Series: Adverse International and Local Conditions for Sub-Saharan Africa (Part 4)

Africa’s Renewed Crises of Unbalanced Trade, Disinvestment, Debt

29 October by Eric Toussaint , Patrick Bond , Ishmael Lesufi , Lisa Thompson


(CC - Flickr : GCIS)

In addition to China, Africa is meant to be one of the most critical markets for South Africa’s SEZs, and attracting other investment, trade and finance to the continent was one justification for entering the BRICS bloc, according to Jacob Zuma and his colleagues.

In 2013, for example, deputy foreign minister Marius Fransman (2013) argued is that “South Africa presents a gateway for investment on the continent, and over the next 10 years the African continent will need $480 billion for infrastructure development… Our presence in BRICS would necessitate us to push for Africa’s integration into world trade.”

Part 1 South African Special Economic Zones : History of Limited Successes

Part 2 Global Economic Volatility and Socio Political Reactions

Part 3 The China Factor

Part 4 Africa’s Renewed Crises of Unbalanced Trade, Disinvestment, Debt

Part 5 Local South African Economic Conditions

Part 6 New Threats, New Resistances and New Alternatives

  Africa’s Renewed Economic Crisis

The drive to make Africa more competitive appeared effective during the 2002-11 commodity super-cycle, but since its peak in 2011 and crash in 2014-15, commodity export values ebbed along with aid, foreign investment and remittances. Some of the largest economies in Africa – South Africa, Nigeria, Egypt and Angola – fared very badly in this process, but the fate of Africa’s 32 “Least Developed Countries Least Developed Countries
LDC
A notion defined by the UN on the following criteria: low per capita income, poor human resources and little diversification in the economy. The list includes 49 countries at present, the most recent addition being Senegal in July 2000. 30 years ago there were only 25 LDC.
” (LDCs) is even more revealing, especially in large countries: Angola, DRC, Ethiopia, Senegal, Sudan and Tanzania. At the end of the commodity price rise, African LDCs’ terms of trade plateaued in 2011-14 before suffering a substantial drop. Export revenue from these countries peaked at levels 360 percent higher than in 2000. But imports continued rising to 570 percent of the 2000 level by 2014.

As a result, Sub-Saharan Africa’s current account balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. – incorporating both the trade deficit and outflows of interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. , profits and dividends – fell to negative $55 billion per annum. Incoming flows of overseas development aid (ODA ODA
Official Development Assistance
Official Development Assistance is the name given to loans granted in financially favourable conditions by the public bodies of the industrialized countries. A loan has only to be agreed at a lower rate of interest than going market rates (a concessionary loan) to be considered as aid, even if it is then repaid to the last cent by the borrowing country. Tied bilateral loans (which oblige the borrowing country to buy products or services from the lending country) and debt cancellation are also counted as part of ODA. Apart from food aid, there are three main ways of using these funds: rural development, infrastructures and non-project aid (financing budget deficits or the balance of payments). The latter increases continually. This aid is made “conditional” upon reduction of the public deficit, privatization, environmental “good behaviour”, care of the very poor, democratization, etc. These conditions are laid down by the main governments of the North, the World Bank and the IMF. The aid goes through three channels: multilateral aid, bilateral aid and the NGOs.
), remittances from workers and new foreign direct investment (FDI) declined in absolute and relative terms. African LDCs were hardest hit of all poor countries in these categories (Unctad UNCTAD
United Nations Conference on Trade and Development
This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

2018, 2). All LDCs witnessed a decline in export revenues, from $255 billion in 2014 to $190 billion in 2016 due to “weak global demand and low commodity prices.” Moreover there was a 13 percent decline in FDI inflows to LDCs from 2015-16, and total North-South ODA disbursement of just $43 billion in 2016, far below the UN Sustainable Development Goal target range of $75-96 billion.

Adding to Africa’s 31 poorest countries the other 17 in Sub-Saharan Africa reveals even gloomier estimates of looting. The London-based campaigning NGO Global Justice Now and its allies estimate that exploitative economic processes – not including the $100+ billion in resource depletion – were responsible in 2015 for a net outflow of $41.3 billion. According to their report, “African countries received $161.6 billion in 2015 – mainly in loans, personal remittances and aid in the form of grants” (Curtis 2017). Against that, outflows that year amounted to $203 billion, including $68 billion in illicit financial flows (TNCs “deliberately misreporting the value of their imports or exports to reduce tax”), $32 billion in repatriation of profits and dividends (licit financial outflows), and $18 billion in debt servicing. Curtis (2017) also recommends adding other costs imposed on Africa: $37 billion in damages related to climate change; and $29 billion in illegal logging, fishing and trading Market activities
trading
Buying and selling of financial instruments such as shares, futures, derivatives, options, and warrants conducted in the hope of making a short-term profit.
in wildlife and plants. The net negative $41 billion in 2015 would have been much larger were it not for the dramatic commodity price decline in 2014-15.

The 2014-15 crash decimated not just Africans, but also many foreign investors in Africa. Platinum mining house Lonmin’s London listing had peaked at a value of $28.6 billion in 2007 and then fell 99.4 percent to a near-bankruptcy level of $172 million in late 2015, before a fire-sale to a Johannesburg firm at the end of 2017 for $383 million. Anglo American’s share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. value fell 93.6 percent from a 2008 peak to 2016 trough, and the world’s largest commodity trader, Glencore, fell 86 percent from a 2011 high to its 2016 low (Bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. 2017).

Africa’s LDCs in 2018 are Angola, Benin, Burkina Faso, Burundi, Central African Republic, Chad, Comoros, DRC, Djibouti, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, South Sudan, Sudan, Togo, Uganda, United Republic of Tanzania and Zambia.

From mid-2016, commodity prices then rose slightly, but this made little difference to macro-economic balances by early 2018, when the ordinarily upbeat African Economic Outlook issued by the African Development Bank (2018) (AfDB) admitted that current account ratios “are not sufficiently robust; dollar interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
are expected to edge up, bidding up the cost of capital; and external debt ratios have begun to rise across the region.” To repay debt and TNC dividend and profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. outflows requires a steady inflow of hard-currency investments, including FDI, portfolio investment, remittances, official development assistance, and external debt. The AfDB (2018) continued,

Unsustainable current account deficits are an indicator of a poor state of the economy. They discourage foreign investors from holding assets denominated in African currencies. Large current account deficits also increase the probability of a currency crisis. They lead to the accumulation of foreign debt, which has to be repaid at some point, triggering expectations by domestic investors of higher taxes to service and repay the debt.

Sub-Saharan Africa’s external debt was in the $170–210 billion range from 1995 to 2005, at which point the Highly Indebted Poor Countries initiative returned the high stock of debt to more sustainable levels by writing off unrepayable debt, albeit with sometimes extreme conditionality. However, the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
compelled Africa’s lowest income countries to increase their rate of debt payment in the period immediately after the 2006 debt relief. Then came a slew of Chinese loans worth at minimum $86 billion from 2000-15; a third of these were collateralized by commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. . By 2015 Sub Saharan African debt had reached nearly $400 billion. Adding North Africa, the Economist Intelligence Unit counts $560 billion in foreign debt for the continent as a whole, up from $240 billion in 2006.

In addition to Beijing’s credits, there were also numerous Eurobonds subscribed by private investors that represented a substantial share (percent) of the total public debt stock Debt stock The total amount of debt in some countries: Gabon (48), Namibia (32), Côte d’Ivoire (26), Zambia (24), Ghana (16), Senegal (15), and Rwanda (13). Africa’s oil-based economies witnessed an increase in debt servicing from an average of 8 percent of revenues in 2013 to 57 percent in 2016, led by Nigeria (66 percent) and Angola (60 percent). The continent’s most relatively indebted countries to foreign lenders are Mozambique (79 percent external debt to GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
ratio), Zimbabwe (77 percent), Mauritania (76 percent), Djibouti (71 percent), Namibia (64 percent), The Gambia (61 percent), Tunisia (56 percent) and South Africa (49 percent). Not including Mauritius – due to its complicated status as a tax haven Tax haven A territory characterized by the following five independent criteria:
(a) opacity (via bank secrecy or another mechanism such as trusts);
(b) low taxes, sometimes as low as zero for non-residents;
(c) easy regulations permitting the creation of front companies and no necessity for these companies to have a real activity on the territory;
(d) lack of cooperation with the inland revenue, customs and/or judicial departments of other countries;
(e) weak or non-existent financial regulation. Switzerland, the City of London and Luxembourg receive the majority of the capital placed in tax havens. Others exist, of course, such as the Cayman Islands, the Channel Islands, Hong Kong and other exotic locations.
– the highest level of African foreign debt is owed by South Africa: $163 billion in late 2017 (up from $25 billion in 1994) followed by Egypt ($80 billion), Sudan ($45 billion) and Angola ($45 billion).

By 2014, the danger of such high foreign debt was already a source of concern to The Economist (2014):
The continent has been deep in debt before, and is in danger of a rerun… This time is different – and could be worse. Africa used to borrow from official lenders: governments, the World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

, the African Development Bank and the IMF. Today most of its borrowing is from private sources.
Government loans and “assistance” are out of fashion. Instead it is private investors that are betting on Africa’s future ability to pay, with bond funds, private-equity Equity The capital put into an enterprise by the shareholders. Not to be confused with ’hard capital’ or ’unsecured debt’. and individual investors (including African ones) buying government debt Government debt The total outstanding debt of the State, local authorities, publicly owned companies and organs of social security. … If governments get into trouble and need to reschedule their debts or borrow more even while they pay less, official lenders typically oblige. Private lenders are less forgiving.

Though more than 70 percent of Africa’s foreign debt is privately sourced, one public lender – Beijing – may also be unforgiving, if the warnings of ideologically-conservative critics are to be taken seriously. From Texas, the private intelligence agency Stratfor (2018) issued a warning about Chinese financial geopolitics. Given that African state debt “has increased markedly since the 2008 financial crisis… widespread default could create opportunities for outside powers that covet the region’s natural resources.” As Stratfor notes,

China has used a form of financing that functions like a bartering system: In return for investment capital and infrastructure development projects, some sub-Saharan African countries grant China resource concessions. (Such was the case with the Sicomines copper project in the Democratic Republic of Congo and in various oil projects in Angola.) The arrangements differ. Sometimes Chinese entities take an ownership stake in the newly constructed infrastructure project. Sometimes loans are secured against resources as a form of collateral Collateral Transferable assets or a guarantee serving as security against the repayment of a loan, should the borrower default. . Sometimes debt service Debt service The sum of the interests and the amortization of the capital borrowed. is paid in resources instead of money.

But just because a loan is backed with an asset Asset Something belonging to an individual or a business that has value or the power to earn money (FT). The opposite of assets are liabilities, that is the part of the balance sheet reflecting a company’s resources (the capital contributed by the partners, provisions for contingencies and charges, as well as the outstanding debts). – in this case, commodities – doesn’t mean loans can’t turn sour if the borrower struggles to extract or sell enough of its natural resource to service the debt. These terms can also leave the borrowing country with little left over from their commodity production to generate their own revenue. Angola and Congo have both encountered this problem. Africa is a minor player in geopolitics. Unfortunate as it may sound, its relevance stems from how stronger countries interact with it and manipulate it. So while its current indebtedness may not shape the course of international affairs directly, it may, in fact, benefit China. Defaulting on their debt would cause foreign investment to dry up. China’s willingness to accept repayment in commodities would leave it as one of the few remaining options for countries struggling to build infrastructure. Beijing could, therefore, drive as hard a bargain as it wanted. China will continue to mine Africa for its resource needs. The only thing that will constrain its behavior in that regard is its own capital needs.

One key testing ground for whether this strategy will be useful for China is the Belt and Road Initiative (BRI), not only because of enthusiasm that a renewed construction boom similar to the 2009-13 urban and transport construction boom, will revive demand for raw materials. There is also the matter of rising debt levels in the recipient countries, such as Kenya where the Mombasa-Nairobi rail line financed and built by the Chinese has already added a crippling debt load. Likewise, the BRI is extremely unpopular with Indian elites, who view China’s Kashmir rail, pipeline and road corridor through Pakistan on land Indians believe is theirs. Critiques of Chinese “creditor imperialism” made by Brahma Chellaney (2017) of the Delhi-based Center for Policy Research are hard hitting:

Just as European imperial powers employed gunboat diplomacy, China is using sovereign debt Sovereign debt Government debts or debts guaranteed by the government. to bend other states to its will… As [the bankrupt Sri Lankan port of] Hambantota shows, China is now establishing its own Hong Kong-style neo-colonial arrangements. Like the opium the British exported to China, the easy loans China offers are addictive. And, because China chooses its projects according to their long-term strategic value, they may yield Yield The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value. short-term returns that are insufficient for countries to repay their debts… China can force borrowers to swap debt for equity, thereby expanding China’s global footprint by trapping a growing number of countries in debt servitude… Kenya’s crushing debt to China now threatens to turn its busy port of Mombasa – the gateway to East Africa – into another Hambantota.

Like the 1980s when Western loans were the source of a debt crisis catalysed by a massive US interest rate increase, this debt allows its holders to gain substantial power. But like the 1980s, social tensions will also rise, as discussed below. As Stratfor (2018) warns, “A debt crisis would have social implications that would make doing business extremely difficult, limiting the upside to China and decreasing the likelihood of other powers opting to compete with it.”

Artistic impression of the Musina EMSEZ

  The Rise of Protest as an Economic Phenomenon

The ‘social implications’ are already very visible across Africa, dating to the era of ‘IMF Riots’ in the 1980s-90s, and perhaps starting most forcefully in the recent era in Tunisia, in December 2010, sparked by Mohamed Bouazizi’s self-immolation. Tension associated with neoliberal policies including the cutting of corporate tax rates and application of a more ‘broadly-based’ Value Added Tax, both compelled by the IMF that year, as its managing director praised the Ben Ali regime as an ideal type for the Third World (Bond 2011).

These policies, coming just as the commodity supercycle hit its peak, contributed to Tunisia’s explosion. This was an early part of the process which can be considered ‘Africans Uprising’ against the ‘Africa Rising’ meme and all that it represented in the 2002-14 era and after. The protests rose in spite of durable military battles underway, as well as extreme forms of violence against civilians, such as in the eastern Democratic Republic of the Congo (DRC) elsewhere.


Africa’s Battle, Repression and Protests, 2009-2018

Source: Armed Conflict Location and Event Data (ACLED) (2019).

To measure such uprisings, the University of Sussex ‘Armed Conflict Location and Event Data’ (ACLED) project has gathered media-based data. The project provides temporally- and spatially-sensitive statistics and maps that reveal where both unrest and repression have occurred, over a two decade-long period. There were, in at least a third of Africa’s countries, moments (or series of moments) where at least once, the peak of either category – top-down repression or bottom-up resistance – occurred more than 50 times within a single month. Alphabetically, the 18 countries are Algeria, Burundi, Central African Republic, Cote d’Ivoire Democratic Republic of the Congo, Egypt, Ethiopia, Kenya, Libya, Nigeria, Sierra Leone, Somalia, South Africa, South Sudan, Sudan, Tunisia, Uganda and Zimbabwe. Indeed eight of them witnessed extremely high social-dissent peaks in the period 1998-2018, in which at least 100 riots or protests occurred in the course of a single month: Egypt: 250 in early 2013; Burundi: 180 in mid-2015; Tunisia: 175 in early 2011; South Africa: 170 in early 2017; Ethiopia: 160 in early 2016; Kenya: 140 in late 2017; Nigeria: 110 in early 2015; and Algeria: 100 in early 2011 (Bond 2019).


Africa’s Incidents of Fatalities, Repression and Protest, 2013-18

Source: ACLED (2019).

Tunisia, Egypt and other countries generated such intense revolutionary bursts of energy because their independent labour movements were also ascendant.
Notwithstanding extreme unevenness across and within the continent’s trade unions, Africa is ripe for a renewed focus on class struggle. The socio-economic conditions continue to deteriorate, the World Economic Forum’s (WEF’s) annual Global Competitiveness Reports – an annual survey of 14 000 business executives in 138 countries – have ranked the continent’s workers as the least cooperative on earth. In 2016, workforces from South Africa (the world’s most militant every year since 2012). Chad, Tunisia, Liberia, Mozambique, Morocco, Lesotho, Ethiopia, Tanzania, Algeria and Burundi were in the top 25 most confrontational proletariats (WEF, 2016) (while the most cooperative workers are in Norway, Switzerland, Singapore, Denmark and Sweden).

This is the context on the continent, mixing a new round of economic crisis and much greater political turbulence which together, leaves us to doubt Africa’s potential as a market for South African SEZs. A great deal more could be said about the high level of popular resentment against South African firms and products on the continent, in part because of their very bad behavior (Bond 2018) as well as because of the implications of South African working class xenophobia. In 2015, for example, South African corporate branch offices (as well as SA embassies) were targeted for protests in several countries on the continent. There is always hype about how South Africa is a genuine contributor to Africa’s development, but the many ways in which South Africa helps to underdevelop the continent reflects the extreme inequalities between those exercising power within the centre of the world economy and their African allies in Johannesburg and Cape Town, on the one hand, and the rest of Africa on the other. Just as severe conditions of inequality exist within South Africa, conditions which are the result of neoliberal public policy, suggesting that a different approach is vital.


Labour Militancy of Working Classes, Measured by Reputation Among Corporations

Source: World Economic Forum 2016

Source : Friedrich Ebert Stiftung Policy Paper #1/2 on South Africa’s Special Economic Zones in Global Context September 2019 By Eric Toussaint, Ishmael Lesufi, Lisa Thompson and Patrick Bond



Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc.
See his bibliography: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. Since the 4th April 2015 he is the scientific coordinator of the Greek Truth Commission on Public Debt.

Other articles in English by Eric Toussaint (499)

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Patrick Bond

is professor of political economy at the Wits University School of Governance in Johannesburg and co-editor of BRICS: An anti-capitalist critique (published by Haymarket, Pluto, Jacana and Aakar).

Other articles in English by Patrick Bond (73)

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Other articles in English by Ishmael Lesufi (5)

Other articles in English by Lisa Thompson (4)

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