Global Policy Forum

IMF, World Bank and African Economies


By Ernest Ochonma

Nigerian Guardian
February 1, 2001

Following the liberation of most African countries from the shackles of colonialism in the 1960s, Africans theoretically became set for another phase of emancipation in the seventies and the eighties. However, with the benefit of hindsight, economic emancipation which was supposed to follow political emancipation has indeed eluded Africa in the last twenty years leading to another form of western colonialism known as economic colonialism. Today, thanks to the kind-hearted intervention of the IMF/ World Bank for over twenty years, most African governments cannot announce a national budget to their people without approval from these agents of economic colonialism.

It is rather interesting that some African leaders still believe that institutions such as IMF, World Bank, World Trade Organisation etc. are "good Samaritans set up to help Africa and indeed the third world develop into advanced economies. To avoid sentiments and baseless arguments, let us look at IMF/World Bank policies in Africa over the last two decades from a management perspective based on a principle propounded by M.E. Porter over 15 years ago and which have been found to be valid by management practitioners world wide. A business unit can obtain competitive advantage over its rivals in two basic ways.

(1) Cost leadership means that a business unit has a significant cost advantage over its competitors.

(2) "Differentiation" means that the business unit offers a product or service perceived by customers as having values more important than a lower price.

With the emerging trend of "globalisation and private sector led integration of world economies, there is only a little difference between a business unit and a nations economy. The difference between the strong economies of the West and the weak economies of Africa is mainly due to continuous cost leadership and product differentiation through technological innovations. The strong economies of the west are driven by the activities of strong multinationals who are getting stronger by the day through growth, mergers and acquisition. In fact the world economy of the new millennium will be completely dominated by the activities of these strong multinationals. already the annual turnovers of some of these multinationals are bigger than the annual national budget of all African countries put together. The reasons are not far fetched. Africa contributes about 10 per cent to the worlds population and only one per cent to world trade. Every human being including Africans will normally buy a product for two main reasons, the product is cheap enough to satisfy a need without drying up his pocket or the product offers the buyer a value or quality considered more important than price. If these are the main factors that influence buying behaviour, what products do we produce in Africa to compete effectively with the West in a global market place? What value do we add to the products that we presently export to the rest of the world? What is the price and value competitiveness of Africa made products in a globalised world market? These are relevant questions to ponder at. No matter, from which angle you decide to ponder from, you are likely to end up with another question. Can African products really compete in the World market? If they cannot, then what benefit has been derived form 20 years of World Bank/IMF supervised economic reforms? Can Africa ever develop by importing products manufactured in more advanced economies since they consistently meet with the criteria of cost leadership and product differentiation? Who are the continuous beneficiaries this importation syndrome? Again to answer these questions dispassionately and without sentiments lets look at the facts on the ground.

From war free Kenya in East Africa to Zimbabwe in Southern Africa and to Ghana and Nigeria in West Africa, the story is the same. Cries of economic woes dominate the centre stage. After many years of IMF/World Bank supervised budgeting. Apart from questionable hypothetical economic statistics manufactured in Western laboratories, the reality on the ground is that in terms of human development indices, the Average African is economically worse off today than he was in 1980. The truth is that statistics such as GDP and income per capital, when analysed in isolation do not reflect the actual economic well-being of the citizens of a nation. Rather indicators such as easy and affordable access to basic needs in form of food, shelter, electricity, water, education, transportation, health etc. are better indicators of economic well being. As the level of poverty increases in a nation, access to basic social and physiological needs decreases proportionately. It does not matter whether basic amenities exist or not. In some African economies, some basic amenities are available but unaffordable by the greater majority of the people whereas in some other economies they are unavailable. Access involves availability and affordability. Since all statistics conducted so far indicate that the level of poverty in Africa today is higher than it was in 1980, it follows that access to basic needs has gone down drastically. This is an affront to IMF/World Bank sponsored economic policies of import liberalisation, deregulation, devaluation and subsidy withdrawals. Obviously the silent majority of Africans are not benefiting from these policies and I don't see how they can ever benefit. The only beneficiaries of such policies are the leaders. The failure of African economies is the failure of African leadership and their more enlightened Western collaborators represented by IMF/World Bank and sister Agencies. By leadership I do not mean political leadership. I mean leadership in all spheres, including economic, social, intellectual etc. This is why the latest craze in African business is to become manufacturers representative. These days, it has become more difficult to import goods direct from Europe or America because most Western manufacturers, except those with factories in Africa, now have African collaborators in the name of manufacturers representative. If you travel to Europe to buy goods, chances are that they will refer you back to Africa, unless of course you agree to buy the goods at a price that gives the African representative a margin of between 10-50 per cent for doing nothing.

From Nairobi to Abidjan and from Cotonou to Lagos the story is the same. The African leadership in its characteristic selfishness and greed has realised that the taste of foreign goods will never cease in Africa because of cost leadership and product differentiation. They have therefore resolved to corner the market right from the source instead of sitting down to think of how to manufacture goods that meet up these two criteria. It does not matter to them that Africans can never rise above poverty until they begin to export goods that meet up with cost leadership and differentiation into the world market.

With the continuous collapse in the international prices of commodities and the subtle control of the price of crude oil and other mineral resources from Africa by the industrialized countries, the future of African economies is firmly in the hands of the west. They control the price of African raw materials whereas Africans have no control whatsoever on the price of their semi finished and finished goods. Most of the big multinationals operating in Africa are merely assembling semi finished goods from the industrialized nations. The prices of these semi finished intermidiate products are also determined by parent companies abroad. One can only but wonder at what manner of profit margins are fixed on these goods. It is therefore not surprising that the gap between the economic well being of the average European for instance and that of the average African continues to widen on a daily basis. There in lies the fallacy of the message of the "Good Samaritan" being preached by the World Bank, the IMF, European Union and similar organizations.

Again, most of the basic industries such as steel, sugar and cement factories established by the more patriotic African liberation, leaders of the 60s and early 70s have been allowed to become either moribund or struggling to survive. Why? They cannot meet up with the two basic criteria for competitive advantage in a globalised world economy. This is why thousands of jobless African Youths are daily endangering their lives, crossing the Sahara desert by foot, just to pick up unskilled factory jobs in Europe. They have no options than to go through the back door since the front door has been cleverly shut through visa restrictions by the same international economic advisers. There in lies another fallacy of our wrong in globalising labour, both skilled and semi-skilled. Is globalisation a concept that keeps some people in employment and keeps others out of employment?

This is why it becomes difficult to celebrate with ECOWAS. The strong nations of Europe have since come together to produce a common currency that is as strong as the dollar and are moving towards the formation of a United States of Europe. Yet they are not celebrating. The leaders of ECOWAS, a weak association of weak and impoverished nations are busy spending millions of Naira to celebrate 25 years of eye service, backstabbing and cat and mouse playing. There are many reasons why African made products may not be able to obtain competitive advantage in the world market. Because of space constraints, I will give just one or two examples. Long term interest rates in most advanced economies of the west could be as low as 4-5 per cent. In most African economies, except perhaps South Africa, short-term interest rates could be as high as 30-40 per cent. Long term funds are hardly available. When you start off cost of capital is 30 per cent and that of your competitor is 5 per cent, it is almost practically impossible to obtain cost leadership over him, if both of you are producing for the same market. Secondly, when the national currency of an economy is always undergoing devaluation, the replacement cost of capital investment continues to increase, making goods produced under such conditions uncompetitive in cost. There are other unfavourable factors such as lack of basic infrastructure, social, political and economic instability, lack of technology and human capital etc. This is why efforts by African leaders to woo foreign investors are not paying off in spite of numerous foreign trips. At least, not in the area of manufacturing. This is also why the multinationals have resorted to producing in "safe heavens" and appointing trade representatives in Africa instead of coming to build factories that will create jobs. This is another argument against the policies of the IMF/World Bank and their African collaborators.

The best forms of poverty reduction programmes are the ones that create gainful employment. Not the types that distribute stipends to able-bodied hands. Gainful employment is not just any employment. It is an employment that provides a sustainable wage for the employee. The current poverty reduction programmes in Africa may just be a ploy to increase the ability of Africans to by more imported goods and put more people into gainful employment in the West. Otherwise what has this kind of poverty reduction got to do with debt relief? When you cancel existing debt the money that is allocated to debt servicing cold be used to provide gainful employment through establishing small-scale industries for instance. When you obtain a loan in order to service or reschedule an existing loan, you are increasing the burden of interest rates. Indeed more than 70 per cent of the figure being quoted today for Africans indebtedness are as a result of compounded interest rates over time.

African leadership should realise that as long as a borrower remains a servant to the lender, so shall African economies remain at the mercy of the international good Samaritans. The result of an open fight between a confirmed weak man and a confirmed strong man has already been announced from the beginning. This explains why the exchange rate of the dollar has moved from 1 dollar to 50 kobo in 1982 to 1 dollar to N115 in 2000. Also 1 dollar which exchanged for 400 Cedis in the eighties now exchanges for about 6,5000 Cedis. This trend of massive devaluation of African currencies continues unabated obviously as a result of "open market forces". As the currencies undergo devaluation, human lives are increasingly being devalued. Thus while the agents of economic slavery can beat their chest and tell their masters in Washington that they are achieving targeted results, African leaders have nothing to announce to their people. This may be why annual budgets often get stucked on their imported desks.

Peter Haines, a deputy minister in Britain recently observed that European countries spend more money subsidizing their farmers than they spend on aid to Africa. Yet our international good Samaritans pressurise us to remove subsidies on everything including fertilizers.

No master willingly surrenders his mastership to his servant no matter how loyal the servant has been. A change of status from a servant to a master always starts from a change of mentality. African leaders in all spheres are so busy sharing available resources that they hardly sit down and think. Leadership is not about sharing resources only, it also involves the development of new resources. Technological development does not come as a result of wasteful celebrations, it comes as a result of deep thinking and positive action. If Isaac Newton had not sat down to ponder on why a piece of stone thrown up always comes down, perhaps, there wouldnt be a force of gravity today, and may be there wouldnt be an aeroplane. A continuous desire to live above your means is the beginning of share greed and this is the problem with most African leaders. Once greed manifests itself in a man, rational thinking becomes impossible. This is why after many decades of political independence, most African countries are still primary producers. God has given man an almost limitless capacity to solve his problems by using his brain. No research so far has proved that the brain of one human race is higher than of another race. Africans must therefore learn how to solve their problems themselves. No nation has ever been developed by outside thinkers. Similarly, no nation has ever developed without manufacturing technology. The way forward is to manufacture products that meet up with the twin criteria of cost leadership and differentiation for the world market. The Asian tigers have already gone ahead with cost leadership. It is not too late to start. But can we start when we are already celebrating the status quo?

Perhaps someone may read this and stop for a while to ponder. Just perhaps. But my mind tells me that this piece will simply be dismissed by our leaders as another miserable lonely voice crying in the wilderness, while the sweet romance with the international Good Samaritans continue. Yet my heart cannot stop bleeding for Africa. Cry, beloved Africa. Whither thou goeth?

Ernest Ochonma is a Lagos based Management Consultant

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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.