Africa and the Global Economic Crisis

Let me now return to a theme near and dear to my heart: political and economic development within the Continent of Africa. Since I first started working in Africa over 20 years ago, I have come to learn this: in order to understand some of what takes place within Africa, we must also transcend Africa’s geographic boundaries. By this I mean that Africa (and any of its individual states), like every other major region of the planet, is subject to global phenomena which aren’t necessarily isolated to one geographic point of origin.

The current global economic crisis is a perfect example of this.

This is a "global" phenomenon, which is currently (since post-WW II) propped up by what political economists call "dollar hegemony" (e.g., a system of post-colonial / neo-colonial control, wherein the dollar has been used to "buy influence" the world over). However, as Gramsci reminds us, in order for it to be most effective hegemony also requires the "consent of the ruled," and not simply the sheer "will of the rulers." Ergo, countries buy-in to the concept of dollar hegemony as long as their own ruling elites have something to gain by it; however, after benefits begin to outweigh costs for too much time, those some national elites begin to buy-out (e.g., dumping of dollars on world currency markets).

Once/if that happens, the great social experiment known as the United States of America will be finished (as a global hegemon, anyway). The name of the game, globally, and since the end of WW II at least, has been about propping up the value of the dollar. Remember: after the victory of WW II, the US was in a position to dictate how things would work in the global economy. The biggest issue: the most heavily traded commodity in the world--petroleum--was to be traded in US dollars, and US dollars only. In 2008, that process began to slowly change, as Euros have begun to be used for a few purchases, here and there, in the global economy. Most who have been following this trend anticipate that it will only grow.

Having said that, the still-larger issue here is the generalized, symbiotic relationship between the natural resource base and the economic base; and subsequent relationship between the economic base and the social-political base. The article below—from Inter-Press Service--is an excellent example of this.

One word of caution, focusing on the use and abuse of economic indicators. One paragraph within the article, speaking to Africa’s relative insulation form the economic crisis, reads as follows:

"Africa is expecting an average growth rate of six percent in 2009. However, the turmoil will affect those countries that depend on the export of commodities and natural resources."

As the great American writer Mark Twain once wrote (and I paraphrase), “A man standing in a bucket of boiling water with one foot, and a bucket of ice water with another foot, is ‘on average’ bathing in comfortable water.” Those Continental “average growth rates” that economist like to tout so much have to be disaggregated further; otherwise, they conceal vast income disparities between major resource exporters like South Africa and Nigeria on the one hand, their impoverished neighbors like Tanzania and Mali on the other hand.

Finally, “countries that depend on the export of commodities and natural resources” would be pretty much all of the countries of Africa! Development economics 101: the classical problem of so-called under-development is the problem of countries exporting raw, unprocessed, primary commodities. They do this precisely because they do not have the “heavy industry” to make refined products.

So, as you read the article below, consider the relationship between ecology, energy, and economics—the three E’s! Consider also, that this challenge is not restricted to Africa. Indeed, it is a global phenomenon, with local implications.

Dr. Blaine

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ECONOMY:Global Crisis Should Spell End of Laissez-Faire Doctrine
CAPE TOWN, Oct 31 (IPS) - The real question to ask about the global financial crisis is whether ‘‘it will go deep enough for the big economies to realise that the market should be controlled more. The philosophy of laissez-faire simply does not work’’.

This is the viewpoint of Sampie Terreblanche, emeritus professor of Economics at South Africa’s University of Stellenbosch, speaking at a public debate on the crisis in Cape Town. The debate was organised by the Centre for Conflict Resolution, an organisation promoting conflict resolution in Africa through training and research. Terreblanche, who is the author of ‘‘A History of Inequality in South Africa 1652-2002’’, regards the crisis as ‘‘very serious. There is no doubt that it will persist for the next couple of years.

‘‘As a result of laissez-faire, the inequality within countries and between the rich north and poor south has increased,’’ Terreblanche added. ‘‘The economy needs to be guided and not be left to its own devices.’’ According to the doctrine of laissez-faire, meaning ‘‘to leave alone’’ in French, an economy functions most ‘‘efficiently’’ without any interference of the government.

While there are concerns with regards to financial stability and inflation, it seems so far that African countries will weather the financial crisis better than others. Africa is expecting an average growth rate of six percent in 2009. However, the turmoil will affect those countries that depend on the export of commodities and natural resources. ‘‘For the past years and up until recently, oil-producing countries like Nigeria and Angola have thrived due to the escalating oil prices,’’ Jorge Maia of the Industrial Development Cooperation (IDC) said at the debate on Oct 30.

This was ‘‘until recently’’ because of the significant drop in crude oil prices as a result of the global financial turmoil. The IDC is a South African state-owned development institution that finances businesses and aims to contribute to sustainable economic growth and economic empowerment.

Crude oil prices have plunged by 60 percent in the third quarter of 2008, from 147 dollars a barrel in July to around 60 dollars three months later. ‘‘Countries that rely on oil exports, such as Nigeria and Angola, are noticing the effects of this as this development means less income,’’ Maia continued. With a production of 1.9 million barrels per day, Angola recently replaced Nigeria as Africa’s largest oil producer. Since 2006, Nigeria saw a 25 percent decline from a daily oil production of 2.5 million barrels. This weakening is, among other factors, a result of attacks from militants in the Niger Delta.

Maia told IPS that South Africa, the strongest economy on the African continent, depends heavily on the export of commodities and is therefore also taking strain as a result of the financial turmoil. The main economic sector affected is the mining industry, which contributes six percent of South Africa’s annual gross domestic product (GDP). The most important export commodities are iron ore, coal, platinum and gold. ‘‘These four products make up 75 percent of South Africa’s mining export basket and the value of all but the first has gone down -- platinum in particular,’’ said Maia. Recent mining figures show that the platinum price dropped with 21 percent in the month of October 2008. Since March 2008, when platinum reached its record price of 2 308.80 dollars an ounce, the value of this precious metal has declined with 65 percent.

This poses a problem for South Africa which harbours 80 percent of global platinum reserves. Maia emphasised that the financial crisis is not the sole cause behind the slowdown in South Africa’s mining industry. Mining companies had to cut their production as, during the first half of 2008, South Africa was hit by an electricity crisis. The country’s electricity producer ESKOM was no longer able to meet the national demand for power. Apart from South Africa’s mining industry, the construction sector, manufacturing, and retail industry are also under pressure as a result of the global credit crisis. The currency has been hit as well. ‘‘The South African rand is very vulnerable at the moment.

Besides the Icelandic kroner, it is the currency that has depreciated the sharpest since the credit crisis hit the world,’’ Maia pointed out. All of this, combined with an increasing pessimism about the economy, may result in a deceleration of South Africa’s economic growth. An overall growth of 3.4 percent is expected for 2008, which earlier this year was anticipated to be around 5 percent. In 2009, the growth for South Africa will be around 2.5 percent, Maia gauged. The slowdown in Africa’s biggest economy will have an impact on the rest of the continent. ‘‘When South Africa struggles, the rest of Africa struggles,’’ he explained. Despite the severity of the turmoil, some countries might actually benefit from the declining commodity prices, Maia noted. ‘‘While exporting countries suffer, regions that rely on the import of natural resources such as oil benefit from these developments – simply because products such as oil have become cheaper.’’

Africa is also not doing badly compared to the North America and Europe. According to the International Monetary Fund’s Economic Outlook for 2009, the overall African economy is expected to grow with 6 percent the coming year. ‘‘The U.S. economy, on the other hand, barely comes below the zero percent mark.’’ Africa is faring better as it still benefits from investments from China. According to the World Bank, the amount of Chinese direct investment in Africa amounted to 1.18 billion dollars by mid-2006. (END/2008)