How Japan’s earthquake will affect Africa

Africa should brace itself for a decline in aid and trade flows with Japan following the devastating earthquake last week that hit the world’s third-largest economy, according to a Standard Bank report released on Friday.

The total value of trade and investment flows between Africa and Japan in 2010 stood at US$24 billion.

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

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

“Quite clearly, African countries must prepare for an inevitable decrease in trade and aid volumes with Japan in the near and perhaps even medium-term,” note Freemantle and Stevens.

“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.”

Freemantle and Stevens further note that the net effect in the short term will be harmful for those 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 may feel the pinch, while from an investment perspective, Africa’s larger economies, particularly South Africa and perhaps Nigeria, will experience “marginal compression”.