CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF THE STUDY

The financial crisis ravaging the global economy has generated a very serious concern by all stakeholders. The world has been threatened by several cycles and periods of economic crisis in the past, but the current economic crisis has been described as “a tsunami” (Chossudovsky, 2009). Perhaps, the use of such a strong „catastrophic‟ phrase is to properly convey the circumstances and realities of the crisis which ispeculiar in terms of its origin, evolution, nature, pace, magnitude, and distressing realities.

There has been a great confusion on the nature of the crisis. According to Sanusi (2009a), “the world economy has been hit by the reperccussion of the financial meltdown that started with the sub-prime mortgage crisis in the United States of America and spread to Europe and other parts of the world”. The growing inability to differentiate the current crisis from either an economic problem, a political quandary or an ideological clash even makes the situation more worisome. The pace at which the crisis is affecting economic activity around the world is staggering.

Most OECD countries are are already in recession, and growth in Asia is arguably slowing more rapidly than at any time since 1990 (Summers, 2006). Predicting and estimating the magnitude of the crisis has shaken the very foundations of international financial markets. The uncontrollable force of globalisation which has torn apart all economic boundaries has not only ravaged all regulatory and protectionist powers of the state, but has actually outspaced and created doubts about the ability of the IMF to contain the crisis (World Bank, 2008). As the world economists independently and jointly reveal their country‟s survival plans, policies and programmes has shown that the continued reign and existence of capitalist ideology is seriously threatened. Unfortunately, the crisis is further complicated by issues of global concern like climatic change, volatile food and energy prices (Commission for Social Development, 2009).

The current financial and economic crisis has had limited direct impact on African economies largely because of its relatively low financial integration, but the crisis has affected the drivers of Africa‟s recent growth performance. Prior to July, 2008, African economies recorded excellent economic growth performance, despite the 2007 subprime mortgage crisis in the United States of America (ADB, 2009).