Surviving the Global Financial Crisis: Evidence from Exporting Firms in Sub Saharan Africa

Type Working Paper
Title Surviving the Global Financial Crisis: Evidence from Exporting Firms in Sub Saharan Africa
Author(s)
Publication (Day/Month/Year) 2010
URL http://diis.dk/files/media/publications/import/tandrayen.verena.pdf
Abstract
Since late 2008, countries around the world have been affected by the global economic slowdown. Though without doubt, there are particular countries that are very adversely affected, but there are also countries that may be less affected, may avoid recession, and may recover sooner than expected. In a globalised economy, the crisis has serious implications for low income countries, in particular, those which are highly dependent on trade, foreign investment, and remittances to meet economic growth and social needs. The main mechanism through which the crisis has affected Africa is a contraction in global trade and a related collapse in primary commodity exports, on which many countries are dependent. This paper argues that African firms, particularly exporters, have been highly affected as they are dangerously more dependent on foreign finance in countries where they export. Motivated by the present dramatic fall in international trade which has hit very strongly Sub-Saharan African countries, we analyze the impact of the financial crisis on exporting firms in the region. The objective of the paper is to assess the impact of the global financial crisis on four Sub Saharan African economies namely Burkina Faso, Congo Dem Rep, Malawi and Niger using firm level data from the World Bank Enterprise Survey. Our analysis compares firm performance across 1,600 firms in these four nations in 2005 and 2009. Our study reveals that there has been a fall in total sales as well as a decline in direct exports of their commodities. The drop in demand worldwide may explain the fall in exports of low income economies. Further, we may argue that the largest disruption effect comes when the destination country which is hit by a financial crisis is industrialized. In addition, the drop in exports has been accompanied by a drop in employment, which affects both permanent and temporary employees. Lastly our findings reveal that during the crisis period, firms increased the use of internal funds to finance working capital and purchase fixed assets.

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