BY KWAME MARFO
In a recent conversation with friends about why Africa is poor, one colleague retorted rather cheekily “duh, asking why Africa is poor is like asking why the sky is blue? Poverty and Africa are conjoined at the hip.” This struck a bit of a nerve and prompted an inquiry – is that really the case?
Contrary to received wisdom, Africa and impoverishment are not conjoined at the hip – in fact, it is a fairly recent phenomenon. According to the World Bank, as recently as 1970, Africa’s GNP per capita as a percentage of the world was roughly three times greater than that of both East and South Asia.
So what happened? How did Africa become the poster child for global poverty? In an unscientific survey among friends, I posed the question, name the four major causes of poverty in Africa? Unsurprisingly, corruption, ethnic differences and bad leadership polled the highest.
However, in a 2002 seminal essay titled, The African Crisis, John Hopkins scholar, Giovanni Arrighi provides a compelling argument on why Africa’s fortunes diverged from that of the rest of the world from 1970s onwards. He lays the blame on external factors – not the time-honored conspiracy theories of a stitch up between global super powers (or the top 1%) to keep the poor trapped or even arguments against good intentioned, but often ill-designed schemes, such as aid or unfettered economic liberalism by global superpowers that are forced down on poorer countries. The external factors he refers to are structural changes in the global economy, which are often in response to domestic challenges within superpower countries and the geopolitical decisions they make. I will extend the argument a little further by suggesting the role these structural forces had on global capital flows. So how did this happen, precisely?
According to Arrighi, the loss of the Vietnam War, the hostage of US embassy in Tehran, the Soviet Union’s invasion of Afghanistan, and a new crisis of confidence in the US dollar, accentuated the relative decline in US power in the 1970s after the post-war boom. In response, the US government enacted a number of economic policies—a drastic contraction in money supply, higher interest rates, lower taxes for the wealthy, etc — which made it even harder to pay off its debts. To finance this deficit, the US government, which was previously a major provider of capital, began to compete aggressively for capital worldwide and became the world’s biggest debtor nation.
This had a disproportionate impact on African countries which were heavily dependent on cheap loans from western banks, making them vulnerable to the losing proposition of competing head-on with the US for capital. Secondly, increase in demand for finite sources of capital increased the cost of borrowing (as countries had to pay more in interest to borrow than before), making it virtually impossible for heavily-indebted African countries to service their debt. A good number of these countries had no choice but to seek support from international financial institutions. The tough conditions that were attached to these loans plundered many a recipient country into a deeper recession, eroding support of often “illegitimate” regimes. They, in turn, responded by lavishing limited resources on their power base – often favored ethnic groups – to maintain their grip on power, leading to never ending vicious cycles of mutually reinforcing economic and political crises. In worse cases, alienated ethnic groups engaged in armed resistance to right the perceived wrongs of these “illegitimate” ruling elites.
For historical and geographical reasons Asia, on the other hand, with its seemingly unlimited supply of labor, benefited from American companies, looking for cheap labor to meet expanding North American demand for cheap industrial products. Thus, they were spared the agony of having to compete directly with the US for capital. Better yet, Asian countries were also granted preferential access to the domestic US market to counter the rising threat of the Soviet Union.
What does this mean for Africa? The structural changes (and its implication on capital flows) of the seventies that wrecked great havoc to the African experience have resurfaced. As the West gets ready to pass on its superpower baton to the East, China has increasingly become a major contributor to the African “success” story of recent years, on the back of cheap loans and other forms of FDI.
According to Fitch Ratings, over the last decade, the EXIM Bank of China alone has extended $12.5b more in loans to sub-Saharan Africa than the World Bank. The only caveat here is China has pursued a largely investment-led, growth policy which has relied on African copper, iron and oil. With plans to build an average of ten airports each year over the next five years, one would not have to look too far to conclude that even in an optimistic scenario, China’s current insatiable thirst for African resources will not be infinite.
With labor cost increasing – by 22% last year alone – one of China’s main pillars in its ability to attract FDI, often at Africa’s expense, seems to be running out of steam. However, its infrastructural advantages have kept manufacturing jobs intact. Others have borrowed a page from China’s playbook. One such entity is India’s state of Gujarat. With its paved roads, large ports, constant power supply and minimal red tape, it has powered its way into double digit economic growth rates by attracting diversified forms of capital from the likes of Ford, Tata and GMC, spawning new cottage industries in other services such as cleaning, real estate, etc that mutually feed off each other. This ensures that they are not entirely dependent on any one country, company or sector.
Unfortunately, African leaders are all to content to sit back and collect rent from their natural resources under the false comfort that these “okay” times will last forever!
So Dear God, my prayer is a simple one. Where there is the luck of geography, let our leaders learn the lessons of the past and understand that good times do not last forever. Investing in a nation’s most valuable asset – human capital – and infrastructure and the institutional capability to prioritize these investments in a strategic manner, sustain them and ensure they adapt to changing times is a more sustainable proposition. In the absence of bountiful resources, empower my people to understand the need to strategically position themselves to follow the FDI trail. Surely, that is not too much to ask.
It is me again, your humble but troublesome son.
Copyright 2012 (April) Neo-African Consensus