World Economy

Africa at Highest Risk of Major Economic Blow

African countries are dealing with droughts, food security issues and they don’t have that capacity to be looking 30 years down the line
Agriculture comprises 31% of the economy in east Africa and 22% of the west African economy—both regions rated “high risk”.Agriculture comprises 31% of the economy in east Africa and 22% of the west African economy—both regions rated “high risk”.

Countries most dependent on agriculture are also at high risk of experiencing changes in climate over the next 30 years and face the biggest costs in dealing with the effects of extreme weather, according to a global climate index published on Monday.

Sub-Saharan Africa is home to 17 of the 20 countries most economically reliant on agriculture in the world, Reuters reported.

Of the 17, all but two are at "high" or "extreme" risk of experiencing changes in temperature and rainfall, and extremes such as drought and floods, according to the Climate Change Exposure Index.

These are typically countries whose governments lack the financial or technical resources to plan 20 or 30 years in advance, said Richard Hewston, principal environmental analyst at Verisk Maplecroft, a UK-based risk management company which compiled the index.

"They're dealing with droughts now, they're dealing with food security issues now, they don't have that capacity to be looking 30 years down the line," he told the Thomson Reuters Foundation in a telephone interview.

The majority of farmers in these countries are smallholders using traditional farming methods, who do not have the financial safety nets to invest in new crops which may improve yields in years to come, Hewston said.

They also lack the technology which allows farmers in northwestern Europe and North America to monitor temperature and even the chlorophyll in plants to decide when to plant, harvest or water their crops.

Agriculture comprises 31% of the economy in east Africa and 22% of the west African economy—both regions rated "high risk", according to Verisk Maplecroft.

Central America is another region where farmers are at great risk of the impacts of climate change, but these economies are less dependent on agriculture.

Globally, countries categorized as "high" or "extreme" risk in the index derive on average 16.7% of their economic output from agriculture. This figure is almost twice that of countries categorized as "medium" or "low" risk (8.9%).

Countries which are most exposed to climate change are also those projected to experience the greatest growth in population between 2015 and 2050, Verisk Maplecroft said.

This year, for the first time, the index looked at seasonal changes in temperature and rainfall, as well as annual changes.

South Africa Junk Status Looms

A downgrade in South Africa would affect the country’s banks, and present the risk of contagion in nearby countries where South African banks operate, according to the latest report by the Institute of Chartered Accountants in England and Wales, IOL reported.

The ICAEW said in its Economic Insight: Africa report for the fourth quarter 2016, South Africa’s volatile political landscape has heightened fears that one of the major ratings agencies would downgrade the country’s credit rating to junk status in the near term.

“If this happens, South Africa’s major banks may come under pressure: their credit ratings could be downgraded too, which would force them to pay more for their reserves and squeeze their interest margins.”

The ICAEW said the reach of South Africa’s banks into neighboring economies meant that a sovereign downgrade for South Africa would be felt across the region. In turn, given the large footprint across Africa of South Africa’s largest banks—Standard Bank, Barclays Africa, FirstRand and Nedbank—some financial contagion might occur through a decline in financial support to subsidiaries or a slowdown in expansion plans.

“While contagion would be greatest in the Common Monetary Area (South Africa, Lesotho, Namibia and Swaziland), risks are also elevated in other countries where financial sectors in general are already under immense pressure, such as Angola, where three of South Africa’s largest banks have a presence. This kind of contagion may delay improvements in companies’ opportunity to gain access to business financing in this region.”


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