The world is experiencing a lot of turmoil due to the continued effect of Covid-19. Many countries in the hitherto financial capitals of the world are reeling from a near halt in their day-to-day transactions characterised by high inflation, overvalued currencies, high cost of living and most importantly, a huge public, private sector and personal debt.
These economies, governments, cooperatives and individuals simply lived beyond their means and many people now fear taking loans despite interest rates being at an all-time low.
Bank bailouts through direct government lending coupled with printing of money seem to have worked out in the short term but only postponed the problem of living by borrowing tomorrow’s money.
Many Americans have fallen below the poverty line and in the UK, life has become unbearable for many families and individuals as employment rates plummet. Even before the pandemic, many Britons couldn’t find work commensurate to their qualifications other than the usual menial student jobs that until recently were left to people from the ‘third world’. But how did the west end up here?
To begin with, it should be remembered that while they were industrialising, the rest of the world was largely pristine and unexplored. Many people lived in traditional settings and sustained themselves through subsistence farming in an economy that depended on household labour; the produce was consumed at home and the surplus exchanged at the local markets between families and villages.
When the imperialists scrambled for Africa, they had unrivalled competition due to their advanced industry and technology. However, presently, most of the world is more enlightened and educated. Markets have significantly shifted to the south and more fundamentally eastwards to China.
This is because the west took advantage of reduced tariff barriers they imposed on the rest of the world through the Structural Adjustment Programmes famously associated with conservative regimes of Margaret Thatcher and Ronald Reagan.
Multinationals gradually exploited cheap labour in places such as India, China, Russia and Brazil. What the west has remained with are fledgeling manufacturing and service industries. They are in effect based on economic theorems whose human error or inadequacy would predictably lead to a catastrophic crash or saturation especially within a global free market regime.
In retrospect, this evolution was borne out of the value-addition process of primary products and was fuelled by advertisements and highly conspicuous consumption habits exalted by glamourous TV and Hollywood exemplars of life.
They were already working toward attaining the next phase of linear modernisation, while the rest of the world continued to be ‘westernised’. The idea was to spend more and economic growth would spiral up endlessly, bringing with it eternal bliss and human advancement.
First to westerners, then the rest of the world. Belief in human self-sufficiency in contrast to limitation or theocracy took root in an unprecedented manner.
Now western families are forced to reckon with depravity-corruption that the global south has long been familiar with. It is this depravity and frugal, even subsistence living that has enabled China to underspend. Thus is lends to the ever-consuming western imperialist juggernaut.
Further still, in perpetuation of their mission to ‘civilise’ the world as typified by a 19th Century French Prime Minister, the west continues to use their self-given veto powers of bodies such as the United Nations to intervene in other countries based on their personal interests.
Now they are calling for a re-balancing of trade as a result of deficits back home. Moreover, capital from much-acclaimed Foreign Direct Investments is taking risk flight from the ‘unstable’ economies back to western capitals. This shall cause a further financial ‘glut’ leading to instability in the capital markets. Many of these western countries have debts more than half their GNP way above the recommended 35 per cent ceiling.
Moreover, the west wants a re-boosting of the IMF, the World Bank and its subsidiary International Finance Corporation to increase their lending capacity, of course, to poor countries as a form security to themselves to re-channel this capital.
What does this mean for our African governments? The implication is that as part of debt servicing and ‘no objection’ measures of the Bretton Woods Institutions, there will be a review of spending in the medium term to decrease fiscal space in particular. This is justified by the spiralling increase in the cost of living and the erosion of tax base.
Governments will want to avoid losing politically in any impending elections. Meanwhile, the so-called hard currencies such as the greenback and pound sterling will not be devalued, despite nose-diving economic indicators back in their homelands.
The Medium and Long Term Expenditure Framework (MLTEF) shall largely be financed through further borrowing from the IFIs at rates slightly below the international commercial rates. This would have a shorter moratorium and repayment period to the 80 poorest IDA countries such as our East African member states, Uganda, Tanzania, Rwanda and Burundi. (Kenya has since been reclassified as a lower middle-income economy).
This is because most African governments have exhausted domestic borrowing first, because they have already taken most of our savings through the banks. The global super macro effect shall lead to increased demand for western goods,
It should be noted that money flowing back to creditors is usually at least three times more than the initial debt. In addition, developing countries have been conditioned to appreciate anything western as superior despite exorbitant pricing.
The situation is compounded by our highly centralised top-down administrative and consequent budgetary structures that are relics of our collective colonial legacy that bequeathed us fragile, export-based states.
African countries should thus strengthen their markets by opening up their borders within their Regional Economic Communities (RECs) such as EAC through ACFTA to increase Intra-African trade from 4 per cent to higher levels.
They should adequately fund them 100 per cent to avoid infiltration by the forces of imperialism, which then influence outcomes and policies. The RECs should also make it tougher for other products from other markets to access them to cushion local industries and other forms of production. I proposed a return to the ‘traditional subsistence way’ industrialisation policy.
Further, we should also encourage invention and innovation through research in technology and the meticulous study of social dynamics of our markets to harness local knowledge. This will also have the spillover yet crucial effect of creating experimental developmental models rather than upholding the unworkable ‘false paradigms’ of the west that are not customised to our own nuances and propensities.
Our education should also be relevant to our needs, not a regurgitation of old fashioned and outdated textbook editions that are past the 10-year knowledge threshold.
Immediate fiscal measures should include a reduction in public wastage and a bottom-up, needs-based budgetary process with proper targeting aimed at attaining value for money to the taxpayer.
(Edited by V. Graham)
