In my book, The Bottom Billion (2007), I argued that some 60 low-income countries, with a population of about a billion people, have missed out on the recent decades of global prosperity. But does their exclusion from growth mean that the worst of the economic crisis will pass them by too?
Sadly not. The countries at the bottom still suffer from what economists call "transmission shocks" from the west. These forces are not the same as those devastating our own economies. Poorer countries were never sufficiently creditworthy to benefit from substantial private credit: during the wild, late phase of irrational exuberance our bankers were only just preparing to begin lending to them, but few transactions were consummated. So what they never had, they are not going to miss. Nor did the web of global financial interconnectedness stretch to these banking systems. African banks are not stuffed with toxic assets and opaque derivatives and so they have not been dragged down.
They have, however, been affected by the puncturing of the commodity boom. Not only is the oil boom over, but so are those for all other minerals. Commodity exports are only significant for around half of the countries of the bottom billion, but for them the losses have been big. On average, commodity prices have more than halved, leading to declines in national income often much higher than 10 per cent. There have been over 200,000 jobs culled in the Democratic Republic of Congo as a result of the collapse in the price of cobalt, copper and other minerals. South Africa is also anticipating up to 50,000 mining job losses in 2009. And the collapse in prices has also stopped a wave of new mineral prospecting that had been beginning to reveal valuable hidden sub-soil assets. Such undiscovered natural assets can transform economies, but now there is no capital being invested in discovering them.
Finally, aid itself is going to be squeezed. Even Britain, one of the few countries planning to increase its aid budget, has just slashed it in real terms as a result of the depreciation of the pound.
Yet the economic news for the bottom billion is not as dire as might be implied. Gradual but cumulatively substantial policy reform coupled with debt relief now means that most of these economies are in much better shape than a decade ago: while the commodity and remittance booms are over, revenues from these goods are still higher than then. These ingredients will enable most of the economies of the bottom billion to grow next year, at perhaps around 4 per cent. This will be faster than their long-term average, and also than most of the rest of the world. Indeed, I expect that this relatively strong performance will lead investors to reassess their defensive withdrawal. Irrational exuberance has now been replaced by hyper-caution. Yet with the OECD economies in unprecedented decline and African economies growing at 4 per cent, investment in the latter may be less risky than usual.
At present, international policy attention is focused on fixing the mess at home. The April meeting of the G20 in Britain will focus mostly on the need for more financial transparency. But there is one way in which the bottom billion could be usefully fitted into this agenda. Our banks are home to massive deposits of money looted from the public revenues of the bottom billion. Most of these deposits remain protected by strict banking secrecy. But with our bankers' reputations at an all time low, they should no longer be allowed to hide behind this shameful screen.
