|PETERSIDE ECONOMIC REVIEW|
|Chamberlain S. Peterside, Ph.D||Wednesday, December 14, 2005|
New York, NY, USA
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AS THE YEAR GOES BY
...THE YEAR 2005 AND ITS WEALTH EFFECT ON AFRICA
he year 2005 will go down as one of the most eventful ones in the history of Africa. True, some of what transpired was a culmination of previous years activities and efforts, but a few pivotal experiences of 2005 will for long shape the economic destiny of the black continent.
In retrospect, a major similarity between these two periods is the renewed sense of hope today that Africa’s time may have arrived or that democracy is gaining a foothold and would engender sweeping changes. On the flip side, conditions have deteriorated over 40 years. Critics argue and statistics support the assertion that Africans south of the Sahara for the most part are not better-off today than four decades ago; average life expectancy has fallen precipitously to less than 40 years in some countries. Millions have lost their lives in senseless conflicts. Per capita income and quality of life in real terms during 1960s exceed current levels. The continent still harbors 33 of the world’s poorest nations.
Civil service and infrastructure in most countries have decayed or remains a figment of the colonial legacy. Nigeria’s railway system for instance – a narrow gauge single-track line with total length of 3500 kilometers running diagonally from South to North is a vestige of the colonial era. It was last extended in 1958-1964 and remains poorly maintained. You could go on enumerating the distinguishing factors, which will only conjure nostalgia of the “good old days”. One thing is for sure – Africans like every other people around the world are wizening up and want (deserve) to live better.
Aside from the often-sited stellar performance of Botswana, Ghana, Mauritius, South African and Senegal, Nigeria, the sleeping giant is now fighting hard to be reckoned with by aggressively reforming its economy, repairing its bartered international reputation and entrenching fiscal discipline. Nigeria has amassed a war chest of nearly $30 billion in foreign reserves (one of the largest in the continent) just as 2005 will go down as a watershed in the fight against graft and fraud. Ironically when Nigeria sneezes; its neighbors take note.
Within the new African Union (AU) under the Chairmanship of Mr. Obasanjo during 2005, peace deal was struck in hotspot like Darfur (Sudan). African leaders have taken a strong stand against incessant military coups and become more pro-active in peacemaking in their domain. This is creating a positive vibe in the global community and in the psyche of local civil society. The threat of global terrorism and religious fundamentalism in the Middle East remains a key factor shaping US foreign policy toward Africa. In 2005, the deep offshore zone in West Africa continued to assume a major strategic significance for multinational oil companies as an alternative to the Persian Gulf.
In the economic front, everywhere you look, governments are waking up to the realization that to remain in power, they must implement appropriate growth oriented policies that would sustain their people or risk anarchy. The dividends of such reforms are already being felt in some economies. Over all, IMF estimates that capital flow to Africa is poised to continue the growth spurt witnessed during 2004/2005. Economic expansion in 2005 would outpace previous years, which invariably points to a gradual but steady shift.
Health wise the HIV/AID pandemic is decimating the labor force in Southern African countries, but has become a rallying point for global effort in Africa. Through local and international cooperation, there is heightened campaign just as retroviral drugs and other life-enhancing medications are being provided to patients.
No story of 2005 in my opinion will have a more resounding economic effect on Africa than debt cancellation. On the average, a third of Africa’s earnings are channeled towards obnoxious debt service payments at the detriment of life-saving social needs and development programs. Anecdotal evidence suggests that sub-Sahara Africa spends more in debt payment than in health care and education combined.
This debt deal announced during the G-8 Summit in Gleneagles (Scotland) in July 2005 will result in the liquidation of a whopping $57 billion of debt load for Highly Indebted Poor Countries (HIPC), majority of whom are in sub-Sahara Africa. An agreement was also reached to double aid to the continent by $25 billion over the next decade. In September 2005, Nigeria got a final nod from the Paris Club for its debt relief package estimated at $18 billion, much to the persistence of Obasanjo’s administration.
When these promises will materialize remain to be seen. There has to be a follow-through for life to tangibly improve in recipient countries. Not withstanding, you have to applaud the efforts of Tony Blair and his Africa Commission in pushing through this initiative. African leaders and citizens must now cease the moment by matching this goodwill with concrete action.
The economic future of Africa will also depend on the zeal to carve a more balanced international trade regime. World Trade Conference that just convened in Hong-Kong to a large extent will define the ability of African exporters to build a more stable income base, create employment opportunities and improve livelihood for a teeming population.
Structural deficiency of international trade continues to stunt meaningful growth prospects in poor countries. In 2005, thanks to a long-running campaign and agitation for fair trade policy, both the EU and US for the first time announced plans to phase-out agricultural subsidy. If that ever happens it would definitely reposition African countries in the global economy.
The process of economic advancement is painstaking and lengthy. Africa would need to pursue a persistent reform agenda over several years to achieve accelerated growth rates that could ameliorate poverty. Most African countries are not on track to achieve the UN Millennium Development Goal (MDG) of halving the number of people living on less than one dollar a day in ten years time. Such milestone sound like an illusion to many, but should be seen as a realistic benchmark on which any progress could be measured. Today 70% of inhabitants fall below that threshold.
Fortunately, since early to mid 1990s, there has been a growing consensus within and outside the continent on measures that could yield positive results in the region. The task ahead is to start implementing these steps. For instance, the new emphasis on fair trade and micro lending is quite salutary - if the bulk of African population is poor, it is logical to focus on elevating them by utilizing proven financial instruments like micro-loans?
The financial markets in Africa so far remain shallow and fragmented; total capitalization and number of quoted securities is inconsequential. Most countries can't even boast of any capital market or mortgage industry. Some markets like Botswana, Mauritius, Ghana, Kenya and Nigeria have achieved a lot in recent years through modernization. But in addition, they must develop a robust secondary market for mortgage-backed securities that could stimulate affordable housing market. Loan products should be standardized and accessible to every qualified buyer without discrimination. This could inevitably transform the social and economic landscape. In 2005 and beyond that debate is bound to continuously move into center-stage.
Financial prudence and institutional reform both in the private and public sector is a major factor that could drive an economy. For long the system was riddled with corruption and unaccountability. The more transparency in Africa the better it would be for investment, entrepreneurship and long-term progress.
Infrastructure is the last straw that could transform the societies. Dismal management standard, low investment and neglect haven't made for rapid growth. During 2005, there was increasing focus within African Union and New Partnership For Africa Development (NEPAD) to tackle the infrastructure deficit on a continental scale by possibly deploying large pension assets accumulated around the region or funding projects through collective effort. If that ever succeeds it could make a world of difference and determine the long-term growth path of the continent.
Chamberlain is the Founder & President of New Era Capital Corp. and MyCompleteFinance.com, a New York based financial services group. He was previously a Financial Advisor in the Global Private Client Group, of Merrill Lynch.