Aid and the burden of foreign debt have, for decades, remained a recurrent and discordant note in the discourse on the crisis and contradictions of Africa’s development. The collective debt burden of the continent is seen as a betrayal of Africa’s huge resource base, both human and material, and the failure of policy measures targeted at the management of those resources.
The largest trading nations according to the World Trade Organization, are the European Union, United States of America, China, Germany, United Kingdom, Japan, France, Netherlands, Hong Kong, South Korea, Italy, Canada, Belgium, India, Singapore, Mexico, Spain, Switzerland, Taiwan, Russia, Ireland, and United Arab Emirates.
No African nation makes the list.
Global trade is driven by need or want of goods, capital, or services. Such trade represents a significant share of a country’s gross domestic product. While global trade has existed throughout history (for example Uttarapatha, Silk Road, Amber Road, Scramble for Africa, Atlantic Slave Trade), the economic, social, and political importance have been on the rise in recent times.
Executing trade on the global level is a much more complex process relative to domestic trade within the same nation. When trade takes place between two or more nations, factors like currency, government policies, economy, judicial systems, laws, and markets come to bear.
Some international organizations, such as the World Trade Organization (WTO), were established to smoothen the processes of global trade and facilitate the expansion of it.
The reserve currency, used as means of global trade exchange, is another name for global currency. Deriving from the Bretton Woods Agreement of 1944, the U.S. dollar was officially crowned the world’s reserve currency and was backed by the world’s largest gold reserves.
Needing a place to store their dollars, countries began buying U.S. Treasury securities, which they considered to be a safe store of money. According to the International Monetary Fund, more than 61% of all foreign bank reserves are denominated in U.S. dollars. Some other world’s currencies, such as the Euro and the Yen, are accepted for most international transactions.
This leaves African economies very needy of foreign exchange, without which they are unable to factor in global trade. To fill that gap, Africa kowtows to Europe, the United States, and recently China, for both loans and aid.
Foreign aid basically encompasses all forms of assistance that a country derives from other governments or multilateral agencies and financial institutions to fill noticeable gaps, especially in production, savings and investments. It takes diverse forms such as grants, loans, foreign direct investment, FDI, joint ventures and technical assistance.
While grants are essentially gifts with neither interest charged nor any obligation to pay back, loans attract both. It is for this reason that classification of loans as aid has been vigorously questioned. The argument has, however, been made that loans may qualify as aid to the extent that they are ‘soft’ in terms of repayment and the rate of interest they attract. By contrast, however, loans cease to be aid if they are commercially motivated especially for the promotion of the donor’s interests.
Despite the appeals of the pro-foreign aid argument, its intellectual foundations have not gone unchallenged. For its antagonists, foreign aid and especially borrowing is inimical to economic growth and development in the recipient country. This is more so when the conditions are not ‘soft.’
Accordingly, this perspective argues that foreign aid brings about distortions in the domestic political economy of recipients such as ‘debt crisis, poverty, wider technological gap and disequilibrium in the foreign sector.’ This is considered to be so because the only language understood by capitalism, the driving philosophy behind foreign aid, is exploitation of surplus value, often with cruel effect.’
Like an opium, high levels of aid may lead to ‘aid dependence,’ that is, the ‘process by which continuous provision of aid appears not to be making significant contribution to the achievement of self-sustaining development’, or ‘a state of mind, where aid recipients lose their capacity to think for themselves and thereby relinquish control.’
As a proportion of gross domestic product and of export earnings, Africa’s debt of about $350billion is the highest of any developing region.
This has been the African condition for decades, so much so that the struggle for debt cancellation for Africa has been in the forefront of the public discourse on the matter since the 1990s. In the African experience, the burden of conditions and the cost of servicing extensive borrowing remain at the heart of the continent’s debt crisis.
Africa’s external creditors have insisted on deregulation of the economy, devaluation of the local currency, and recently, political liberalization, which, as has been demonstrated, actually undermined African economies. To make matters worse, poor economic management at the domestic front in the form of wasteful and unproductive expenditures, in addition to the mismanagement of the borrowed funds by inefficient public enterprises, were a major feature in Africa. These forces have combined disastrously to lead Africa into a severe debt burden.
The debt crisis has ensured an annual export of capital from the Global South to the Global North. This takes the form of debt servicing which inevitably puts great pressure on budgets, leading to rising fiscal deficits in the heavily indebted countries of Africa.
The attendant overhang these generate depress the income, investment and living standards, as much as it seriously constrains the scope of macro-economic policy making, with damaging effects on economic and financial institutions. The overarching implication is an unacceptable level of poverty and inequality, both of which symbolize the marginalization of Africa in the international economic system.
More recently, foreign aid has even been deeply implicated in the escalation of corruption in Africa, where both local and international actors have been indicted.
In a hearing before the U.S. Senate Committee on Foreign Relations in May 2004, Jeffrey Winters, a professor at Northwestern University, argued that the World Bank had participated in the corruption of roughly $100 billion of its loan funds intended for development.
As recently as 2002, the African Union, an organization of African nations, estimated that corruption was costing the continent $150 billion a year, as international donors were apparently turning a blind eye to the simple fact that aid money was inadvertently fueling graft. With few or no strings attached, it has been all too easy for the funds to be used for anything, save the developmental purpose for which they were intended.
Yet, foreign aid and debts are just consequences of a much deeper malaise: resource blunder and unfair trade with Africa, sustained through the international trade systems.
Africa’s governments have failed or ignored to revalue her resources, through industrialization and due alteration, and have relied heavily on the exportation of raw agricultural goods and minerals to earn foreign exchange.
All along, the key hurdles had been in the areas of high tariffs and quota restrictions. Just as developing countries are beginning to overcome some major hurdles in the quest to expand trade with industrial nations, Africa’s agricultural outputs face excessively strict ‘health’ standards to enter Northern markets.
As a result of agreements negotiated at the World Trade Organization, WTO, traditional trade protection measures such as tariffs and quotas are falling away. But, even that is surreptitiously being replaced by domestic technical regulations that permit countries to bar products from entering their markets if the products do not meet certain standards.
These obstacles include arbitrary measures ostensibly aimed at protecting citizens from everyday food hazards, known in WTO language as sanitary and phytosanitary measures, SPS.
These, and not just foreign debts and aid, should gain the concentrated attention of the African leadership.