Canadian Commentary

A Better Fresh Start for Africa

July 2002

Jean Chretien has to be given credit for using his position as host of the G8 summit in Kananaskis last week to push the cause of African development.

Africa is not a big vote-getter, nor is it of great immediate concern to the leaders of the world's developed nations. Yet, although the issue was somewhat overshadowed by more traditional economic and international issues at the summit, Chretien still managed to get African development discussed and set a few, somewhat diluted initiatives in motion.

In doing so, Chretien was greatly assisted by African leaders themselves. The leaders of five of the continent's largest nations have taken the initiative and put together an agenda for action, NEPAD (New Partnership for Africa's Development), which seeks to revitalize the issue of African development by moving away from the somewhat paternalistic donor/recipient relationship of old, towards a relationship of equals.

However, it is worth asking whether the kinds of initiatives announced at Kananaskis really do move away from this traditional donor/recipient relationship, or whether they are simply new variations on an old theme - and, if so, whether there is a truly egalitarian approach that might address key issues in a better way.

One of the main initiatives - an additional $6 billion dollars in assistance - is very much in the old style, in which Western aid was essentially a form of charity, given out of a sense of sympathy for the poverty of Africa and a belief that the West had a good idea how that poverty could be addressed. Although the new money is accompanied by African initiatives that are intended to ensure that aid recipients practice good governance and sound economic policies, it remains in essence a situation where Africans receive more money if they behave the way the West believes they should.

A somewhat newer initiative which has gathered considerable force in the last few years, and was given further momentum at Kananaskis, is the movement to relieve African nations of their enormous debt burdens, which were incurred by post-colonial dictatorships in the later decades of the twentieth century. The repayments on these debts amount to a huge proportion of the fairly limited government revenues of many African nations, to the point that despite the considerable amount of foreign aid the continent receives, more capital leaves the continent than goes into it.

The absurdity of poor nations paying more in interest payments than they receive in aid is obvious, and Canada has been a leader in a movement to forgive some of these debts for the poorest nations, if they fulfill fairly rigorous governance and economic conditions.

While this movement is obviously worthy, it remains essentially paternalistic. These debts are being "forgiven" as an act of charity, because the nations who got into them are too poor to get out of them.

This movement conceals the fact that it is the West who must take responsibility for lending money to African regimes who were not legitimate, not accountable, and who wasted or stole the money rather than investing it in a manner that improved their nation's economies. This money does not need to be "forgiven" - it should be lost by Western nations and bankers who made poor lending decisions, just as a normal banker would forfeit money lent to a bad investment risk.

The mechanism to enforce such a process would be the same one that enforces such a result in our own domestic economy - a bankrupcy process. Rather than "forgiving" debt, the West needs to agree to the establishment of an international bankrupcy process that will put nations who cannot cover their debts under a form of bankruptcy protection. Under this protection, their lenders would be repayed the portion of their loans that the nation could reasonably afford, but lose the rest permanently, enabling the nation to start again fresh. Future loans would be dependent on the nation being able to persuade investors that their loans would be put to good use - as should be the case in any loan transaction.

Such a court would re-balance responsibilty for the African debt crisis, revealing that it was as much the fault of the West for lending money irresponsibly to African leaders who did not have a democratic mandate, and who were known to be corrupt or incompetent.

Current African peoples and leaders were not responsible for their predecessor's wastefulness, and should not have to beg to be relieved from the burden imposed by such irresponsible Western lending. Debt relief must be revealed as a natural economic process, rather than an act of charity.

Furthermore, such a bankruptcy process would provide a stronger incentive than any government-sponsored program for African nations to ensure that they were well-governed and corruption-free. Bankers and international instutions would now be forced to ensure that their money was going to be well-spent before lending it, giving the continent's governments a real incentive to reform themselves.

To his credit, while he was Finance Minister, Paul Martin was one of the biggest international boosters of an international bankruptcy process. But the initiative is still being blocked by other industrialized nations, in particular the United States. The African debt situation will not be addressed in a truly new, non-paternalistic manner until such a process is in place.

Another significant initiative by Canada intended to show its seriousness about enabling African development is a move to abolish tariffs on all good from the world's poorest nations, most of which are African. The West's hypocritical approach to tariffs - in which it uses its financial leverage to force African nations to drop their tariff barriers, while simultaneously maintaining its own barriers in areas such as agriculture and textiles which are key to developing nations - has often been cited as one of the major impediments to African development.

While Canada's initiative is a worthy one, it remains essentially charitable. The tariffs are being lowered, not as a matter of principle or because of a balanced international agreement, but because of the poverty of the nations in question. In any case, because of their poverty, their exports of goods that actively compete with Canadian producers is in fact minimal.

However, the most significant imbalance in current trading arrangements is not caused by tariffs. It is caused by the massive subsidization of agriculture in Western nations, in particular in the U.S. and the European Union. As a result of these subsidies, these nations produce surpluses of agricultural production which are sold on the world market well below their real production costs. In essence, they are engaging in an agricultural form of dumping.

This dumping results in a vicious cycle which distorts the agricultural production of developing nations. Inevitably, these subsidized foodstuffs displace products grown locally in African markets, undermining the local food market, and forcing African agriculture into the production of cash crops that can bring in foreign exchange. However, as more and more agricultural production has been devoted to cash crops, the price of these crops has collapsed, exacerbating the financial crisis in these nations.

The solution that is usually put forward to address the problem of agricultural subsidies is to incorporate agriculture into the World Trade Organization agreement. Unfortunately, the two most influential powers in the WTO are also those with the most significant agricultural subsidies - the U.S. and the E.U. Each of them has extremely powerful domestic lobbies that support continued subsidies, and neither of them has any great external incentive to reduce them, as the current system works in their favour.

It will be a very long time before agriculture is truly part of the WTO, and in the meantime, Africa needs some other mechanism to protect its agricultural production from Western dumping.

The obvious solution would be some kind of international equivalent to the anti-dumping legislation currently used by the United States. African nations need the power to identify agricultural products that are being sold below their production cost, and impose compensatory tariffs on them to even the playing field and protect their own production.

To avoid the arbitrary nature of the U.S. system, there would have to be some kind of unbiased authority that could determine the extend of the subsidies - a role that could well be played by the WTO. At the same time, of course, the African nations would have to be able to demonstrate that their own production was relatively subsidy-free.

Although it would not open new markets for African agriculture, such a measure would at least enable their domestic markets to develop in a stable and rational manner, an essential first step towards building a strong internal economy. By the time the WTO finally does incorporate agriculture, African agriculture would have developed to the point of being able to compete on good terms with the West. Furthermore, by punishing subsidized agriculture in the West, this measure would at least provide a small incentive for the West to cooperate with the WTO's agricultural goals.

The relationship between the West and Africa needs to get away from the idea that the West is "helping" a helpless Africa out of the goodness of its heart. In fact, part of Africa's predicament is a direct result of unwise or unfair economic decisions by Western nations and institutions. Rectifying these economic distortions should not be a question of charity, but a question of justice. Foolish, unproductive loans to regimes that were bad investment risks need to be written off, through an international bankruptcy court, so that African nations can start with a clean slate. Meanwhile, African agriculture needs the tools to protect itself against the distortions caused by the dumping of subsidized produce from Western nations.

Over the past thirty years, the West has often tried to dictate sound economics to African nations. But it may be that the lessons were going in the wrong direction. Now it is time to enable Africa to teach the West the consequences of the West's own poor economic decisions.

July 2002

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