Africa will suffer a huge drop in income because of the financial crisis - with the worst affected countries seeing a fall in income of up to 50 per cent, according to a new report from ActionAid.

The report, Where does it hurt? The impact of the financial crisis on developing countries, unpicks the different ways the crisis is affecting the economies of developing countries. It shows that the countries which will be hardest hit are those which have opened up their financial sectors the most over the past few years.
 
As Gordon Brown meets African leaders in London on Monday to discuss the effects of the recession on their economies ahead of the G20 summit in April, ActionAid's research predicts that Africa will suffer a drop of income of up to US$49 billion, as calculated between 2007 and the end of this year.
 
ActionAid argues that the fall is due to both the financial crisis and the global recession - 22 billion dollars due to the financial crisis, on top of a 27 billion dollars drop in export earnings, aid and income from rich countries that are now themselves in recession.
 
The charity says that this is equal to a pay cut of nearly 10 percent for the continent as a whole. And in the worst affected countries such as South Africa, the drop in income could be as much as 50 per cent.
 
Claire Melamed, Head of Policy at ActionAid, said: "Although developing countries didn't make this crisis, it has become all too clear that they are in the firing line when it comes to suffering its worst effects.

"There is a real risk that development will start to go backwards in many countries as the money dries up and that the recession will lead to worsening poverty and terrible consequences for the men, women and children caught in its grip."

The World Bank's chief economist for Africa has already predicted that 700,000 children may well die over the next few years as a result of the financial crisis and the ensuing recession.
 
How the financial crisis is playing out in specific countries

ActionAid's report looks specifically at how the financial crisis and the recession are playing out in middle and low income countries including South Africa, Ghana, Uganda, Mali, Brazil, India and China. In particular it analyses the extent to which previous policies have affected these countries' future vulnerability to the turmoil currently affecting world markets.
 
Unsurprisingly, it finds that countries that bought most heavily into the rhetoric of financial liberalisation, and that were big enough to attract significant amounts of capital from the richer world, will be most affected by the financial crisis.

For example, it says that South Africa, which has been a paragon of free market economics since the end of apartheid, is likely to suffer a fall in financial flows from abroad equivalent to around a fifth of its entire GDP. 

However the report predicts that China will fare better. The majority of its growth has been based on expanding exports, which means that the recession is already hitting hard. But, the financial crisis is likely to have less impact because the government has restricted flows of foreign capital, whilst most Chinese investment and other finance comes from within the country.

Dr Melamed concluded: "The financial system hasn't been working for development for a long time. Countries that have opened up their economies to global finance subjected themselves to massive risks but didn't get much of a pay-off in development terms. 

"But developing countries do need finance from somewhere and we need a system that can give them what they need without running the huge risk of another financial crisis."