Is This the End of Capital Error in East Africa?
By Ronald Elly Wanda
Tuesday, February 24, 2009.
At the beginning of last year, whilst at a send-off party in London for a Ugandan friend who worked for Citigroup Bank in New York, I remember a Morgan Stanley employee, so tipsy yet confident of his abilities and apparent access to capital, bragging that he would one day buy the Central Bank of Uganda. “This lot are mismanaging the tills in Uganda. I am going to sort these guys out!” proclaimed the chubby banker amidst some hilarity. At that time the conversations revolved almost entirely on how good the times were.
On the eve of 2009, meeting the same East African expatriates in London and the mood is suddenly sombre and very nervy. You can almost smell the fear. Collapse, catastrophe and calamity this time round seemed to be dominant of all subjects financial.
Recently, I was at Parker Macmillan’s in Barbican, where well-to-do East Africans in the Diaspora were busy boozing under the auspices of celebrating all things Bantu. Amidst the sizzling passions and ostentations on display of the most striking legs in the Diaspora, the question: “will we survive?” somehow managed to occupy centre stage. One Kenyan banker recently made redundant by the situation summed up the mood to me using Nairobian slang: “Mambo ni Mbaya jama! kwahivyo sahi ni raundi mwenda tuu!” (The going is tough my friend!), staggeringly pointing to his jug of “DAWA”, a cocktail drink that was specially served aplenty on the night.
At nearby tables, punters seemed determined to discuss neither entrepreneurship nor new business ventures but to engorge enough nyama choma (grilled meat) and booze to put ancient Roman gluttons, the so called godfathers of capitalism, to shame. “Is this it?” I remember being asked by a Rwandese friend, a poet now based in London, as I sipped my chilled Chardonnay.
So I began: What if anything, the last few months have demonstrated to us all, even the staunchest defenders of the “free market” philosophy are now agreeing with me, is that the greed-driven neo-liberal system that for so long has been forced upon us has lost its charm and is now both fiscally and intellectually bankrupt. Last October Nicholas Sarkozy, the French President, as if to substantiate what I mean, conceded that “the all-powerful market is finished”; whilst at the same time the then US president George W. Bush faced mounting accusations from his fellow Republicans of being a ‘socialist’- charged (this time round) with the crime of nationalising his country’s distressed financial system.
The economic situation we are facing, according to a recent Observer editorial, “is as serious as a war”. The total UK personal debt stands at an eye-watering £1.4 trillion, making Rwanda’s $1.4billion external debt seem like a drop in the ocean, it has however led some analysts here to start calling for a nationwide “credit card amnesty”. Britain’s living standards have already begun falling at a rate faster than any other O.E.C.D (Organisation of Economic Cooperation Development) member states, its GDP per capita of $35,243 (£23, 913) exactly twenty times that of Kenya ($1800) and almost one hundred and twenty times that of Burundi ($300) looks set to reduce significantly.
In East Africa, where our economies, been directly pegged into the international financial system, has meant that we are directly affected by the squeeze in international liquidity. Stock markets in East Africa are already coming under pressure because of the continuing withdrawal of international capital.
According to Professor Njuguna Ndung’u, the governor of Central Bank of Kenya (C.B.K), projections shows that Africa’s real GDP growth rate is expected to decline from 6.2% to 4.6% in 2009, while in East Africa, growth rate is projected to fall from 8.4% in 2008 to 6% this year.
Furthermore, the U.N (United Nations) has warned that remittances to Africa, worth $40 billion a year - which is coincidentally the same amount that Africa receives as foreign aid annually - could be an early casualty of the ongoing European and American financial crisis. In Kenya, as is the case in other East African Community member States, remittances have been a powerful anchor for the economy. In 2007 alone, Kenya received U.S 1.3 billion dollars in remittances. But the flow is already slowing down.
The decline in remittances has direct negative effects on household welfare given that, unlike other transfers, these remittances are directly used for covering basic needs such education, health and more importantly food. In August 2008, according to the C.B.K, Kenyans abroad managed to send home 36.5 million dollars compared to 44 million dollars which they had sent in July, a difference of 38 % from what they sent during the same period last year. The drop in remittances, and dollar inflow, says the C.B.K, has affected the Kenyan shilling, which is now trading at a three year low.
Elsewhere in Sub-Saharan Africa, where the average per capita income is around $600-$700 in comparison to thousands of times over in the developed nations (for instance US $46,373 or Germany $41,531), the majority of wanainchi (citizens) live on the bottom end of the economic pyramid. Therefore the options for them (wanainchi), unlike their counterparts in the OECD regions where the ‘welfare’ state “protects”, the current financial crisis (brought about by greedy European and American bankers), is not a question of giving up luxuries, it means living in absolute poverty.
The decrease in demand of raw materials from Africa will result in reduction in the supply of finished goods from rich nations; this in turn will invariably increase the prices of products. Aid and assistance that the developed countries give to Africa will now also reduce because they are trying to bail out their own economies. This means that H.I.P.C (Highly Indebted Poor Countries) such as Uganda, Rwanda, Burundi and Tanzania in East Africa whose budgets are heavily reliant upon aid will suffer allot more.
Kenya, although not a officially a H.I.P.C, its economy is import-dependent, and is still nursing the effects of the post-election crisis earlier last year that claimed the lives of 1400 people and left hundreds of thousands internally displaced, has seen its inflation and food prices rise, partly because it relies heavily on the European, Asian and American economies for remittances, tourism and development aid; and the sale of tea, coffee and horticulture exports.
A lot has and undoubtedly will continue being written about the current global financial crisis and indeed the state of capitalism. However, for me, the analyses and commentaries of two imminent social scientists, Alex Callinicos and Dani Nabudere are of great interest. I first came across Prof Callinicos’s brilliant book ‘Against the Third Way’ whilst an undergraduate way back in 2002.
In the book, Callinicos, who is now professor of European Politics at Kings College London, foretells the financial calamity that lays ahead, his simplifications of complex global politics. This, I have to say, makes him a master political theorist. He developed a fundamental critique of the ‘Third way’ philosophy that was so promoted by notable western leaders at the time, including Britain’s Tony Blair, Bill Clinton of US and Gerald Schroder of Germany.
In Africa, he links the said philosophy to the likes of the former South African president Thambo Mbeki and more recently by President Yoweri Museveni of Uganda. Callinicos argues that ‘Third Way’ governments have continued the neo-liberal policies of their conservative predecessors, by promoting the interests of multinationals through privatisation, thereby allowing social and economic inequalities to continue growing. Those who want to see ‘real’ change, argues Callinicos, should be challenging the logic of the market rather than, like Gordon Brown and George Bush, extending its domination.
Back in Eastern Africa, mounting food deficits, a sharp decline in living standards and rising energy costs are all tell-tale signs that the impact of the ongoing global financial crisis, has trickled down the East African political vein and is soon bound to also spur labour unrest - especially given the World Food Summit’s latest worrisome estimation, that for every one percent increase in the price of food, there is an additional 16 million people who will go hungry.
The European Union, Britain and the United States ‘s continued demand that African nations in the eastern region of the continent follow their purported “anti-terrorism” and pro-capitalist agenda, is exacerbating conditions for already poor wanainchis as well as farmers. During the recent G8 summit in Japan, the major preoccupation of these imperialist states was the total isolation of Zimbabwe and the deployment of more military forces to the Darfur region of Sudan instead of dealing with what is already a desperate situation at hand.
Prof Dani Nabudere of Afrika Study Centre in Mbale, Eastern Uganda, as if to reiterate Callinicos’s contention, has also argued that the current crisis lays at the very foundations of the global capitalist system and thus emphasizes that it should be analysed from that angle.
He argues: “What is at the core of the crisis is the over-extension of credit on a narrow material production base. This is in a situation in which money has become increasingly detached from its material base of a money commodity that can measure its value such as gold.”
According to the Prof. Nabudere, this is why the present financial crisis is also a reflection of the energy and food crisis, because oil and food products such as wheat, rice and other commodities have been subjected to speculative trading to back up paper money, many years in the future. In Kenya, the largest economy in Eastern Africa, the tourism sector has already seen a 30% drop from KSh 49.3 billion to KSh 34.5 billion, also export produce such as tea, flowers and coffee have seen huge reductions in their demand, and given the government’s current budget deficit of KSh 127 billion, the future looks bleak.
Meanwhile at Parker Macmillan’s, with my Chardonnay at hand, the future, I told my Poet friend, remains anyone’s guess. One thing that I can perhaps say with certainty about the state of capitalism is that it will never be the same again.
Ronald Elly Wanda MCIJ is a political scientist based in London.