THE POLITICAL DIMENSIONS OF THE WORLD ECONOMIC CRISIS: AN AFRICAN PERSPECTIVE

By Andie Davis

“Unless this crisis is handled urgently, the Millennium Development Goals will be unattainable, Africa will be further removed from development objectives and security will be worsened.” Benjamin Mkapa Former President of Tanzania Club of Madrid Member

The economic crisis that gripped rich countries with increasing severity throughout 2008 has undoubtedly engulfed Africa as well. Early forecasts of containment within Western financial markets, or of a mitigating surge in oil and commodity prices, now seem myopic in the light of the complex range of reactions being experienced across the continent. African financial institutions that had steered clear of toxic assets nonetheless have felt the effects of evaporating global liquidity. Commodity-producing countries have seen the price of oil fluctuate and those of other commodities stall or plummet below pre-crisis levels, even as the costs of essential inputs have increased steadily. Compounding the challenges with which African governments were already contending in shoring up food security and responding to the effects of climate change, the economic crisis has come to bear down particularly hard on some of the world’s poorest and most vulnerable people, those furthest from its epicenter. In development terms, the consequences are daunting. Decreases in trade, aid and investment mean fewer resources available for health, education and basic service delivery. And contracting job markets in rich countries inevitably shrink remittances to poorer ones – with potentially dire repercussions. After half a decade of steady increase, remittances are now projected to drop by over 8 percent. This shortfall would have a major impact on poverty alleviation in places like Ghana and Lesotho, a country of which remittances comprise 28 percent of GDP. These setbacks, in addition to hindering progress toward achieving the Millennium Development Goals and other development objectives, also carry the potential to incite civil unrest. On the whole, the current situation brings into sharp relief a paradox that, while perhaps not unique to Africa, is certainly egregious in the African context: that deeper integration into the global economy has coincided with a relative diminution in African influence over the setting of the global economic agenda. Two decades of expanding democracy, rising incomes, resourceful responses to pandemics, and sound policies for open and inclusive growth, trade and development have done little to alter the continent’s status as a bit player in the fora and institutions that govern its economic fate. Despite multiplying demand for its natural resources, and rates of growth unparalleled anywhere in the developed or developing world, Africa remains a continent relegated to the sidelines of the discussion, often spoken for or lectured to but little heard from and less heeded. A quantum shift is needed in the nature of Africa’s role in the global community. There is a clear call for a new paradigm, consisting of truly democratic multilateral institutions that afford Africa a strong and effective voice and decision-making capacity. Africa should insist on much stronger representation and on being a more central force in the international governance architecture. GOOD GOVERNANCE FOR GROWTH AND STABILITY “A story is being told here. And no one but Africans ourselves will be able to determine its direction.” John Kufuor Former President of Ghana Club of Madrid Member

One of the most striking lessons of the global economic crisis is the importance of governance. The lingering repercussions of profligate deregulation and lax oversight in Western banking and financial sectors serve as grim reminders that responsible governance remains both a challenge and an imperative for rich and poor nations alike. For African governments, that imperative has taken on a renewed urgency. Now more than ever, African leaders need to articulate and execute a clear vision for the continent’s development. The articulation will call for lucid analysis that prioritizes long-term sustainable progress over short-term political expediency; the execution will be a function of the capacity to design, implement and monitor solutions, particularly at an institutional level. When institutions such as the judiciary, press, academia, parliament and electoral systems are able to withstand (and even mitigate) the effects of political and economic change while remaining free of inappropriate influence, they rise to their highest purpose as the tools by which ordinary people can better their lives. The current crisis may be reconfiguring existing challenges in new ways, but the strategies to address them must be grounded in a deep investment in institutional integrity and in the long- established basics of good governance: accountability; investment in human capital; respect for human rights and the rule of law; preservation of security; and an unwavering commitment to democracy and broad-based political engagement. Even during the best of times, these fundamental principles can be easier to aspire to than to achieve. In the current climate, therefore, African governments must undertake an open and honest appraisal of their capacity to deliver, and of the political, economic and social costs involved. Such an appraisal begins with a thorough understanding of the mechanics of globalization and of the strategic advantages it affords the continent. From this perspective, African leaders must be proactive in seeking out the information and partnerships that further the development interests of their people – and in weighing the risks and opportunities inherent in partnerships initiated by others. African countries need a clear sense of what they can achieve on their own and what can be achieved only in collaboration with regional and global partners, both traditional and emerging. Regional institutions can play an essential role in ensuring that good governance transcends borders. Organizations such as the African Union must be vigilant in holding member states to high standards of accountability. Sub-regional economic communities must coordinate efforts to stimulate growth and development (including by establishing free trade areas and facilitating the circulation of goods and services), implementing policies that can enhance the continent’s appeal as a high-opportunity, high-return business environment while also advocating for favourable treatment for Africa in bodies such as the European Union and the World Trade Organization. Fortunately for leaders faced with dwindling resources, good governance is largely a matter not of money but of political will. African countries can look within the region to examples such as Rwanda, which against global trends continues to record impressive growth and to rapidly upgrade its physical, technological and regulatory infrastructure. Its drive to lay the foundation for its people to make the most of their domestic assets – decimated by years of conflict – reflects the view that economic and social stability are mutually reinforcing conditions. Rwanda’s success points to another principle worth recalling: that the democracy flourishing across the continent is a process, a means to development, and not simply an event or an end in itself. Free and fair elections, once held, are merely the preface to a sustained discourse between civil society and its chosen leaders. Democratic processes set the terms whereby a well-informed leadership serves the interests, needs and aspirations identified by those it has been entrusted to serve. However, delivering effectively on those terms depends as much on the acuity, capacity and integrity of the leaders as on the degree to which citizens are empowered and engaged. The more robust the engagement between government and society, the better equipped both will be to navigate periods of difficulty. It may be tempting to focus prescriptions on sweeping macroeconomic reform when responding to a crisis of the current magnitude and complexity. But in the African context, there is much to be said for thinking small as well, for cultivating practices and building institutions to local scale. African governments should incentivize savings among the populace – however paltry such sums may seem against today’s deep deficits – and broaden the tax base by closing loopholes and enforcing existing tax provisions. Governments would also do well to channel the resourcefulness and ingenuity of the vast informal sector, where most economic activity occurs and to which many in the formal sector seek recourse in times of economic hardship. Informal sector assets need to be monetized, including through establishing rights to land and other property, as a means of legally empowering the poor and expanding opportunities in the formal sector. These efforts should be supported by improving infrastructure – roads, telecommunications and border controls – to encourage the flow of goods, services, information and ideas throughout the region. As Africa continues to advocate for due voice and influence in an altered economic paradigm, one hobbled in part by ineffective global governance, its leaders on the home front must recognize that those whom they have been tasked to serve are themselves entitled to no less. NURTURING RECOVERY, BUILDING RESILIENCE “Structural adjustment… What were we adjusting?” Olusegun Obasanjo Former President of Nigeria Club of Madrid Member “If you can’t feed yourself, how do you start talking about growth?” Benjamin Mkapa Former President of Tanzania Club of Madrid Member

In the wake of any natural disaster, the imperative is to ‘build back better’. This must be the response to the multilayered crisis facing the world today. Many African countries are still reeling from the effects of scale-backs in social investment imposed by the structural adjustment programmes of the Bretton Woods institutions during the 1980s and 1990s. While these policies are by no means the sole cause of Africa’s ills, it may be argued that their legacy has put much of the continent at a disadvantage in weathering extreme crisis. Basic capacities to effectively assess, design, implement and manage responses are lacking at all levels, from individuals to communities to governments. Decreases in the flow of aid, trade and investment have already stiffened the blow, with another 53 million people estimated to be at risk of falling into extreme poverty if current downward trends persist. Africa needs to build back better, and key to this effort must be an investment in its human capital. One distinctive feature of the region is its booming young population. Africa’s population has doubled over the last 28 years and quadrupled over the last 55; and over 40 percent of Africans are below the age of 15. Whether these statistics represent a challenge or an opportunity for the continent depends chiefly on the extent to which Africa’s youth are empowered to perform as responsible and effective global citizens. Their capacities must be developed and their energies channeled for social, political, and economic progress. And the most effective vehicle for this is education. Education, to be sure, has always been a pillar of human development. What the current climate underscores is not that Africa needs to prioritize education, but how. Education needs to be targeted to development objectives – not only to provide the practical skills and services demanded by rapidly evolving societies, but also to cultivate a cadre of leaders, thinkers and visionaries who can propel the region forward. To keep pace with demographics, educational opportunities must multiply in breadth (by extending the range of options in all directions, from technical and vocational training to ICT, sciences and language arts) as well as in depth (by setting and enforcing adequate standards of instruction from kindergarten through to university). The blend of creativity and innovation coupled with practical know-how will serve the region well in fulfilling its development agenda – and in combating future crises. In the present crisis, the most pressing concern for Africa has been food security. Tumbling commodity prices and abrupt increases in fertilizer, fuel and other costs combined with severe drought in some of Africa’s breadbaskets to cause a worrying shortage of food staples. Here again, the scale and severity of the crisis has exposed a shortcoming in the region’s growth strategies: a tendency to deprioritize agriculture in favour of other sectors, and a narrow focus on urban development without complementary schemes for rural development. Thus, while a significant percentage of the region’s population remains agrarian and rural, national development plans place disproportionate emphasis on urban development and on non- agrarian service sectors. At the same time, too little has been done to accommodate heavy rural migration to urban centres. The resulting high unemployment and strain on infrastructure and public services create a volatile mix that in times of acute crisis can heighten the potential for civil unrest. Now is the time for agriculture to resume a central role in African development – through investment in technology and research, as well as through the judicious use of agricultural subsidies to improve food security and to enable producers to compete in national, regional and global markets. Investments in youth and in agriculture will yield their greatest impact by targeting women. As principal drivers of Africa’s economic growth and social progress, women need to be empowered to their full potential. Eliminating gender gaps in health, education, income, employment and political participation will not merely level the playing field; it will strengthen African resilience and exponentially advance its development. A population that is healthy, adequately fed and educated, with equal access to opportunities becomes its own engine of progress. It is the role of government to fuel this engine by focusing public policy and expenditure on providing the infrastructure and services to foster growth. Support to small and medium enterprises is critical across the region, especially in countries where a fast-emerging middle class is increasingly driving economic prosperity, such as Botswana, Kenya, Nigeria, Tanzania and South Africa. Of these, commodity-based economies like Botswana and South Africa are finding themselves particularly susceptible to the crisis, with rising unemployment and faltering businesses threatening to roll back the ranks of the entrepreneurial middle class. Government must create an enabling environment to generate a robust private sector with which it can partner to expand economic progress and sustain growth. Africa needs more than quick-fix solutions; it needs resilience. Governments must invest in strengthening social and economic foundations so that the building blocks of development can better withstand global crises. TRUE DEMOCRACY “Where is the democracy in the management of the global economic system? It’s dismally absent.” Percival N. J. Patterson Former Prime Minister of Jamaica Club of Madrid Member

Organizations like the Bretton Woods institutions and the United Nations have largely maintained the hidebound governance structures set up at their inception, structures increasingly at odds with modern geopolitical realities. As a result, Africa, like much of the developing world, continues to be marginalized where global economic decisions are made. Part of the blame for this marginalization rests with Africa itself. The slow pace of regional integration – particularly the urgent imperative of economic integration in terms of free trade, establishment of customs unions and harmonization of policies – has undercut African negotiating power and kept many countries from accessing the full benefits of participation in a global economy. Moreover, the failure to effectively mobilize domestic resources and stimulate private sector development has meant an overreliance on extra-regional support (in the African Union, for example, over 80 percent of financing comes from external partners) that amplifies external influence and clouds the region’s ability to tailor development solutions solely to its own objectives.

Nevertheless, the fact remains that African countries too often bear the brunt of situations that are neither of their own making nor within their power to prevent. Given the disastrous consequences for the continent of global phenomena such as climate change and the current crisis, it is clear that the structure of the international policy-making apparatus is ripe for reassessment. Africa remains woefully underrepresented in international fora and, where represented, its capacity to influence or negotiate tends to be poor. A new multilateralism is urgently needed, one that reflects the dynamics of today’s global economy and places Africa at the centre of international decision-making processes and institutions. The benefits of such a paradigm could be significant. A stronger voice at the World Trade Organization could yield preferential market access for African products that must now compete not only with heavily subsidized Western producers, but with high-volume producers from China and India as well. Real clout at the Bretton Woods table could help adjust definitions governing LDC status, making more emergency aid available to solid but struggling economic performers like Ghana and Kenya. With higher negotiating capacity, Africa could endeavour to do more than merely shame the G8 and G20 into honouring their commitments on aid, partnerships and operational transparency. And a multilateral body that actively reflected and defended the security interests of the world at large – not just those of rich countries or of historic colonial powers – could contemporize the balance of power among nations, and serve as a truly effective and dynamic force for peace. Now more than ever, these possibilities lie within reach. What is needed is a shared and active commitment to the very democratic ideals on which the international institutions have been based. As the world reappraises its economic governance mechanisms in the midst of this crisis, Africa should seize the opportunity to insist on true democracy, voice and influence in the institutions and structures that determine its well-being. Few of the observations presented in this report are new. Africa’s challenges were well known before the crisis, and many of the prescriptions offered here reflect those proposed in the past. But there is now a new urgency to implementing them, and to finding new ways to shore up resilience to shocks present and future. More effective governance at national, regional and global levels; stronger support for the drivers of sustainable growth; and genuine influence over global economic decisions are the way forward not only for Africa, but for an ever more integrated world in which the strength and stability of the part determines the social, economic and financial prospects of the whole.