December
2015
THE
RE-EMERGING AFRICAN DEBT CRISIS
As
economies face structural challenges due to continuing dependency,
the cost of borrowing is rising.
By
Abayomi Azikiwe
During the 1970s-1990s much attention was focused on the rising debt
crisis in post-colonial Africa. Continental states after gaining national
independence realized that there could be no genuine development while
financial obligations to western-based lending institutions were rapidly
escalating.
With the balkanization of the continent during colonialism,
the national independence movements without political integration
and economic unification faced formidable challenges in setting priorities
related to social spending and sustainable planning.
Much of the instability led to a further fracturing of
the political landscape which found its expression in military coups
and other forms of anti-democratic practice. These seizures of power
by the armed forces and the police were often prompted by economic
crises engineered by the financial institutions and multi-national
corporations which were seeking to maximize their profits at the expense
of the majority of workers, farmers and youth.
A
PERFECT STORM IS COMING SOON
A recently-held Strategic Growth Forum in Johannesburg,
South Africa, examined these problems by presenting data on the increasing
debt-to-Gross Domestic Product (GDP) ratios. This year, Africa’s sovereign
debt levels rose to 44% of GDP, a 10% rise from 2010 when Africa’s
debt-to-GDP ratio stood at 34 percent.
The Director of Africa Research at Standard Chartered
Bank, Razia Khan, said of the expanding debt bubble during the Forum
that on the continent “African countries have had notable access to
capital markets, but the build-up of public debt in recent years is
troubling. To give you an example, the benchmark GDP-to-debt ratio
for African countries is generally 40%, but you have many countries
like Ghana for example who far surpass these levels.”
Quartz Africa Weekly Brief covered the presentation made
by Khan observing that “Until recently, Ghana was lauded as one of
Africa’s fastest growing economies. But the West African country has
had to battle with the depreciation of the Cedi, its currency, increased
power outages and low commodity prices.” (November 5)
Following the patterns of previous years the same article
recalls that “In April this year, the International Monetary Fund
(IMF) approved a $918 million loan to help Ghana to boost economic
growth and job creation,” while ostensibly protecting social spending.
“To help refinance some of its existing debt, the country also launched
a $1.5 billion Eurobond last month. Khan predicts that the IMF will
increasingly play an extended role in African economies, as many will
battle with debt management strategies.”
Another article published by Independent Online in South
Africa pointed to both Ghana and Zambia as states which have accepted
the IMF and World Bank financial prescriptions for dealing with the
crisis of post-colonial states, with results today which contradict
the choruses of praise by western analysts as the volume of debt in
relations to GDP is growing exponentially. Zambia, a large-scale producer
of copper, has suffered from the fluctuation of commodity prices which
the government relies upon for its foreign exchange earnings.
According to Independent Online “the Zambian economy is
under siege. The country is battling with a host of issues, both domestic
and external. On the external front, the slow-down in the Chinese
economy, emerging market risk aversion and a plunge in commodity prices
have taken their toll, while internally the country is facing a power
crisis, fiscal pressures and an election next year. The combination
of these issues has seen the Zambian kwacha become the worst performing
currency over the past year, losing more than 80% of its value. Zambia’s
situation bears similarities to those exhibited in Ghana around its
2012 election, which has raised alarm that it could be heading down
the same path.” (October 20)
THE CRISIS OF NEO-COLONIALISM CONTINUES FROM THE 1960S TO THE PRESENT
The IMF and the World Bank as early as the 1960s began
to provide credit and consequent economic plans for the reduction
of African sovereign debt. In Ghana, after the Central Intelligence
Agency (CIA) backed military and police coup of February 1966, the
IMF extended credit to the West African state setting the stage for
the reversal of the socialist experiment enacted under the First Republic
led by Dr. Kwame Nkrumah and the-then ruling Convention People’s Party
(CPP), which governed the country during the transition period of
1951-56 and independence between 1957-1966.
Ghana Business and Finance newsletter said of the period
after the overthrow of Nkrumah that “A long-standing relationship
has existed between Ghana and IMF dating back to 1966. From that time,
successive governments have signed separate loan arrangements with
the IMF. Indeed, the relationship has suffered bitter divorces and
ambivalent reconciliations over the years. For instance, when in 2006
the country was exploring other financing options, it pulled out from
the IMF loans arrangement. But it came back in 2009 to borrow a whopping
$602 million from the international financial institution, thus reaffirming
the important role that the Fund plays in the economic life of Ghana.
“(April 24, 2015)
The hardships engendered by the IMF role in the post-CPP
imposed political construct in Ghana created the social conditions
which resulted in yet another military coup in January 1972. Instability
continued with successive military seizures of power in 1978, 1979
and 1981.
By the mid-to-late 1980s Ghana had gone further than any
other African state in adopting an Economic Recovery Programme (ERP)
as part of an overall Structural Adjustment Programme (SAP) framework
that served as a blueprint for other governments on the continent.
Despite the progressive and revolutionary legacy of the Nkrumah-CPP
period, the country has largely remained within the orbit of the western
capitalist and imperialist systems.
These developments in regard to Ghana have been evaluated
from two different perspectives. There are those who say that the
IMF loans have provided stability to the otherwise turbulent economic
situation. On the other hand, those within the country who have suffered
from the impact of the imposition of austerity say that the western-based
financial institutions have strangled the ability of Ghana to determine
its own future in the interest of the majority of people within society.
By the conclusion of the 1990s, significant portions of
the debt had been written off and re-scheduled. Today this problem
is re-emerging due to several factors including the decline in commodity
prices, growing class divisions and reliance on foreign direct investment.
This financial crisis emanates from Wall Street and other
centers of borrowing throughout capitalist states. Within the leading
industrialized countries of the West, there has still not been a full
recovery from the economic crisis of 2007-2009. Unemployment remains
high and consumer spending is low due to the loss of wages and household
wealth.
Consequently, the availability of credit to African states
will be far more limited during the second decade of the 21st century
than what prevailed in the 1980s, 1990s and the 2000s. Repressive
measures by neo-colonial client states will intensify in efforts to
suppress mass demonstrations and strikes which are erupting as workers
and youth demand the enactment of government policies that are designed
to stem the tide of currency devaluations and the imposition of austerity.
Moreover, the continuing dependency on the neo-colonial
system will serve as an impediment to not only national but regional
and continental integration and economic planning. These issues of
course require more of a political response rather than economic.
The genuine political independence and sovereignty of
African states must lead to the rejection of the conditions established
by the IMF and World Bank. Such a position will place leaders and
political parties on an automatic collision course with the imperialist
system of international finance capital. – Third World Network Features.
-ends-
About
the author: Abayomi Azikiwe is Editor, Pan-African News Wire.
The above article is reproduced from Pambazuka News, 10 November 2015,
Issue 750.
When
reproducing this feature, please credit Third World Network Features
and (if applicable) the cooperating magazine or agency involved in
the article, and give the byline. Please send us cuttings. And
if reproduced on the internet, please send the web link
where the article appears to twn@twnetwork.org.
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