POLITICAL ECONOMY: Out of the shadows

26/05/2010 | George Ayittey

As African political leaders take stock of the fallout from the financial crisis, they must not forget that the aid and investment the continent so desperately needs can be found at home, says Free Africa Foundation president George Ayittey

Africa – the world’s poorest continent – played no role in the making of the 2008 global economic crisis.

Yet it was hit particularly hard by the fallout. Tumbling commodity prices for oil, copper and titanium, decreases in trade, investment flows and remittances sharply reduced Africa’s income. Budget revenues for commodity-exporting countries such as Angola, Nigeria and Zambia shrank by more than 50%. For other governments foreign aid dried up. Remittances to the continent dropped by over 8% – with a profound impact on poverty alleviation in places like Ghana or Lesotho, where the flows comprise 28% of GDP.

Though African financial institutions steered clear of toxic assets, they could not escape the effects of evaporating global liquidity. What’s more, the crisis hit at the worst time.

After registering marginal and even negative growth rates, it appeared Africa had turned the corner. In 2008, fuelled by high commodity prices, the region recorded growth of 5.7%, albeit shy of the 7% rate needed to achieve the Millennium Development Goals. Net foreign direct investment inflows had risen from $13 billion in 2004 to about $33 billion in 2007. Portfolio equity flows had also shot up, reaching a value of $15 billion in 2006.

Africa had also been weathering food and fuel price shocks in 2007–08 ahead of the crisis. The IMF says Africa grew at 1.9% in 2009 but expects a slight improvement to 3.1% this year. Even then, with a population growth rate of 3.0%, income per capita will be stagnant or even negative for some countries. Some 53 million Africans will slip deeper into poverty.

The impact of the global crisis varies across the continent. It’s a different picture, for example, for Ghana, Nigeria, Kenya, South Africa, where key economic drivers have more to do with the extent of financial integration with the rest of the world and whether they are oil or mineral exporters.

There’s yet another picture again for oil importers such as Burundi, Guinea-Bissau or Liberia, which are fragile, resource-poor and dependent on foreign aid.

Fortunately, Africa’s resilience has been remarkable so far.

There have been no African so-called “PIIGS” – countries that are financially bankrupt. And there are only a handful of countries – Ghana, Kenya, Nigeria, South Africa – that have sovereign debt.

Nor has there been widespread civil unrest following austerity measures – as with Greece’s violent protests. But that possibility exists among Africa’s restive youth population. About 40% of Africa’s 1 billion population is under the age of 15, and high unemployment among them is a serious concern.

In the near term, Africa will have to maintain fiscal and monetary stability while dealing with budget deficits that are likely to increase, and dwindling development finance occasioned by the global economic crisis. The delivery of social services has also been impaired. Stronger economies such as Botswana, Ghana and Mauritius are in a position to weather this challenge compared to weaker ones such as Benin, Mali and Senegal.

The temptation for many policy-makers is inflationary finance, but this would be disastrous. Zimbabwe’s currency was abandoned when inflation hit 6.5 quindecillion novemdecillion percent – 65 followed by 107 zeros – in February 2009.

A more judicious alternative would be to undertake major structural reform. Bloated bureaucracies with over-lapping functions, a multiplicity of goals and redundant staff need to be trimmed. Kenya, for example, has 92 ministers and deputy ministers; Ghana has 64 and Zimbabwe 58. Further savings can be achieved by curbing waste, graft and corruption in the government sector, which are serious problems in Angola, Congo DR, Kenya and Nigeria.

The African Union estimates that corruption costs Africa $148 billion annually, which may be compared to the $30 billion in foreign aid that Africa receives from all sources in a year.

CLUB DE MADRID PRINCIPLES

For the long haul, Africa will have to reduce its vulnerability to external shocks or crises and improve its capacity to cope with them. Towards this end, the Club de Madrid, an association of former presidents around the world, met in Accra last November to brainstorm this very issue. The meeting was as remarkable in its high-profile attendees as its frank talk: speakers included ex-presidents John Kufuor of Ghana, Olusegun Obasanjo of Nigeria and Benjamin Mkapa of Tanzania.

There was near-unanimous agreement that the global economic crisis has compounded existing challenges of food security,unemployment, poverty reduction, basic public

service delivery, climate change and migration, any of which has the potential to foment civil strife and to frustrate the achievement of the Millennium Development Goals. Furthermore, it was recognized that the ultimate responsibility for dealing with the crisis rests with Africa’s leaders, who must articulate, implement and assert an appropriate strategy to mitigate the impact of the crisis.

Specifically, the meeting stipulated the following principles:

• Good governance is the foundation of sustainable and equitable growth.

• Africa’s greatest resource is its people. A much greater investment in human capital, especially women, is needed. The energy of the continent’s large and youthful population must be channelled for the benefit of social, political and economic progress. Youth must be empowered by widening and deepening educational opportunities, including providing adequate education at all levels as well as vocational training.

• Agriculture must be reprioritized. Investment in technology and research is essential to improve food security.

• Africa’s economic growth strategy has been too oriented to global markets to the neglect of cultivating local and regional markets. African countries need to strengthen their own domestic markets as a first recourse to drive competitiveness.

• The informal sector comprises the great bulk of economic activity on the continent, and must assume greater prominence in Africa’s economic planning. Informal sector assets need to be monetized, including rights to land and other property, as a mechanism for legally empowering the poor and expanding opportunities in the formal sector.

• African countries must cultivate a climate conducive to private-sector development, particularly for small and medium enterprises. Public-sector resources need to be deployed and to facilitate inclusive growth.

• Regional fiscal and trade policies need to be made more coherent. Regional and sub-regional bodies such as the African Union and the regional economic communities need to coordinate more effectively to stimulate growth and development. Customs unions, common markets, free trade areas, all supported by joint investments in improved national and regional infrastructure, will empower Africa to realize its full potential.

Such frank talk has been rare in Africa’s officialdom. Forthright admission of mistakes, their correction and adoption of better economic policies are essential if the continent is to break out of the poverty trap. The continent has immense natural resources, but they have been grotesquely mismanaged.

Yet reform has been a tall order for Africa’s autocrats. The record before the 2008 global economic crisis was abysmal, and the pace of reform excruciatingly slow.

BABANGIDA BOOGIE

Under pressure to reform abominable economic and political systems in the 1980s and 1990s, most African leaders implemented the barest minimal cosmetic reforms needed to keep western aid flowing. Africans derided this manoeuvre as the ‘Babangida boogie’ (named after former Nigerian military ruler Ibrahim Babangida) – one step forward, three steps back, a flip and a sidekick to land dollars in a fat Swiss bank account.

Loath to see any diminution in their power and control, leadership across the continent shunned reform. When asked to cut government spending, they established a ‘Ministry of Less Government Spending.’ When asked to establish democracy, they empanelled a coterie of fawning sycophants to write the electoral rules, tossed opposition leaders into jail and held ‘coconut’ elections to return themselves to power.

Between 1981 and 1991, the World Bank spent some $25 billion to sponsor structural adjustment programmes (economic liberalization) in 29 African countries. In 1994, only six – Gambia, Burkina Faso, Ghana, Nigeria, Tanzania and Zimbabwe – were adjudged economic success stories. But within four years, all had vanished from the list, except Ghana.

Yet, each year the World Bank trots out another list.

The reform process was stalled by vexatious chicanery, strong-arm tactics, wilful deception and political acrobatics. Fewer than 10 African countries can be described as economic success stories – Benin, Botswana, Ghana, Mali, Malawi, Mauritius, Rwanda and Uganda – and only 16 out of the 54 African countries are democratic. Intellectual freedom remains in the Stalinist era: only eight African countries have a free and independent media.

Even in economically successful countries such as Ghana and Uganda, there has been some back pedalling. In Ghana, serious questions have been raised about the country’s commitment to private-sector development, with wanton government interference in private-sector deals. In 2009, the government sought to abrogate various deals involving Vodafone, Aker ASA and Kosmos-Exxon.

In Uganda, privatization proceeded in fits and starts. The process was halted twice by Uganda’s own parliament because, according to the chair of a parliamentary select committee, Tom Omongole, it had been derailed by corruption with three senior ministers who had had political responsibility. The sale of 142 enterprises was initially projected to generate Ush900 billion or $500 million. However by 2003, the revenue balance was only Ush3.7 billion.

Two factors will weaken already wavering commitment to reform.

First, is the expected backlash against the so-called neo-liberal Washington consensus. Ideologically, the crisis has discredited laissez-faire economics or free-wheeling capitalism and may produce a retreat into statism – government control and direction of economic activity.

When governments in rich countries are injecting huge stimulus spending plans and bailing out big banks and businesses, why should African governments be told to curb spending and loosen control?

Second, Chinese forays into Africa greatly impede the prospects for reform. In the past, western donors attached reform conditions to their aid programmes. But Chinese investment and promises of aid without conditions have removed the incentives to reform.

One example makes the point. In 2002, the IMF scrapped a donors conference for Angola, citing corruption and the lack of transparency in government finances. But in November 2003, Angola’s finance minister travelled to China to seek financial assistance. A year later, China extended to Angola a $2 billion oil-backed loan, whereby future oil production is mortgaged against the loan.

In 2006, Chinese premier Wen Jiabao visited Angola and announced that China had extended another $2 billion to Angola, on top of the $1 billion announced a few months earlier and the original $2 billion from 2004.

Looking inward

Regardless of the geo-political and ideological posturing, however, unvarnished pragmatism is required of African leaders. The aid and investment resources Africa desperately needs can be found in Africa itself, and it requires reform to unlock it.

Global Financial Integrity, a Washington-based NGO, estimates that $1.8 trillion in illicit funds were moved out of Africa between 1970 and 2008. If anything, the global economic crisis has underscored the imperative of prudent economic management, sound developmental policies and good governance. African autocrats who ignore this dictum do so at their own peril.

Elections are coming up in Egypt, Ethiopia, Senegal, Sudan, Uganda and other countries. The chaotic and violent aftermath of recent elections in Kenya and Zimbabwe should send a clear message that Africans will no longer put up with the Babangida boogie.


George Ayittey, a native of Ghana, is president of the Free Africa Foundation in Washington, DC. His forthcoming book, The March of Freedom: defeating dictators, will be published by Palgrave USA

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