Hamish McRae: Recessions hurt us all, but how unfair if Africa is punished for Western excess

Abuja – After another week of madness and mayhem in London, it seemed a good idea to escape and have a look at the world from the calm of Nigeria. I kid you not, for Abuja, the specially planned political capital, is very different from the great, heaving commercial and financial centre of Lagos, the capital until 1991. But it is also a good discipline to look at the world from the other side. To take one example: the emergency meeting of Opec over oil prices looks quite different if you are sitting in the country that is the world's eighth-largest oil exporter, rather than filling up the car in Britain.

It also looks different if you are in Belarus, Ukraine, Hungary or Pakistan – countries that have recently gone to the IMF for a bailout. Indeed, last week was one in which many emerging economies found their credit and their currencies hitting the rocks. The global financial crisis has now moved far beyond its US starting place and the Western European markets that were hit next.

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Even so, notwithstanding the recent fall in the price of oil, in Nigeria the emphasis is on coping with growth rather than trying to ward off recession. Thanks to oil, growth is around 7 per cent a year. But oil contributes some 90 per cent of government revenues and a still higher proportion of export receipts. The result is an unbalanced economy, with huge wealth in some quarters alongside declining life expectancy, power cuts and the need to invest heavily in infrastructure.

Take the movement of people into cities. Work by Goldman Sachs suggests that, by 2050, there will be another half a billion moving into urban centres in Africa – some 150 million of these in Nigeria. There is a huge amount of investment needed, particularly in mobile telephony, electricity and roads, of which more than one-third is in Nigeria.

As the credit crunch rolls out to hit the developing world, many of these projects are going to be delayed. That will further reduce demand in the world economy, quite aside from delaying the improvements in quality of life that such investment would bring. So there is a global social cost to the crash, not just an economic one, and that cost will be felt throughout the world.

Naturally, oil producers are better insulated than oil consumers. Nigeria does its public accounts on the basis of an oil price of under $40 (around £25) a barrel, so there is plenty of scope for the price to fall further without damaging the country's spending plans. (A case could be made that Nigeria is too conservative in its accounting, and there would be welfare benefits and greater economic efficiency with more investment in infrastructure.) But the big point here is that, at present levels, the oil price is still historically high; it is just a little less stratospheric than it was.

So for the oil consumers of the emerging world, it has been and will continue to be tough. And now they have been struck by a sudden loss of confidence: the price of bonds issued by several countries, not just those that have gone or are likely to go to the IMF, has plunged; currencies have plunged. The loss of confidence has even spread to Russia, the world's second-largest oil producer, one that should be among the winners in the global financial chaos. Even countries that seemed well-insulated from the storm are being caught up in it.

This is scary stuff. The governments and central banks of the developed world are now fully involved in containing the banking crisis, and while there will probably be more bad news to come, they seem to be succeeding. They may not be able to prevent a recession, but they can buffer its effects and make sure the financial institutions are secure enough to finance the recovery.

But one of the things which most of us had assumed would happen is that the downturn in the developed world would be offset, to some extent at least, by continued growth in the emerging economies. I think this is, broadly speaking, still right. But what has happened in the past few days must make us question that.

There are two things involved here. One: can the stronger emerging economies continue to grow reasonably strongly? Two: will the spread of financial disruption to these countries have a knock-on effect, further weakening not only their own banking systems but also those of the West?

As far as the first is concerned, this is mostly about China. Yes, what happens in the rest of the emerging world is important, but if you are looking at global demand, it is China that matters. This year it probably added more demand to the world economy than the US and Europe combined. But the current forecasts of around 8 per cent growth next year look credible, which would be a significant slowing from the 11 per cent rate in the first half of this year. That is still a lot of growth, so the idea is wrong that as the US goes into recession, China hits the buffers too. But since, aside from raw materials and food, China's imports are limited, its growth will be largely internalised. Meanwhile, other emerging nations will suffer from lack of access to capital.

As for the second concern, there is of course a danger. The Western financial system is vulnerable to shocks from the emerging markets, as the 1980s Latin American crisis and the East Asian and Russian crises of the 1990s showed. The question is really: is there a link between developed and developing markets that we don't understand. There shouldn't be, for the banking crisis has been brewed in the financial markets of the West, not in the emerging world. But the loss of confidence has now gone global, and there may well be hidden weaknesses yet to emerge.

What we have to acknowledge is that the spread of this loss of confidence to the emerging world is troubling for the developed one. We have to ratchet down our expectations for global growth by another couple of notches. You cannot avoid the point that the world economy is looking more and more like it was before the recession of the early 1990s. That is clearly what stock markets around the world now expect. I still think there is a good possibility that, when the final tally is made, the UK will have come through in better shape than it did then, but the past week was discouraging. And we must acknowledge that most forecasters now expect the UK to do rather worse than other developed nations, not better.

But in any measure of human values, a recession in the US or Europe does less damage than economic disruption in Africa, and Nigeria is lucky in having a strong hand to play in the world economy. How well it plays its cards is its business; but other African countries have weaker hands, some much weaker, and it would be desperately unfair if the excesses of Western bankers clobber them too.

This haunted market won't recover until its ghosts are exorcised

What can one sensibly say, viewed from a distance, about the current panic? My own best frame of reference is the end of 1974, when the old FT30 share index plunged below 150 and all faith in the government's ability to do anything about it vanished. As it turned out, the market bounced back swiftly in the January, so while there was a lot of bad economic news ahead – the mid-1970s recession vied with the early 1980s one as the worst since the Second World War – the market began, haltingly, to look towards some growth ahead.

Well, the good news is that things don't feel nearly as bad now as then. We are not staring into the abyss of hyperinflation and, for the record, the housing boom of the early 1970s was just as heady as that of the early 2000s. But there seems to me to be three main things spooking the market, and fortunes won't recover until these ghosts are exorcised.

One is the point noted above – that financial chaos is spreading to the emerging economies, and this will bounce back and damage the rest of us too.

The second is that there is some big unknown in the banking/ insurance linkages which has yet to emerge, and that when it does, the authorities will lack either the firepower or the acumen to cope. The first part of this is entirely possible, and until it happens the second element cannot be determined either way. My view is that the turning point was on 6/7 October when the world's banking system nearly did collapse and was saved by the central banks and governments. If they have to prove they are up to it again, they will do so.

The third is more parochial, the way in which the UK is being targeted by the markets. You could justify that partly because we have had a relatively big housing bubble, a particularly large financial sector and a relatively large fiscal deficit. But there may be something more: a lack of confidence in the Government itself, or the "Soros effect" – that we are easy for speculators to hit. In a sense, the markets are betting against Gordon Brown.