Global Economic Crisis: Part XI

At a time when the developed world faces a recession that has baffled even their best  economists as not only to when, and how it could brought to an end, African leaders are as usual blaming these very countries for waves of the recession hitting African economies; harder than anticipated.

At a time when the developed world faces a recession that has baffled even their best  economists as not only to when, and how it could brought to an end, African leaders are as usual blaming these very countries for waves of the recession hitting African economies; harder than anticipated.

Their argument is that they need assistance to get out of the recession since it is not their making, (innocent victims as IMF Managing Director calls them) smacks the very identity of such economies in the world setting and as usual, left to the mercy of developed economies which have no obligation in the management of ‘independent’ African economies. 

Current research indicates that, current global melt down will cost Africa approximately US $ 49 billion which is 10% of the continent’s lost income.

The same research also points out that, approximately US $ 27 billion of the earlier figure will arise as a result of decrease in aid, export earnings, and loss of income from western recessed economies.

That African economies are not fully integrated with developed economies is in itself a fundamental failure on the part of managers and entire political economy of these economies.

This simply signifies that, these economies are not part of the whole- world economy by virtue of backward economic structures that boost dismal GDPs (for instance Norway has a higher nominal value GDP than combined GDPs of Sub-Saharan Africa).

In today’s world where economic interests take precedent, a country is as relevant as the size of its economy. As the members panel of World Economic Forum held recently in South Africa put it “We need a new development model that provides security, stability, and addresses peoples’ needs… businesses has a key role. As do African trading and donor partners.

But the primary responsibility to make it happen rests with Africa’s political leaders”. Nobody owes Africa her development.

It is in her sole interest and benefit to her people only if our political economy executes its responsibility. A responsibility that the government of Rwanda, has ably taken up.

But, development has to be a shared philosophy if it is to reach all, and benefit all, and our political economy should market this philosophy to all Rwandans. At the end of the day, it is in their best interest.

Political economies in Africa, take pride in successes where these happen to occur and are not humble enough to take responsibility for their own failures, which they casually blame on colonial/western powers, Bretton wood institutions or opposition groups.

The former group has no obligation for the development of our countries, except moral optional and conditional.

Nonetheless, this does not absolve managers of African economies of their full responsibility to manage the consequences of recession to their economies, even with simplistic measures possible.

African economies do not have the luxury of printing their currencies (as most western economies are doing as of now) to provide stimulus packages to their hard hit sectors especially the financial sector.

But as the report by The Economic Commission for Africa, puts it (and as pointed out in earlier articles) African economies have to turn inside during such a crisis, and capitalize on sectors which are not suspetible to external financial shocks and agro sector should take priority under current circumstances.

This sector not only has both forward and back ward linkages to local industries where these serve as output readily available for urban consumption, but also has a huge market potential for regional exports.

This feeds back into the rural sector by raising incomes of farmers who will then increase their output accordingly. But this will be possible if two main challenges are over come by African policy makers.

First is the problem of under investment in this sector which has been relegated to non- priority areas. The amount budgeted allocated to this sector is so dismal that, it can hardly make an impact.

The target set at 10% of the total budget to enable this sector play its vital role, has been met by few economies.

Consequences of this under investments in agro sector has been to import food from other regions at cost that is sometimes 30% of GDP of some economies, which makes no economic sense in a continent that can and should feed its people.

Policy failure in agro sectors, like other sectors, has cost some economies up to 3% percentage points of foregone GDP, considering that, in most of these economies agro sectors accounts for as high as 40% of GDP.

The second and perhaps a major challenge that these countries will need to over come is status of agro industry.

This sector is supposed to be an industry in its own right, where there are production and marketing channels so as to connect the supply side with the demand side of this very sector.

It is one sector/industry where supply does not create its demand. There have to be policies designed to absorb agro surplus if this occurs, so as to sell this in the period of deficit.

As it is now, these structures are non-existent. This will limit the extent to which this sector can reach its potential optimality regardless of policies designed to boost the same.

That agro-sector can turn round agro-dominant economy is not academic nor an issue worth any measure of research.

The example of Malawi, which is the second fastest growing economy in the world after Qatar (even amidst the current recession) is a simplified economic lesson to policy makers in Sub-Saharan Africa.

Malawi defied one size fits all prescriptions of Bretton Wood institutions to by designing an agro policy framework, and strategy that has been so successful that has it taken these very institutions by surprise as to its impact on growth record of Malawi.

As pointed in earlier articles, development of a country must be the sole business of a country’s political economy, and these institutions (whose failures cover lots of economic literature) should only come on board properly designed economic policies to assist their implementation.

That agro sector holds key to the development of African economies is beyond question considering that, this sector employs and feeds over 80% of the population of these economies.

This therefore means that, an increase in output in this sector has a huge multiplier effect than any other sectors of the economy.

For instance, a growth of 18% in construction industry will have a much less multiplier effect to the entire economy than a 2% growth in agro output.

Thus, agro sector should, and must be an anchor/buster for the development of other of sectors of the economic to which it holds both vertical and horizontal linkages.

Growth will have to be from – development of agro sector to ICT lead development, human capital lead development, industrial development etc…

In case of Rwanda, our small holdings should not be viewed as a constraint to development of agro sector as long as policy framework and indeed strategy are right for such development agents.

Countries in the region, including Kenya, rely on these small scale farmers for much of their agro out put. Their organization (in cooperatives) and capacity empowerment (financial-credit and skills, provision of farm inputs such as fertilizers) are crucial to productive efficiency and effectiveness.

However, no matter how these farmers are organized, what is important to ensure their effectiveness is the existence of market forces which ensure and assure these of descent revenue for their output.

These market forces are at their optimum when such a sector is modernized and organized as an industry. This is yet to happen in most African economies

Ends

 

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