Africa’s fortune shrinks as global economy expands

EIGHTY-NINE VEHICLES were counted in the presidential convoy of the President of Tanzania in a recent video, posted on social media, of the convoy passing by. Assuming, while not immediately conceding, that all of the 89 vehicles may not be only for the president and her aides, the sheer number was mind-boggling as it raises many questions bordering on frugality, modesty, accountability and a sense of consciousness of a country’s state of economy. Agreed, too, that the convoy at that particular time could have been made up of an inclusion of the heads of many ministries, departments, agencies or some sub-national bureaucracies on the entourage, the number still remains unnecessarily too large. It smacked of ostentation, profligacy, incompetence and lack of concern for revenue management, characteristic of most — if not all African countries. For whatever reason or kind of official outing they were embarking upon, shouldn’t government officials and politicians in Africa endeavour to cut costs of operations? What is the justification for the large fleet of posh cars and SUVs for government officials in a country where income per capita is a paltry $3,050 (PPP), based on 2022 estimation and where the economy is largely dependent on the proceeds from the extractive industries, particularly solid minerals, over which they have no control in price determination. 

The ultimate litmus test of the buoyancy of a country’s economy is the strength of that country’s  currency as well as its purchasing power and its currency’s convertibility, relative to other widely used currencies. The common foreign currencies of note in use in Africa currently are the US dollar, Canadian dollar, the euro, Pound Sterling, Yen and the Yuan. The dollar is universally recognised and held to high esteem, an attestation to its resilience and the resilience of the economy of the US. However, there are signs that African countries’ per capita gross domestic products (GDPs) and purchasing power across regions do not differ significantly, except in a few cases. In East Africa, two other major economies other than Tanzania are Kenya, with a bit bigger PPP, at $5,680, while Ethiopia — regarded as one of the best and fastest growing economies in the region and in Africa, was $2,800 for the same year of 2022. 

Ghana’s GDP per capita for 2022 was $2,204, that of Côte d’Ivoire’ was $2,430, Nigeria’s was $2,207 (at $5,700 PPP) in 2022, compared to a GDP of $2,959 a decade earlier, symptomatic of a deteriorating regional economic powers in West Africa. The economies of all three countries are dependent on commodity exports. Although Ghana and Côte d’Ivoire export cocoa mainly for their foreign revenues earnings, Ghana is also notable for gold export. Nigeria, on the other hand, depends mainly on the export of crude oil. In the Southern region of the continent, Zambia posted a paltry $1,457, Lesotho $3,190 PPP, while South Africa, the outlier and reputed financial capital of Africa had $15,590 in 2022. 

Of the countries with relatively higher national GDP and per capita PPP, South Africa tended to outperform Nigeria by a wide margin. The rest are trailing by even wider margins. Statistical comparison on the basis of GDP per capita or PPP might conceal some important facts and details. For instance, population growth and various other demographic dynamics have far-reaching implications for any of the countries. The troubling facts about nearly all African countries are those that expose the annually fluctuating or steadily diminishing values of many national and per capita incomes over the past four decades. While South Africa’s GDP per capita has grown from $3,034.66 in 1980, its increase to $15,590 in 2022 was never a true reflection of the average person’s income in a country that went through a racially discriminatory Apartheid regime until 1994 when South Africa began the black majority rule. Sadly enough, that did not confer any automatic improvement of the economy on South Africa, particularly at the individual level as South Africa was considered the most unequal country in Africa, essentially as the teeming population of the poor outnumbered that of the rich. The corruption in the ruling African National Congress has also seriously devalued lives in South Africa over the past three decades, leading to the preponderance of the poor as wealth is not fairly distributed and a third of the country’s adult population currently remains unemployed. 

Despite rising national revenues in the course of population increase over the past four decades, a major setback to the economies of most African countries is caused by debt trap and diminishing values of national currencies due to inflation that has become a recurring decimal. Both factors reinforce each other in further impoverishing African countries as debt-to-GDP ratios of many countries are going beyond the tolerable under the circumstances of adjusting for inflation. Countries’ debts tend to remain high after allocation of significant proportions of annual revenues to debt servicing. In other words, indebted countries tend to be working for creditors, with little or nothing left to spare for any meaningful development projects on capital expenditure or even recurrent expenditure. The idea of currency devaluation as panacea to Africa’s economic crisis in the 1980 now seems suspect in retrospect. It appears like the prescriptions were deliberate strategies to permanently weaken Africa’s economies and make them subservient to those of the Western countries that depend on Africa’s commodities for their industrial products.

The inability of African countries to meet their national obligations with available funds after currency devaluation had apparently pushed them to go borrowing again and again. Salaries are owed, paid in advance or remain unpaid for months on end. The mounting debts have crippled the economies of many African countries. For instance, Mozambique’s debt-to-GDP in 2020 was 102.4 percent of the country’s revenue, effectively meaning that the country works for debtors and not for its people as more of its revenues go into debt servicing with nearly none left for other things. Mozambique is thus left to survive on one debit after another.

Such over-the-top debt-to-GDP ratios will only perpetuate the economic crisis of affected countries, with little or no hope of recovery except by special bailout schemes such as debt forgiveness or some sort of rescheduling. It was surmised recently that some countries pledge their extractive industries’ future production ahead,  before they are extracted. In January 2024, Nigeria reportedly embarked upon a loan agreement, also known as Project Gazelle, in which a forward-sale structured finance facility backed by crude oil is being implemented. Under the arrangement,  the nation’s national oil monopoly company — the Nigerian National Petroleum Corporation (NNPC) — serves as both the sponsor and the seller of the predetermined quantity of future barrels of crude oil, while securing upfront payment from a special purpose vehicle (SPV) backed by international financial institutions. It has gotten that bad for a major exporter of petroleum products. Such a loan has a way of limiting the freedoms of the borrower country to implement its annual budgets until the loan has been fully paid. In the oil-for-loan arrangement, Nigeria reportedly pledged a total of 164.25 million barrels of crude oil at 90,000 barrels per day (bpd). This volume will remain in force even if the world price jumps to double and Nigeria is tempted to want to take advantage of that by extracting more barrels per day over and above its daily quota from OPEC. According to Afreximbank, an initial disbursement of $2.25 billion has been successfully arranged  under the crude oil prepayment facility.

African countries mostly dependent on raw unprocessed commodities have shown unmitigated vulnerabilities in the global marketplace, particularly in the area of pricing where they act more like price takers, dependent on what the buyers offer to pay. This has significantly affected the economies of countries like Ghana and Côte d’Ivoire. For instance, cocoa price per tonne in the 1980s was about $6,000. Now, adjusting for inflation, it is about $2,300 per tonne. While these might appear bigger in local currencies due to years of one devaluation after another, the local currencies are indeed shrinking in values. It is not surprising that the real sector production is diminishing in comparison with the growing population of the expected market. Devaluing the economies of the countries within the continent is instructive. Most economic migrants to Europe and North America are only attracted by the differentials in currency powers compared to Africa. Many more will still be attracted for similar reasons. The idea of remittances tells a lot in this context as a few dollars from the US or few euros from Germany mean thousands if not millions in Kwanza, Cedi, Shilling, Naira or CFA. The prescriptions by the International Monetary Fund have contributed significantly to the weakening of Africa’s economy, especially as economies — not just the currencies — are devalued. The plausible arguments given to some half-baked economic advisers in governments — and retailed by the latter to the uninformed and incompetent political actors — had to do with the explanations that devaluation of currencies help exporters to get more money. Even when that seems correct in nominal terms, it is wrongheaded in real economic terms. Besides, borrowing money under a system involving devaluation places greater burden of repayment on borrowers as the adjustments for inflation causes the borrowers to pay more in local currencies.

Workers in paid employment tend to suffer more through their inability to meet their pressing needs based on devalued currencies. Salaries of such workers therefore shrink across the public service and private sector. A case in point is the lingering stalemate on minimum wage increase in the Nigerian public service where Nigerian least paid workers are now to earn an equivalent of about $47 a month as salary increase in a country where 133 million people have reportedly fallen into multidimensional poverty. The picture of such poverty is getting clearer then where a paid employee collects a little more than an equivalent of $1.5 a day, which is still less than the global benchmark set for poverty line. The situation leaves no room for innovation, administrative excellence or improved productivity.