(Photo source: The Economist)
On November 28, I was interviewed by Jeremy Kuper, the editor of the online business magazine Gateway to Africa. We spoke about African economics, bull markets and whether the boom can be sustained. Click here to read the original.
GTA: Is Sub-Saharan Africa’s growth sustainable?
To be honest, I think the resurgence in Africa at the moment is down to the availability of mineral resources and China’s desperate need for those resources…for those assets basically. And I think that’s having the impact now on Africa.
GTA: Can you tell me about Jubilee 2000 and what’s happened since?
Jubilee 2000, a world-wide civil society campaign that I helped lead, resulted in the cancellation of about $100bn of debt in nominal terms – less in net present value terms – of 35 of the poorest countries. Most of these sovereign debtors were African. This debt was written off, first, by the Paris Club of creditors, and then by the World Bank and IMF.
Countries like Mozambique, Tanzania, Uganda, Ghana, Ethiopia all got substantial debt relief as a result of the efforts of millions of Jubilee 2000 campaigners. And what that really meant was that the debts they were due to repay in hard currency to foreign creditors, for say, the next thirty years, stayed at home. We know that some of the money saved was invested well – in e.g. health and education in countries like Uganda and Tanzania.
But the problem was that as soon as they were given the debt relief and were made more sustainable, both the big multilateral institutions, the IMF and in particular the World Bank, followed up with new loans. And then China piled in with new loans.
Now there’s a difference between China’s lending and most loans made by official creditors from the west, in that Chinese loans tend to be less conditional. Nevertheless, they represent a potential burden on those countries, because the loans have to be repaid ultimately in hard currency. And it’s the ability to earn that hard currency that determines whether or not a sovereign remains a ‘performing’ debtor.
I had a lot of sympathy for the people of Nigeria, because much of the debt they were expected to repay was the result of loans made by western governments, like Britain, to dictators. There was often very little evidence of the contractual arrangements around the loans and the public were often unaware of deals done behind closed doors. Naturally when these dodgy loans are made, creditors are unlikely to make them too public.
In addition, movements in exchange rates could cause the value of the debt to rise (or fall). Often the outstanding debt rose well beyond the loans made, because of exchange rate movements, and the compounding of interest on unpaid debts. This meant that the debts just grew, and in the end bore no relation to the original loans. That’s in the nature of debt, as we know.
GTA: Do you think South Africa can effectively diversify?
South Africa is of course in a strong position to diversify. But historically her commodities, which are immensely valuable and are limited in their availability, have sold at what are effectively low prices.
I grew up in a small gold mining town (Welkom) in South Africa and we always believed that the gold beneath our feet was unlimited; that we would always be able to extract it. It turned out to be not so. And at that time (the 50s and 60s) I remember as a child asking my dad why the price of gold was fixed, while all other prices moved up and down?
The point is this, South Africa and indeed all African countries with valuable commodities have, over time, been paid very little for those valuable, and scarce assets. And it’s been hard for them to diversify because western companies exploited those assets by adding value, and prevented (by way of control over technology, patents etc.) African entrepreneurs from doing the same.
If you take the example of chocolate. The people of Cote D’Ivoire grow cocoa, but big companies turn that cocoa into chocolate, and make it very hard for Cote D’ivoirians to add value within the country – and I think that applies across Africa.
Not only have African leaders been too dependent for revenue on basic commodities like copper in Zambia or the very valuable minerals that South Africa has, or the very pure oil for example that Nigeria has. But if they had wanted to diversify and add value they would have met stiff resistance from competing corporations and their western governments.
And so on the one hand, African leaders were perhaps too easily content with the revenues that rolled in for their oil, copper, or their gold, or their diamonds. Without understanding, as for example Botswana has done, that they needed to do more to build a balanced economy and to share the gains.
GTA: What about South Africa’s role as the new regional economic power?
I am stunned when I go to other countries in Africa at the extent to which South Africans have engaged in those economies. I mean if you visit Abuja [Nigeria] some of the best hotels are owned by South Africans. In Tanzania the beer company has been bought up by SAB Miller, [who have] taken over almost all of the breweries in Africa.
And there is a degree of resentment towards South Africans. If you visit some of these countries it feels like South Africa is the new colonial power. So I think the extent to which SA companies have now taken root in other African countries must not be underestimated.
Now inward investment into those countries is of course welcome. And South Africans are doing good things and building management capacity in those countries.
The question becomes, when those South African companies repatriate their profits back home, to Johannesburg or Cape Town or whatever, whether or not those are affordable costs for poor countries that don’t have the hard currency reserves needed to ensure that those kind of transfers can take place without unbalancing the exchange rate or indeed the economy. So there’s just a question there.
African countries, most of whom were heavily indebted, were obliged by their creditors to open up their economies well before they were ready to do so…I would prefer to see countries build up demand in their own domestic economies. And when they’re ready and prepared to open up their markets, to do so in a measured and sustainable way. Unfortunately debtor nations lose what is known as ‘policy autonomy’ in economic circles, to their foreign creditors. As a result, they have little choice.
Americans and Europeans have frequently dumped their excess agricultural exports on African countries…just to find outlets for these surplus products. These same Western economies grew and developed behind protectionist barriers and when they were strong enough opened up. Africa was obliged, thanks to pressure from creditors operating through the IMF, to open up her economies, regardless of preparedness. In other words, most African economies have not gone through the processes western economies went through, in protecting and building up their home sectors, before facing competition from abroad.
The three key pillars of any western economy are agriculture, textiles and housing/ construction. And these three sectors are the most protected in every rich economy. Not surprisingly, because they are the sectors that provide food, clothing and shelter for their people. Africa is denied that sort of protection…it’s just very unfair
Agriculture and poverty reduction
I was really impressed with [late President] Meles in Ethiopia whose government is trying hard to expand investment in the agricultural sector. They definitely need to do that, because agriculture is vital to poverty reduction.
Agriculture is a sector [that has been] long neglected as other commodity sectors were prioritised over all else. And that neglect distorted African economies. I think that we’re now seeing a change in approach. Of course the IMF and the World Bank, acting on behalf of creditors, have always sought to ensure that the debtor country earns hard currency (from e.g. commodities) with which to repay debts. Hence the emphasis on high-value commodity exports, and the neglect of agriculture for domestic consumption.
So the IFIs (international financial institutions) distorted Africa’s development by insisting on export-led growth, in my view. And the reason they were able to do that was because of the need to generate revenues to repay foreign debts.
GTA: When the minerals run out, will Africa have nothing left?
It will be incredibly exposed…because it’s so open to international competition – in particular from China. Take Zambia for example. It is heavily dependent on one commodity, copper.
South Africa is privileged, in that it has a range of commodities and other goods for export. So when one commodity price falls, there are other products to provide balance.
GTA: What about the perception of corruption in Nigeria?
There is corruption, and a great deal of blame rests with Nigeria’s western friends – the ones that welcome money that has been corruptly diverted into western banks – e.g. British, US and, Swiss banks. As we now see from the accusations of fraud at HSBC and so on, many western banks don’t mind doing a bit of money laundering for the odd crook.
Stories of bank fraud and money laundering are only now beginning to surface. As Warren Buffet once said, it’s only when the tide goes out (on these banks) that you see who has been swimming naked!
I’m a great defender of Nigeria, and so should free marketeers be, because it is the most free-market economy in the world. There’s virtually no regulation at all. Nigerian people are incredibly resourceful and entrepreneurial. I think Nigeria gets a bad press for the wrong reasons, and for the most arrogant of reasons – often for the most racist of reasons.
Having said that, given Nigeria’s assets and its wealth, the degree of poverty that exists is wholly unacceptable. The polarisation of wealth between the small elite that openly extract rent from the state, and the rest, is shocking.