Developing World to Take a Hit From Europe

June 26th, 2012
in econ_news

Written by Gavin Kakol, GEI associate

Econintersect: Europe's ongoing financial crisis is affecting all of the world's economies.  Developing nations may be some of the hardest hit with projected losses totaling $238 billion this year, as they may experience an overall reduction in growth up to 0.5 percent.

According to the Overseas Development Institute (ODI), Côte d'Ivoire, Mozambique, Morocco, Madagascar and Malawi, and Cape Verde are all high risk countries who export more than 1 percent of their GDP to Europe.  All of these countries have between 37 and 94 percent of their exports vested in European markets.

Follow up:

The European debt crisis has kept credit tight, now that EU banks have 70 percent of their loans tied into Greece and Portugal.  Austerity packages have led to increased unemployment, higher taxes, and reduced investment.  Recently, the Euro has been losing value to the dollar.

Countries that trade off the Euro may gain an advantage in competitive markets as opposed to nations using the dollar.  Hackett Associate's president Ben Hackett recently told U.S. logistics management that zero European growth in 2012 is to be expected with negative GDPs from the previous year likely.

The ODI says that countries with high elasticity exports, heavy dependencies of foreign investments, and lack of decisive planning are risky nations.  These countries need to maintain target exports, promote diversification, and improve regulation.

There are a few positive policies working for emerging economies of Africa.  High demand, lax regulation, and competitive shipping possibilities have opened China up to importing agricultural products from southern Africa.  This year 7 million tons of Maize is expected to be traded with China.  Trading between the United States and Africa has been benefited significantly with the African Growth and Opportunity Act (AGOA).  The AGOA brings 40 participating nations of Africa together by removing tariffs and decreasing trading barriers between the United States and Africa. Assistant Secretary of the State Johnnie Carson stated in a June Sub- Saharan trading meeting phone brief:

It has really helped to promote new nontraditional and value-added exports from Africa

Over the course of 2012 trade between the AGOA and the United States is expected to reach $95 billion dollars.  Still, the majority of trade between the world's developing economies is done with Europe.  As long as uncertanty persists in the European Union, developing countries need to look to outside markets for exporting.


The Eurozone Crisis and Developing Countries (Issabella Massa, Jodie Keane,Jane Kennan, ODI, May 2012)

Port Tracker: European imports to flatten after 3.9pc rise in 2011 (e import export, 6 February 2012)

2012 To Be a Record Year for U.S. -African Trade (Mackenzie Babb, IIP Digital U.S. Departement of the State, 14 June 2012)

China top target as S. African farmer look east (News Day, 25 June 2012)

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