Tag Archive for africa

International Debt Burden of Africa

The path to prosperity doesn’t lie amidst countries building even bigger international debt states Akinwumi Adesina, the head of the African Development Bank.   He is quite clear when he urges the continent’s governments to try and boost tax revenue not grab yet more international loans.  The statement comes whilst Africa, once again grapples with an economic slump.

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Mr Adesina is reported with an interview in the Financial Times to be expecting yet another downturn in the economy of Africa largely being triggered by a slump in commodity prices.  This issue greatly affects Africa as well as the slow down in Chinese economic growth.  Yet as always Africa is one of the first to suffer from external economic slowdown, largely because of it’s relative financial weakness, in other words it’s large levels of debt.

The phrase ‘fiscal consolidation’ is often used to describe Africa’s position and potential solution.  The reality is that decades of borrowing have had only limited success in delivering long term growth in the region.  Sure when economic booms are happening in other places, Africa is dragged along through a demand for it’s commodities but the weakness is evident as soon as this demand drops.  Nigeria has plunged into yet another recession simply due to the oil price fall, although to be fair this is the first for nearly twenty years.

The pattern will be repeated across sub-Saharan Africa, with GDP falling from it’s 3.5% level in 2015.  Many nations are suffering from dwindling government revenues, and the wide budget deficits mean that governments have little monetary options available to them.  The temptation of increasing debt is always there but this is precisely the reason why African economies are so vulnerable, billions of dollars of debt taken up in the ‘good years’ reduce the capacity of these governments to respond in a slump.

These debts have to be repaid and the costs of servicing them often rocket in poor economic conditions simply because of the weakness of most African currencies.  The scarcity of foreign currencies also impacts African countries and businesses to invest.

Borrowing overseas with a weak domestic currency is a recipe for disaster,  investment funds should ideally be sourced locally.  For example there are huge African investment and pension funds which ideally could be used to support the African economy.  Too often this money is invested in Western countries and businesses to the detriment of African businesses.  It’s often depressing to sit in the presentations of these Pension and investment funds produced by some anonymous company who conducts most of their business through a residential VPN (see here) to be extolling the virtues of some international company with minimal links to the African continent when local companies are starved of investment and the potential for growth.

Frank Ifield

Egypt and the Economic Challenge

Throughout revolutions and uprisings there’s normally one very common fundamental cause – economics.  A dictator or government with an agenda can get away with a lot with a background of prosperity.  Many of the Middle East countries have virtual dictatorships but money buys acceptance at least to a certain degree.  But any poor or dictatorial ruler had better watch out if poverty, unemployment are rising. All the other problems are magnified when people have trouble feeding their families – and things are pretty bleak in Egypt at the moment.

As we stand now, Mursi has sufferred the cost of the failing economy as much as any other issue.  There is lots of talk about Islamisation, lack of freedom and the poor record of the security in the last year but ultimately the economy is nearly always the tipping point.  In a country like Egypt with many factions not least the religious and secularists – the economy effects them all.

The sad fact is that in the 12 months of the Muslin Brotherhood’s rule – unemployment, poverty and debt have all risen.  To an outsider there seems to have been little effort to solve these problems and too much focus on creating an Islamic state.  One things for sure, political unrest has only one economic consequence and it’s not a good one.

Any continued unrest and political instability is going to hit Egypt hard, any ruler wherever he is found is going to have a very difficult time if the fighting and discord continues.  Egypt is a country that relies heavily on it’s tourist industry and people don’t visit political hotspots for their holidays.

If you walk down the streets of Luxor and round the Valley of the KIngs you’ll see the problems.  There are simply no tourists in a town almost entirely dependent on them, Egyptians are sitting around with nothing to do except perhaps blame their leaders.

But it’s not all bad news, in some senses Egypt was not really recovering under the current rulers.  They seemed to lack both experience and the will to tackle Egypts real economic problems instead appearing to focus on their religious agendas.  Incredibly stock markets in Egypt have actually started to rally in the face of political change, the market seems to want it.  As long as an experienced and less divisive leader can be found then perhaps there is some hope.  There are some great articles and reports on the crisis from the BBC from their foreign correspondents if you want to get an impartial view.  For those living outside the UK you can access these reports on the BBC Iplayer and other UK Television shows by shielding your real IP address – more information here.