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World economy

Need for African action

by Mohamed Gueye
It took African leaders some time to realise that the global financial meltdown has serious ramifications for their economies. Now that the crisis has spread to the real economy, African leaders must find a solution. [ By Mohamed Gueye ]

West African leaders are becoming increasingly concerned as the effects of financial crisis spread to the international commodities trade. Governments and corporations hesitate to voice their concerns openly, but the time for optimism is clearly past.

In Ivory Coast, the world’s leading producer of cocoa, the government has been forced to spend € 150 million on subsidies, because the market price for cocoa has dropped below the fixed price producers are entitled to. In Senegal, the Ministry of Finance has reported that remittances from diaspora workers in Europe and the USA have dropped by a third.

This country also faces delay of a $ 2 billion pro­ject to exploit iron in Falémé, because Arcelor Mittal, the multinational company that contracted with the government, is experiencing financial difficulties. Since the contract was signed, the price of iron has dropped by 40 %. Mauritania, where iron accounts for half of the export revenues, will suffer too.

Niger does not expect to earn more than $ 217 million from the 3,100 tons of uranium it will produce this year. Last year, that quantity brought the country twice that sum.

The only comfort for the majority of the West African countries, many of which are on UNCTAD’s list of Least Developed Countries, lies in lower petrol prices. Unlike most of their West African neighbours, Nigerians wish that oil prices would rise again. The Nigerian economy is the region’s heavy weight, and it almost completely depends on oil exports. Trade with Nigeria, in turn, is vital for neighbours like Benin, Togo and Niger.

Falling petrol prices are also a source of anxiety for Ghanaians. “People have put great hopes in the petrol recently discovered off shore, and they expect big improvements in their lives as well as in the country,” says Yaw Akakpo, economics professor in Accra. ”So it is a bit disheartening to see that, before the country starts exploiting this new wealth, it’s losing its value.”

It took African leaders some time to realise that the global financial meltdown has serious ramifications for their economies. After all, African banks are hardly affected by the toxic assets that haunt major financial institutions in rich nations. And even though many banks in Africa are branches of multinational companies, the banking system in Africa has been well insulated so far. For example, when the Société Générale in France lost more than € 5 billion through the mistakes of one of its traders in late 2007, that did not affect African branches of that bank.

Meanwhile, the global finance crisis has spread to the real economy, however. African countries are affected, and they must find a solution quickly. Work on the matter has begun.

Meeting in Addis Ababa

When African leaders met in February for the African Union (AU) summit in Addis Ababa, they issued a declaration stating that the interests of Africa must not be ignored as governments worldwide respond to the financial meltdown. African leaders demand to be represented at the upcoming G20 Summit in London in April. Upon his return from Addis, Senegal’s Foreign Minister Cheikh Tidiane Gadio said that, if African countries were not involved in decision making, the continent would feel free to go its own way rather than abide by any decision reached during the summit.

Many African leaders were shocked that South Africa was the only country of the continent George W. Bush, then still US president, invited to the G20 Summit in Washington in November. Other leaders felt insulted and denounced the supposition that a single country could speak for the continent.

The only African institution that seems to have fully grasped the consequences of the crisis is the African Development Bank (AfDB). Since December, the AfDB has convened African scholars and finance ministers for two meetings at its headquarters in Tunis to consider African proposals addressing the crisis. Moustapha Kassé, a former dean of the economics department at the University of Dakar, stressed that the West must not fail to live up to aid pledges.

Aid’s growing relevance

Indeed, the importance of Western aid is increasing as African migrant workers in Europe and the USA are laid off, causing remittances to dwindle. For many years, the flow of remittances has played a significant role in reducing dependence on aid. In Senegal, a study made last year by the Finance Ministry’s Department of Statistics, revealed that remittances enabled 31 % of the recipients to rise from poverty. Senegal usually receives about € 1.1 billion in remittances each year, more than the roughly € 950 million it receives annually in aid.

Another researcher, Jean Claude Cabral, thinks that African countries need to vigorously pursue infrastructure projects aimed to the integration of the continent. If it finds financing, the New Partnership for Africa’s Development (NEPAD) would be able to coordinate such projects. Roads, bridges, and other infrastructural elements are also desperately needed throughout the continent, and an Africa-wide infrastructure initiative, in addition to the clear benefits of an improved infrastructure, has the potential to create new permanent jobs in Africa.

An interesting proposal is to build a “Great Green Wall”, a man-made barrier of vegetation stretching from Senegal to Djibouti through the barren lands of Northern Mali, Niger, Chad and Sudan. This project would reduce the impact of desertification. Official figures predict that it would create about 130,000 temporary jobs for young people in the countries concerned.

The global downturn is occurring at a very unfavourable moment for West Africa. The Economic Community Of West African States (ECOWAS) is due to enter into an Economic Partnership Agreement (EPA) with the European Union. Some researchers fear that the trade agreement, which may result in a substantial loss of tariff revenues, will only deepen the crisis in the poorest countries of the region.

Moustapha Kassé, the Senegalese economist, argues that, because trade between African countries is less important than trade between each of those countries and Europe, African economies will not benefit from the EPA. According to him, the agreement will facilitate the dumping of European goods in Africa without real compensation for African businesses, which already have relatively open access to the European market.

The current situation provides a bitter and ironic lesson. After hearing for decades from the West that liberalisation would lead to economic development, that production should not be subsidised and that the government should adopt a hand-off approach to corporations, Africans are now watching the West trying to rescue its economic system by applying the very solutions it had advised against in Africa. For African economists, that proves that no country can rely upon another to solve domestic problems.

Western countries are responsible for the worldwide crisis, but their first concern will be to try to pull themselves out of the pit. If they succeed, they may lift up other countries too. But Africans would like to know for sure that they will not be sacrificed for foreign economies’ good. According to El Hadj Ibrahima Sall, economist and former Senegalese minister of planning, they had better find their own solutions fast.