Once again it looks like Africa will get to to subsidize the disasters of western capitalism.
In past global downturns, the severity of the impact on Africa varied considerably from state to state. This downturn is washing up on all of the continent’s shores, cramping both the formal and informal sectors as currencies lose value, the cost of imports rise, and living standards fall. As the big engines of regional growth have slowed – South Africa in the south, Nigeria in the west, and Kenya in the east – the contagion has spread to poorer countries in the landlocked interior.
Economists, investment analysts and policymakers were all slow to see this coming. Until late last year, many believed that the poorest continent would escape relatively unscathed from the gathering storms. This was partly because African banks were not exposed to the toxic assets eating away at Wall Street and the City of London.
It also resulted from the belief that the continent’s strengthening economic performance has been the result of interwoven trends, not just the commodity boom. …
… it now seems painfully obvious just how vulnerable this emerging recovery was likely to be, given its roots in world trade and a relatively narrow base of exports.
Ghana has already suffered at the hands of the free marketeers, the banksters who are eliminating the middle class, and crushing the poor everywhere. Ghana has been the victim of agricultural dumping, chicken and tomatoes from the EU, plus rice from the US. From CorpWatch in 2005:
In 1992 domestic poultry farmers supplied 95 percent of the Ghanaian market, but by 2001 their market share had shrunk to just 11 percent. The imported chicken is available (wholesale) at a price that is only slightly more than half of the wholesale price of local chicken.
The accompanying loss of jobs has also been remarkable. The industry has lost 150 jobs in the past few months alone, say the Farmers Associations. Commercial poultry farms — which do not include small rural producers — employ up to 5,000 people. Any job loss has far reaching implications for Ghana’s 20 million people because each worker often provides support for numerous others in their household.
Foreign producers currently pay a 20 percent tariff or tax on the poultry they send to Ghana. Two years ago, the Ghanaian Parliament passed a law allowing an additional 20 percent tariff to be imposed on imported chicken, bringing the overall tariffs to 40 per cent.
In a dramatic move, just two months after the law was passed, the Customs and Excise Preventive Services (CEPS), the body responsible for implementing the tariffs, issued an order reversing the decision. The new tariffs were said to be in conflict with regional tariffs. In other words, the proposal have been blocked by the International Monetary Fund (IMF), an institution in which the Ghanaian government has less than 0.5 per cent of the vote.
Adding insult to injury:
The IMF made it clear that it was opposed to the higher tariffs on the grounds that it will hurt Ghana’s poverty reduction program.
Wheareas IMF policies consistently increased the number of unemployed, expanded poverty, and decreased productivity and self sufficiency in Ghana as in most countries.
There is some question as to whether a 40 percent tariff on the chicken would actually solve the problem. According “For Richer or Poorer” an April 2004 report released by Christian AID, it was estimated that “tariffs would need to be 80 percent, four times their current level” to allow local producers and processors to compete fairly with EU imports,” because “European producers gave enjoyed decades of subsidies, support and protection from their government.”
In fact IMF policies expand and increase the reach of poverty:
“It is through no fault of ours that our production costs are high,” he adds. “Just look at electricity and water tariffs, as well as the price of petrol and diesel. So, in plain terms, our government is telling us to fold up.”
As pointed out farther along, those electricity and water tariffs are the direct result of IMF actions.
In fact, most members of the once thriving 400,000 member National Association of Poultry Farmers have folded up. And Ghana’s rice and tomato industries are equally threatened.
… Ghana was on the way to becoming self-sufficient in rice production in the 1970s and 1980s. But the IMF structural adjustment program halted farm subsidies to rice farmers. Ghana now produces a mere 150,000 tonnes of rice, or 35 percent of its domestic need.
No longer able to farm because of the high prices of agriculture inputs, many young people are flocking to the urban centers searching for non-existent jobs. More displaced people from the rice and poultry sectors are bound to increase the numbers drifting to the urban centers, causing social problems.
The greed and theft of Wall Street are hitting Ghana through no fault of Ghanaians:
This is a good place to survey what Wall Street and the City of London did to the world. Ghana, which has met its millennium goals on children in primary education and cutting poverty, has been an economic and political success story, with high growth. A centre-left government has just taken over after hard-fought but peaceful elections. It is better protected than some, the prices of its gold and cocoa holding up in the recession. Offshore oil will flow in a few years.
But last year world food and oil prices soared. China’s slashed demand for raw materials is harming much of Africa. Global warming caused a drought that drained the dam powering Ghana’s electricity, requiring crippling oil imports. The last government borrowed to cover these unexpected costs, the currency dropped in value, inflation rose to 20% and credit has dried up.
Economists at the NGO Oxfam point out that this was not caused by profligacy, but by external events last year. A further source of bitterness: if rich countries had kept their 2005 Gleneagles promises, as Britain did, Ghana would have received $1bn, with no need to borrow at all.
Where should Ghana turn? To the IMF, of course, now the G20 has swelled its treasury. But there is deep political and public resistance after previous bad experience. Remember how humiliated Britain felt going cap in hand to the fund in 1976. Ghanaians know how World Bank and IMF largesse came with neoliberal quack remedies.
Cutting public services, making the poor poorer, putting cash crops and trade before welfare was the old IMF way. It was the IMF that insisted on meters for Ghana’s water supply, demanding full cash recovery for the service, steeply raising costs for the poorest. The World Bank insisted on a private insurance model for Ghana’s health service that has been administratively expensive and wasteful. The new government rejects it, promising free healthcare for children. The IMF wants subsidies for electricity removed, again hitting the poorest hardest. A market policy of making individuals pay full cost for vital services instead of general taxation has made the IMF hated; Ghana has now voted for more social democratic solutions. Freedom from the IMF feels like a second freedom from colonialism to many countries.
No wonder the new government hesitates to apply for a loan…
The IMF protests that it has changed: it no longer prescribes or monitors so oppressively, and countries seeking loans can set their own goals. A British cabinet minister was quoted on G20 day as saying that it should be no more stigmatising than “going to a spa to recuperate”. Arnold Mcintyre, the IMF’s representative in Ghana, insists that it would be entirely up to the government to propose its own measures. This is, to put it politely, disingenuous.
Every government knows what it has to do to get credit, so Ghana has already said it will lower its deficit from 15% to 9.5% of GDP in one year, steeply cutting public sector costs. “They can do it through efficiency savings, with no damage to services,” says Mcintyre breezily. The government grits its teeth and says it can, and will: IMF economic thought often enters the soul of finance ministers. IMF power makes it the sole credit-rating agency for all other donors and lenders – an IMF thumbs-down means money from everywhere is cut off.
Oxfam’s senior policy adviser and economist, Max Lawson, doubts such cuts are needed, just a loan to tide Ghana over. “The IMF is too brutal … demanding balanced books within one or two years. The only way to make such a deep cut is in social spending: teachers’ salaries are the main item.”
It’s a strange irony that Barack Obama and Gordon Brown embrace a Keynesian fiscal stimulus and in its name pour out global largesse to the IMF to distribute. But loan recipients risk a Friedmanite tourniquet, cutting off their economic lifeblood. Will Obama and Brown see how their policy is translated on the ground?
Free market is a religion, a belief. It is not science or economics. We have brutal global evidence that it does not produce the advertised results, or live up to its promises. As long as the true believers are in charge, there will be no substantive change. The article quoted above points out that microcredit, and local credit unions are the way to raise productivity, relieve poverty, and increase the numbers of children in school and spending on education. The tiny local credit unions in Ghana discussed in the article have a 0% default rate on their microloans. But none of that is big and glamorous, and it does nothing to add to bankster CEO salaries and bonuses. So I doubt we will see much change in the behavior and policies of the IMF.
Khalil Bendib very graciously extended permisssion to use the cartoon above. His cartoons combine elegant drawing with witty and incisive commentary. You can see more at his website: The Pen is Funnier Than the Sword.
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