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om record highs in 2007. The latest research of Massa and Te Velde (2008) indicates that net financial flows to developing countries may fall by as much as $ 300 billion over two years which is equivalent to $ 4.500 billion in two years (Massa and Te Velde, 2008). Some countries, including successful African countries, are more vulnerable than others. Various types of international resource flows will be affected as a result of the impact of the financial crisis. This will include private capital flows such as Foreign Direct Investment (FDI), portfolio flows and international lending; official flows such as development finance institutions; and capital and current transfers such as official development assistance and remittances.

The World Association of Investment Promotion Agencies anticipates a 15% drop in FDI 2009. FDI to Turkey has already fallen 40% over the last year and FDI to India dropped by 40% in the first six months of 2008. FDI to China was $6.6 billion in September 2008, 20% down from the monthly average in year 2008 so far, and mining investments in South Africa and Zambia have been put on hold (Velde, Willem, 2008).

As a result of the financial crisis, developing countries are suffering from a drop in bond and equity issuances and sell-off of risky assets. The average volume of bond issuances by developing countries was only $6 billion between July 2007 and March 2008, down from $ 15 billion over the same period in 2006. Between January and March 2008, equity issuance by developing countries stood at $5 billion, its lowest level in five years. As a result, World Bank research suggests some 91 International Public Offerings have been withdrawn or postponed in 2008 ( Velde and Willem, 2008).

It is a well known fact that there is financial contamination and stock markets have fallen around the world, with the largest losses since the 1930s. This has triggered entrenchment by investors, with reports that they have withdrawn $45 billion from Korea, $6.1 billion from South Africa, and $16 billion from India this year. Turnover on the nascent stock market in Uganda has fallen 60% this year. Remittances to Mexico (which depend almost exclusively on migrants to the USA) have decreased by 4.2%, with the strongest declines in August. Remittances to Kenya (which also depend on the US economy) have been hit even harder, with the Central Bank estimating a 38% year-to-year drop in August.

Export revenues are falling rapidly for many countries. Zambia has been affected with the price of copper falling by 40% since July 2009. Tourism bookings are down 40% in Cambodia. And visitor arrivals (and revenues) to Kenya fell 30% over the first 9 months of 2008. Many developing country policy makers suggest that the global financial crisis might by pass developing countries. However, it is now clear that all countries will be affected, with the effects varying by country. The year 2008 was the year of the global financial crisis and beginning of recessions in the UK, US and Germany. However, developing countries shall witness the fall out in 2009. Therefore, they should be prepared. They have to set up a crisis task force to gain a better understanding of the real and financial effects, followed by immediate action.

2.2. TAKING THE TEMPERATURE OF THE CURRENT FINANCIAL CRISIS

Colorful graph of the TED Spread are provided by Yves Smith Compan