Africa suffering under Western Financial Wrongdoings

Rina Kuusipalo (Finland, AC 08-10)

 

Unfortunately, in today’s world, no country is an island. Isolated African economies face their own financial crisis despite their banks not being affected as severely (many do not give out credit). The difference being that whatever effect the crunch has on the economies, it will be magnified by the existing problems of the continent. Due to the particular volatility of the area’s economy, and the lack of a security net like the West’s for the majority of people, hunger and severe poverty are expected to rise. Africa, once termed the ‘hopeless continent’ by The Economist, was actually experiencing positive growth and development over the past years in many regions like Kenya (exceptions of course exist, including DR Congo and Zimbabwe). Abdoulie Janneh of the UN Economic Commission for Africa said: “Africa is growing at a reasonable pace. It is developing. We hope this crisis won’t dampen that.” Now, as the global financial downturn has taken hold of the world, Africa stands on the verge of decline, with economic growth estimated at 3% instead of the pre-crisis 6.6%, according to International Monetary Fund (IMF) estimates. Nonetheless, even 3% conveys some hope in the midst of the record-low growth rates expected for many Western countries.

 

Diminishing foreign demand for African goods from the West, as real consumer income decreases, means shrinking export revenues, and increasing poverty. Many African economies are exceptionally reliant on a small handful of exports, specifically raw materials such as agricultural products and minerals. As these are often the most prone to unpredictable price fluctuations, the economy of such a country will often oscillate in unison with the world market price, making budget predictions very hard. Here is another reason why tariff escalation imposed by big Western buyers should be dropped to allow these countries to raise the development stage of their produce without a fear of a higher tariff cost as the manufacture stage increases.

 

Poverty will worsen due to other related phenomena as well. As history tells, when there is domestic trouble, helping those in dire need drops down on the list of priorities; abolishing Trans-Atlantic slave trade was almost made impossible by Britain’s concern about French military goals. Yet never is it more crucial to provide aid than in times when the whole world is suffering because of a few corrupt players, above all when oil and food prices are at record highs. Westerners may be worrying about the falling amount of trips they can make, or their crashing stocks, but the poor worry about how they are going to prevent their families from starving tonight. As the UN Secretary General Ban Ki-Moon recently said, referring to the financial crisis, “It could be the final blow that many of the poorest of the world’s poor simply cannot survive”. Foreign aid is decreasing, and food aid is not being delivered according to promises, even though in 2008 the amount of malnourished people rose globally by an astounding 44 million, most of them in Africa. Foreign investment is also flowing out of countries like South Africa as need for investment at home increases, further deepening distress. According to World Bank “100 million people could be pushed deeper into poverty unless there is a global response to tackle the rising cost of food and oil”.

 

Problems don’t end here, unfortunately. The total sum of remittances, money that is sent home by someone working abroad, usually surpasses the amount that foreign aid provides to a developing country, making up a hugely significant part of economic inflow. Now the amount of remittances is also falling as immigrant workers face discrimination and tighter immigration regulation is being introduced in many countries to disallow their stay. This results from growing unemployment in Western economies, which has led to racial intolerance in times when nationalistic xenophobes need a scapegoat. Foreign, underpaid workers, legal or not, seem to be fine as long as they provide the West with cheap labour. The United Nations predicts that the credit crunch will “wipe out jobs and incomes of millions of the world’s migrant workers”, adding to poverty, especially in Africa.

 

This all seems paradoxical since African nations are perhaps the least culpable for the current crisis that the world is undergoing. This is not the first time the continent has had to suffer under Western economic experiments, however. The Washington consensus policies of the 1980’s imposed by the IMF on African economies dreadfully in need of money hindered development significantly by creating a vicious cycle of debt and repayment, unbreakable for countries of such a poverty level. Fiscal consolidation forbade them from adequate public spending, for example on education and healthcare, and enforced the most brutal kind of market liberalisation for the economies most in need of some protection. Meanwhile, the West was holding on tightly to its protectionist policies and subsidies, never imposing such radical capitalism in its own markets. Now, with the financial downturn it turned to the exact state interventionist bail-out policies it severely barred from developing countries. Ha-Joon Chang, a Cambridge economist, stated that the West has kicked away the ladder that enabled it to achieve prosperity.

 

A parallel can be drawn, and a lesson can be learnt from the treatment of African economies in the past now as the financial system falls under global criticism. If the reason behind the credit crunch was the lending of credits to consumers at ludicrous interest rates by irresponsible banks looking for selfish profits, then the same was true, albeit on much greater scale, with the lending of bad credit by the IMF and the World Bank to developing countries. Lending in this way is an immensely profitable business for the lender, and some individuals have certainly pocketed the profits – however, what is sure is that these profits are not going for the welfare of developing countries. Whether the fall of the IMF and the World Bank can ever be expected to follow as a result of their corrupt lending policies is not plausible in the present. Nevertheless, the current crisis and its origins should set alarm bells ringing when these undemocratically ruled institutions now lend money to countries in need. If there is anything to learn from this historically unpreceded financial crisis, then it is that the system that existed was not working, and that it needs to be fixed in many ways. A call for a set of cohesive and fair global rules to prevent the abuse of the free market system – a set that that applies to all countries – couldn’t have been made much clearer. Soon the West might not hold the power to impose rules on others anymore as the geopolitical focus shifts, enhanced by the financial crisis, to Asia, and perhaps some day even towards Africa if it manages to grab hold of the promising direction it held before the financial crisis.

 

– United World College Student Magazine –

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