THE IMPACT OF THE GLOBAL FINANCIAL CRISIS ON ENTREPRENEURSHIP DEVELOPMENT: A COMPARATIVE ANALYSIS OF EUROPE AND AFRICA BETWEEN 2004 -2011 (MANAGEMENT PROJECT TOPICS AND MATERIALS)
ABSTRACT
The recent global financial crisis of 2007 that began in the USA was caused by a bubble in mortgage industry and ineffective financial regulations. As a result of financial globalization, it spilled over to other economies and caused a global recession. Europe and African nations were not left out as GDP growth rate declined, unemployment increased, currencies depreciated, and trade surplus decreased etc. The researcher undertook a study to examine the impact of the global financial crisis on entrepreneurship development in Europe and Africa. In order to answer the research questions, data were collected from secondary sources showing the effect on different economy with central focus on Europe and Africa region. The research shows a positive relationship between dependent and in-dependent variables. The study also reveals the degree of effects varied across regions and countries due to difference in economic structure. The financial crisis had a common and more general impact on entrepreneurship development which was a decline in new firm start-ups, increased rate of firm failure, slow growth, reduced investment, unemployment, change in productivity for existing firms, and decline in bank support in regards to credit facilities.
1Â Â INTRODUCTION
The global economy has occasionally been hit by crisis and the most recent, will not be the last. However, certain factors made this the most severe after the Great Depression of the 1930s, which includes financial market failure, macroeconomic problems and implementation of policy shortcomings.
The recent GFC indicates clearly that through financial transactions and international trade, nations have become integrated to the extent that an economic crisis in a nation has negative effect on other nations of the world. The recent crisis is seen as the biggest shock to the global financial market after the great recession in the 1930’s. The GFC has been pervasive and the most recent which started in 2007 was caused by the United States subprime mortgage market. Prior the crisis, the US economy was characterised by flexible credit conditions, low risk management, low risk premium, aggressive lend-ing practices which encouraged financial institutions to lend customer for mortgage. When subprime borrowers began to default due to increased interest rate as well as the prices of houses began to decline, financial institution were forced to repossess the properties. The economic contraction caused a spill-over effect which escalated nega-tively affecting the rest of the world economies and its global financial system. This de-velopment has created some challenges for the entrepreneurs in terms of access to fi-nance, due to changes in the interest rate and inflation rate, a drastic decline in demand for goods and services as well as tightening credit terms which have affected cash flow etc.
