Japanese Trade, Aid Inflows to Drop

credit: Amaka Ifiekandu

African countries have been urged to prepare for a decline in aid and trade flows from Japan following the devastating earthquake that hit the world’s third largest economy recently.

Standard Chartered Bank which stated it in its report, said that the total value of bilateral trade between Africa and Japan in 2010 stood at $24 billion, a 30 per cent improvement on 2009.

The report said that the earthquake and resulting tsunami had so far left an estimated 16, 000 people dead and about 400, 000 more homeless. It said that the negative economic spill-over effects were expected to further add to the already sluggish global economy.

The report, written by the bank’s research analysts, Simon Freemantle and Jeremy Stevens, warned that this would have a material impact on African markets and economies because of the considerable linkages between Japan and Africa.

According to them, “African countries must prepare for an inevitable decrease in trade and aid volumes with Japan in the near and perhaps even medium-term.

“The linkages between Japan and Africa – both direct and indirect – are certainly substantial. Therefore, any renewed bout of risk aversion, dent in external demand, shelving of investment, swings in terms of trade, and fall in aid commitments will be harmful.”

The report further noted that the net effect in the short term would be harmful for the economies most linked to Japan, with countries like South Africa expected to be most affected from a trade perspective. In terms of overseas development assistance, countries such as Tanzania and Sudan might feel the pinch, while from an investment perspective, Africa’s larger economies, particularly South Africa and perhaps Nigeria would experience ‘marginal compression.’

credit: Leadership