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Opinions of Wednesday, 10 July 2002

Columnist: Osei, Albert Wireko

Protectionism: Africa's Perennial Headache

Globalization is the key to political, social, and economic development of states. An equal participation of African states in the global economy will help to reduce the cycle of poverty in Africa. Protectionism in the world trading system is hampering the economic opportunities that African states need to promote their social and economic growth. If the Group of Eight (G8) is serious about helping African countries to develop their political, social and economic institutions, they could have signed on to the total removal of protectionist policies that would help the continent to participate in a global economic trading system that is progressive, viable and a promoter of free movement of goods and services.

Such a system would help to make developing economies more productive as well as help to reduce the billions of dollars that advanced economies put forward to resuscitate moribund economies of the developing world. The ?father and son? relationship inherent in the global economic system whereby developing economies always look up to the West for financial support needs to end. In its place, should emerge a global trading system that allows African countries the opportunity to compete on equal terms. The removal of protectionist policies would reduce donor responsibilities and recipient expectations.

An assessment of the 20 years of the International Monetary Fund and the World Bank?s Structural Adjustment Program (SAP) in Africa, suggests that the continent is worse off today than when her partnerships with international lenders begun. The much needed political and social rebirth of the continent have been paralyzed by the economic protectionism that followed as the states attempted to compete for a global market share. Protectionism has worked against the recipient countries in a way that threatens the development and sustainability of the global economic system.

Looking at the historical economic condition of Africa, the record shows clearly that protectionist policies against exports from Africa have weakened the continent?s ability to compete in the global economy. Loans negotiated from Western banks in the 1960s and 1970s, for development projects, have paradoxically become one of the major problems that is crippling the economies of most African countries when the time came to repay the loans. Furthermore, the cold war and the scramble for political allies shielded corrupt and dictatorial regimes from proper screening for their ability to repay the loans taken from Western banks. Against this backdrop, emerged the 1970s, oil crisis and the high interest rates that followed and these developments began to take a toll on the African economies, which exacerbated the debt crisis.

The debt load of African countries reached crisis proportions in the 1980s, when the ratio of foreign debts compared to the continent?s Gross Domestic Product (GDP), rose from 51 percent in 1982 to 100 percent in 1992. The trade barriers erected over the years by the Western countries and the accompanying deteriorating prices of Africa?s primary export products made it difficult for African states to generate enough revenue from their exports to reduce their debts. As a result, the debts grew more than four times the value of her export earnings. Sub-Saharan Africa?s debt reached 236 billion dollars (US) in 1998, with the overall continent?s debt reaching over 300 billion dollars (US). African states debt load is at 11 percent of the total debt of developing countries but the total earnings of African countries compared with her debts are about 5 percent. The economic health of most of the states in Africa today, shows their inability to repay their debts. Without further aid from the economically advanced countries most of the developing economies will collapse. At present, majority of the countries in Africa are finding it difficult to come up with an economic plan for development programs. The Gross National Product (GNP), in sub-Saharan Africa is $308 (US), per capita but the continent?s debt burden stands at $365 per capita.

The IMF and the World Bank?s attempt to address the social and economic imbalances facing African countries have been a dismal failure. The SAP, which was designed to stabilize and to re-structure the economies of debt-ridden states and to help them meet repayment schedules, has failed. A series of measures, which included the Paris Club, a forum, designed to re-structure and re-schedule debt repayment programs were introduced. The Naples Terms agreed by the Paris Club in 1994, increased the debt relief package from 50 percent to 67 percent. The Naples Terms started from where the Trinidad Terms left off in 1990 but the debt relief packages could not improve the economic predicament of the Severely Indebted Low-Income Countries (SILIC).

Out of the 32 countries in the world currently classified as SILIC, 25 of them are in Sub-Saharan Africa. The SILIC countries owe about one tenth of the total debt of all developing countries and Nigeria, Ivory Coast, Vietnam and Sudan owe more than half of the total debt of SILIC countries. The debt load of the SILIC countries makes the issue of debt- servicing and obligations a serious problem. In 1993, the SILIC countries were only able to meet 42 percent of their debt obligations and as a result, they accumulated arrears of over 56 billion dollars.

Realizing the limitations of earlier programs designed to alleviate the debts, the Heavily Indebted Poor Countries (HIPC) program was initiated as a comprehensive debt relief framework with private and government creditors as well as the World Bank and IMF, for the first time. So far, the HIPC program has failed to reduce the debt burden of African countries. At the moment, most African countries are having difficulty in coming up with annual budgets that provide the much needed social programs such as universal basic education for school aged children, accessible healthcare and poverty alleviation. The Enhanced Naples Terms under the HIPC program allowed heavily indebted poor countries to receive up to 80 percent of interest reduction on the debt overhangs. All the re-structuring and re-scheduling programs for deserving countries have failed to put the economies of the indebted countries on track towards social and economic progress.

The G8 conference in Kananaskis seems likely to face a similar fate of previously failed debt relief programs unless the leaders tackle problems of trade protectionism. The record shows that debt relief programs have not worked for poor countries. The time has come to find a credible alternative, something that works. By eliminating protectionist policies for heavily indebted poor countries, these countries can address the deep-rooted economic difficulties that weaken, undermine and threaten their very existence. These countries must deal with important problems such as education, healthcare, food security and some of the continents unending wars. But to do so, they must first, be placed in a position where they would have control of their individual economies and be able to promote economic development through freer trade.

In addition to eliminating the impact of protectionism on African economies, the American and European farm subsidy programs, which are depressing farm commodity prices in African states, should stop. African governments, on their part, need to put in place anti-dumping laws to address the paralyzing impact of state sponsored subsidies on their markets. The development of African regional economy is toilsome if not impossible without reducing the flood of subsidized goods into their markets and gaining access to Western markets.

The use of donor clauses for "matching funds or counterpart funding" to site projects in African countries has given donor projects more attention than government programs. Most donor support programs are project specific and these projects have taking attention from some of the most serious problems facing African countries. Africa?s growing populations and the under-performance of her economies raises serious concerns. The scourge of diseases, the technological divide, the civil wars and the lack of education opportunities for children of school age are all too common. How long can these debt relief programs and handouts be sustained?

The $12 billion (US) a year committed by the G8, to help developing countries, will add a d?cor and raise the spectacle of the debt relief programs but it will not address the economic inequalities inherent in the world trade system. The tearing down of trade barriers will put African leaders in control of their economies for the first time. The HIPC program is a weak life support system, which must be removed, and in her place introduce a market arrangement that has life in it. The arrangement should be a free trade program that is free from market distortions for heavily indebted economies, then, it can be said that the G8 meeting at Kananaskis produced credible policies to eradicate poverty in developing countries and not poverty management schemes, which have previously been the case.

Albert Wireko Osei.
269 Melita Ave,
Toronto, Ontario,
Canada. M6G 3W7
Tel #: (416) 535-5330

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