The social and economic distortions that have stifled, so far, all development attempts in sub-Saharan countries have been a matter of concern over the years. The mere fact of their persistence, in spite of the attempts made, cannot be ignored. And when the stakes are as high as the ambition to alleviate poverty and setting in motion a development process, new ways have to be found.
As far as the multilateral institutions are concerned, they have all the resources they need to review their strategy, policy, procedures, programs, organizational culture and structure to reform themselves the way they deem fit to fulfil their mandate.
With regard to the donor countries that grant bilateral funds, the practice of tying their contribution to their own individual business interest needs reviewing.
However, in either case, taking into account the view of their African partners rather than relying solely on their own expertise could enhance the chance to correct past mistakes.
As for sub-Saharan Africa, deprived of any access to the capital market and facing tariff impediments, the countries of the region have to develop new ideas to top up their meager resources and to increase their market share.
Resorting to arbitration to solve multilateral debts insolvency
A lot of focus has been put lately on debt forgiveness and cancellation. In my view, this approach, however laudable, is beside the issue. In the absence of access to the capital markets except for Zimbabwe and South Africa, all the sub-Saharan countries were compelled to subcontract their development, especially to multilateral funding agencies to which they owe two-thirds of their debts.
These debts stemmed from projects and programs identified, appraised, declared financially sound and economically viable according to the criteria of these institutions.
They monitored and approved the recruitment of the consulting agencies in charge of the various studies related to these operations. The expatriate staffs involved in the execution of the projects were recruited according to their own bidding procedures. They had to approve their draft contracts before signature. Furthermore, during the whole period of project implementation, they carried out regular supervision missions supplemented by quarterly progress reports and the annual audit reports they commissioned.
Still, all the post evaluation reports carried out on completed projects indicated that the overwhelming majority of these projects did not meet their targets. In short, the cash flow projected by the lenders did not materialize and the projects were in no position to generate the revenues that would service the debts that financed them. But still the debtor countries were compelled to pay these debts by whatever means necessary. The lenders accumulated revenues and reserves while the borrowers were faced with an unsustainable level of debts.
There was certainly a case to answer and the loan agreements provided an arbitration clause for such an occurrence. This clause has still to be activated on any injured party’s request so arbitration proceedings can start. Any funds that might be recovered from these proceedings would be better used to finance trade and provide line of credits to local NGOs with proven track record and well-managed local Banks.
The NGOs are in a better position and more flexible to grant micro-credits to finance traditional activities. The output of these activities would be able to serve as the bulk of the intra-trade on which these countries have to embark if they want to stand any chance to increase their exchanges and their fortune.
And since the foreign commercial banks in the region reserve the lion’s share of their activities to short-term financing of consumption, well managed local banks are the only option left to provide medium and long-term credits to small and medium enterprises.
The activities of these small and medium enterprises in the agricultural, health, housing, education, food production and local manufacturing sectors are the few vehicles of growth for these countries with no industry worth the name.
Industrial growth in Africa has been under 1% in the 1990s (compared with 8% in the 1960s). Remaining dependent on commodities, the prices of which have been steadily declining over the past 30 years or so, is not a credible option in spite of all the support that has been given to the theory of comparative advantage.
Seeking compensation for unpaid labor
When considering the issue of compensation, there is a parallel to be drawn between Israel and Africa. Because of a traumatic history made up of deportation and mass exodus the sons of Israel and the black people are the only two groups of people who enjoy the status of being truly world citizens.
However, if the Jewish people have been able to claim and obtain compensation for the wrongs inflicted upon them and recovered the assets stolen from them, the back people have failed, so far, to even have the issue debated.
The West has built over the last five hundred years the most prosperous societies in human history since time began. The wealth created by the nations that were involved in the African slave trade and a forced labor (Portugal, Spain, France, Holland, Britain, the United States and Denmark) has reached a staggering amount. Equally, institutions such as Lloyds, NatWest, etc. reaped considerable benefits not to mention the wealthy heirs of slave traders.
Since it cannot be denied that part of this wealth came from the enslavement of the black people and the use of their unpaid labor, then any resources that have to be raised to finance the development of sub-Saharan Africa must take into account what one might call unsettled historical debts.
When slavery was abolished, the slave-owners were duly compensated for the loss they incurred for freeing their captives. For instance, British slave exploiters in Jamaica received from Britain the equivalent of 1.7 billion dollars of today’s money. As for the slaves, they received nothing. Instead, they were still compelled to work free of charge for their former self-appointed masters. This regime of unpaid labor lasted, in the former French colonies, until 1947 before it was also abolished.
In addition, the attempts of the Bretton Woods institutions in the late seventies and early eighties to render Uganda and Zaire accountable for the debts they owed respectively to deported Asians and Israel before they can be eligible to any new funding is a precedent worth remembering. Compensation and payment of debts owed to the black people are as relevant as those mentioned above.
The recovered arrears will serve as the working capital of a Panafrican Monetary and Development Fund, which will be established to look after the interests and the well being of the black people wherever they live.
Starting legal proceedings to recover these debts seems, therefore, the normal line of action to take no matter how utopian it may appear given the lack of financial clout of the victims, their political weakness and the corruption of political power. But equating justice with utopia is an evil equation.
Besides, it can deny the black people, if they fail to claim their dues at any cost, the collective drive and force they need to harness at national, regional, continental and world levels if they want to stand any chance in the harsh and hostile world in which they live. Panafricanism is the light they need to tread themselves safely into the minefields of world politics and the economics of globalization.
Refining the privatization process
Narrow equity base or the lack of it, the fact and nature of currencies, and the depreciation of assets have all made of privatization an operation tantamount to straightforward liquidation in sub-Saharan Africa, especially in the former French colonies. As an indication, between 1988-94 only $2.4 billion was raised from the transfer of nearly five hundred and fifty parapublic organizations to the private sector, compared with $113 billion from privatization in the developing countries as a whole. Some corrective measures need to be taken to reverse this trend.
First, given the skeletal amount of money raised from privatizing infrastructure administration and maintenance, port management, water supply, electricity production and distribution, the establishment of telephone systems etc., Governments in the region should be encouraged to legislate to have the capital of the privatized companies increased and earmarked to be subscribed partly or entirely by their nationals and the members of their own Diaspora in richer countries.
Second, there is a need to proceed rationally in setting up stock markets where they have not existed, before proceeding with the privatization process. A proper functioning of a domestic stock exchange is a prerequisite for success in privatizing parastatals. Any further divestiture of what has remained of state-owned assets should, therefore, be put on hold until such condition is fulfilled.
Bearing also in mind that the return of flight capital contributed a great deal to the recovery of investment in Asia and Latin America, in sub-Saharan Africa such prospect will also depend on the establishment of share-trading facilities. According to the Financial Times, in 1991, the stock of African flight capital was estimated at some 90% of the region’s GDP ($150bn). If only 10% of this flight capital were to return, this would be sufficient to double the inflow of foreign capital.
The free movement of capital that characterizes the liberalization of the world economy and the higher prospect of a return on investment will provide the incentive needed to make further privatization programs and capital increase work. It is worth mentioning that return on investment is substantial in spite of all the turmoil and mayhem besetting the region. In general terms, 40% return on investment shows Africa to have been, in 1995, the best performing emerging market.
Taking advantage of the preferential clause of the bidding procedures
All multilateral financing institutions have included in their bidding procedures a provision that gives preferential treatment to local bidders in order to foster job creation and income growth. There is an obligation to award contracts to local contractors, consulting firms and other entrepreneurs even if their bids were 10% higher provided that they have the credentials to carry out their contracts. As a matter of fact, if this lucrative market were to be opened up to them, their proposals would be likely lower rather than higher.
But the mismatch between stated objectives and actual results that has characterized the activities of the multilateral financing institutions in the region for forty years has also permeated the implementation of such an undertaking.
As a result, presently, in sub-Saharan Africa, most of the goods, the services and the staff paid out of the proceeds of the debts contracted by the countries of the region are of foreign origin. Making sure that both lenders and borrowers abide by the rule that gives preference to black entrepreneurs could reduce dependency on expensive western contractors and expatriates and provide scope to retain and recycle locally part of the funds generated by the “aid” industry.
STRATEGY TO COUNTER MARKET ACCESS DENIAL
Amending the rules of liberalization
Under the auspices of the Bretton Woods institutions the whole banking systems have restructured, exchange controls liberalized and market-determined exchange rates are the norm in a growing number of countries along with positive interest rates. Equally, allocations of credits and import licenses have also been left to the market.
But in spite of the fact that the liberalization process imposed on them that led to these reforms is still being pursued at breakneck speed as a result of IMF loan conditions, they have not been paid in return. They have been denied investment and exports market access.
Net private capital flows attracted an estimated $4.7bn in 1995, less than Argentina, Brazil or Thailand for example. Three countries received three quarters of the loans: Nigeria, Ghana and Angola. They were used to finance investment in the exploitation of natural resources, petroleum, gas and minerals in particular. Private foreign investment in these sectors merely perpetuated the region’s dependence on commodities and impoverishment.
As for exports, the western countries did not honor the agreement reached in 1993 to remove more than a third of restrictions on African imports. Tariffs facing African countries are still about a third higher than those facing industrialized countries. This deprived sub-Saharan countries of export earnings worth several billion dollars a year, especially in areas where they are most competitive, such as textiles, footwear and agriculture.
These losses are more than what they receive in “aid”. And unlike “aid”, trade generates the self-reliant growth, employment and investment needed to reduce poverty. To make things worst, the overproduction of subsided western farmers are being dumped in their markets, destroying, in the process, the livelihoods of million of African food producers.
Furthermore, the cost of international services is exceedingly high. Freight and insurance payments were 15% of the sub-Saharan countries total exports, more than double the 5.8% for all developing economies. In 15 countries of the region, net transport and insurance payments absorb more than a quarter of total export earnings. It is hardly surprising therefore that the region lags far behind the development stakes.
Within such a context, sub-Saharan African countries will be better off negotiating a moratorium with the WTO for a selective policy of exemptions to protect, in the first stages, their products against the onslaught of foreign competition, largely in the areas of food production and manufacturing.
Increasing regional exchanges
Bearing in mind that the world’s 48 poorest countries in the world, overwhelmingly located in the region, account for only 0.4% of world trade and that their share is shrinking, reverting to intra-trade is the obvious way to lessen the burden of poverty.
Regional focus should supersede country focus and increased regional exchanges should represent the strategy that will mix what has been unmixed and couple what has been uncoupled over five hundred years of traumatic history.
Clearing houses and other regional grouping payment machinery put in place within the existing regional groupings, negotiated free trade agreements and customs unions are based on biding treaties and conventions. They have to be enforced by proper budgeting to let intra-exchanges flow and to regulate social and economic imbalances.
But given the poor state of the finances of the countries involved, it is the responsibility of the region’s policy makers to negotiate, with the different parties involved in its endeavors for development, the revamping of all lending and investment programs to the region in order to meet these ends.
The Bretton Woods institutions play a pivotal role in shaping the future of sub-Saharan Africa. After four decades of involvement in sub-Saharan development, the record is, however, rather bleak.
But their ill-fated development strategy has been compounded by the shortcomings of most of the region’s political leaders. Total disregard for the law and the plight of the poor, corruption, unaccountability and the violation of the rights of their citizens have been the trademark of their leadership. They inflicted an incommensurable amount of sufferings on their people in a gruesome pursuit of power and wealth.
This is what has motivated me to contribute these ideas for the betterment of the lives of the people to which I belong.