net effect in the short term, analysts said, will be harmful for those economies most linked to Japan, with countries like South Africa expected to be most affected from a trade perspective.

 

In terms of overseas development assistance, countries such as Tanzania and Sudan may feel the pinch, while from an investment perspective, Africa's larger economies, particularly South Africa and perhaps Nigeria will experience "marginal compression."

 

Experts argued that Japan faces a huge disaster relief and reconstruction effort after the Tsunami that killed thousands and left in its wake a severe nuclear crisis.

 

While the Japan government is yet to estimate the damage or indicate how much it may spend on reconstruction or even where it will find the money, economists warned it could cost it more than $100 billion -- more than what the country spent after the 1995 earthquake in Kobe.

 

Some analysts said a huge spend on reconstruction could hurt aid commitments to African countries.

 

"While the current aid commitments remain intact, in the long-run, and in the case of a prolonged and widespread crisis, Japan might have to reconsider how much it will pump into Africa," said Patrick Obath, chairman of the business lobby Kenya Private Sector Alliance.

 

"Japan needs funds for reconstruction and that would be of priority, " he added.

Last year alone, the Japanese government extended to Kenya over $500 million for several infrastructure projects including the Olkaria I Unit 4 and 5 Geothermal Power Project and the Mwea Irrigation Development Project.

 

In the aftermath of the crisis, it is likely that Japan's demand for African commodities will slump since an economic slowdown would mean that the Asian nation would need fewer resources.

 

The country's economic backbone -- manufacturing -- has been fractured as several corporations both in vehicles and consumer electronics such as Honda, Toyota, Mazda, Nissan, Suzuki, Sony, Toshiba, Panasonic, Hitachi, Canon and Nikon and Mitsubishi have operations in the areas most affected and have as a result temporarily suspended their operations.

 

"A fall in production means less demand for Africa's commodities, like mineral fuels, precious metals, iron ore and wood," said researchers at Standard Bank while noting that a near-term fall in Japanese demand will dent economic activity in these emerging economies.

 

But the biggest setback would be the fact that the events in Japan could drive down prices of commodities, which will impact on Africa's terms of trade. Already, palladium and platinum have declined by 10 per cent and 5 per cent, respectively, since the earthquake.

 

The pain could be bigger for commodity-rich countries such as South Africa -- which accounts for over half of Africa's total exports to Japan while Egypt, Equatorial Guinea, Nigeria and Sudan account for the significant majority of Africa's exports.

 

"We are likely to see delays and price hikes on goods imported into the region from Japan mainly cars, machinery and electronics," said John Mutua, an economist at the Institute of Economic Affairs, a think-tank in Nairobi. (END/2011)

 

 
AfricnGrowthWorldSafaris_

Articles in Calendar

< April 2011 >
Mo Tu We Th Fr Sa Su
        2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28 29 30  


infobanner150-230-locaz
astana-logo
investinregions_ru
Buziness Africa magazine