European debt crisis adding to dangerous African volatility | Business Recorder

European debt crisis adding to dangerous African volatility | Business Recorder

When investors worry, capital flies back to home bases in Western markets, negatively affecting emerging economies. "Spillover risks from the financial and economic woes in the euro area periphery have intensified, and, with weakened growth and sluggish transition from public to private demand in the United States, there are concerns about an upsurge in financial volatility," the governor of the Nigerian central bank, Malam Sanusi, said this week.

South Africa's rand was regaining lost ground this week, after the currency took big hits last month versus the dollar and the euro, on sentiment that Europe was moving closer to resolving some of its key problems. The rand is a particularly liquid currency by African standards and therefore can be extremely vulnerable to external shocks.

The effect of the rapid movements can be devastating on the poorest in developing African countries, especially when unemployment remains stubbornly high. South Africa, the largest economy on the continent, has shed over 1 million jobs as a result of the global economic downturn and is struggling to create new work, leaving unemployment close to a shocking 26 per cent.

The UN Food and Agriculture Organisation warned that on top of drought affecting parts of East Africa, "high food and fuel prices have placed an additional strain, forcing families to eat fewer meals a day or to sell off livestock."