Alex Brummer
Of all the world regions, over the last decade Africa has been the most neglected by statesmen, policymakers and the business and financial sectors. While other developing regions from Asia to Latin America have seen vast inward investment, running at US$250 billion a year, Africa has been starved of both public and private sector cash. Some of its poorest nations - from Uganda to Mozambique - have seen their domestic budgets swallowed by the large interest payments on debt. The image of Africa as a continent has not been assisted by civil strife in Rwanda, ruthless dictatorship in Nigeria, lootings of the state coffers in Zaire or the land grabs in Zimbabwe.
Yet there have been some more hopeful signs amid the scenes of chaos, starvation and grim poverty. The end of apartheid in South Africa has given the continent its own western-style anchor in the South, with vibrant capital markets, a sophisticated financial system and the prospect of attracting western companies to the continent. The region has also been restored to the political map by President Clinton's much publicised tour of the continent in April. The television pictures beamed back to the US and the rest of the world created a stronger political -- if not yet economic - constituency for bringing the benefits of democracy, free markets and private sector capital to Africa.
An essential prerequisite to economic restoration across Africa is relief from the burden of its debt legacy. At present much of the export earnings and assistance from overseas aimed at relieving poverty, improving health and education and building infrastructure, is simply being used to keep up debt payments to the World Bank, International Monetary Fund and bilateral lenders. Many African governments, like Uganda's, have embarked on ambitious and wide ranging reform programmes and cannot afford to allow the debts built up by the their profligate predecessors to go too deeply into arrears. That would cut them off from new funds, including concessional assistance, and discourage inward investment.
As a result, since mid-1995, there has been a broadly based lobbying effort among non-government organisations, like Oxfam and Christian Aid, to persuade the World Bank/IMF and the richer industrial countries to reduce or wipe out the debt which has hindered economic growth and improvements in standards of living. The campaign, now embraced by the major international churches and endorsed by the leaders of the Group of Eight economies meeting in the UKin May, seeks to remove the larger volume of debt by 2000, creating room for restoration of the African economies.
The mechanism created for dealing with the debt overhang, at the initiative of World Bank president James Wolfensohn, is the highly indebted poor countries initiative (HIPC) administered by the World Bank/IMF. The latter are increasingly confident that at least three quarters of the world's most poverty stricken nations -- most of them in Africa -- will qualify for debt relief in keeping with the church supported Jubilee 2000 debt campaign.
In April 1998 Uganda became the first country to qualify under the plan after President Musevni had satisfied the Fund and the Bank that durable reforms were in place. Under the terms of the Uganda deal the country received $650 million in debt relief, the equivalent of 70 per cent of its gross domestic product. As a result Uganda's debt service costs will be slashed by $60 million a year.
The programme for Africa's biggest debtor country, Mozambique, still suffering from the ravages of civil strife, is even more important. Under its debt relief plan, which will be completed in mid 1999, some $2.9 billion in outstanding loans will be cancelled. The cost of debt service will fall from 40 per cent of the national budget to a manageable level of 15 per cent.
The debt relief comes at a useful juncture for Africa. Despite some economic recovery in the mid-1990s, as economic reforms took hold and political stability was restored in several countries, growth slowed in 1997 to 3.75 per cent - at which level it is too low to raise per capita income. The slower growth was largely attributable to adverse weather conditions and sharp declines in the price of commodities, largely due to global deflation.
Among the largest countries in the region output in South Africa grew by just 1.75 per cent in 1997 compared to 3.25 per cent in 1996, reflecting weakness in both domestic and external demand. In Nigeria growth reached 5 per cent last year but economic activity was affected by fuel shortages. The investment climate there, in contrast to the reforming African countries, has been adversely affected by the nation's repressive political regime. Looking ahead to 1998, however, the IMF's Spring World Economic Outlook report forecasts that that overall growth could reach 5 per cent and remain at this level over the medium term as many countries start to benefit from the effects of debt relief.
There are still some major obstacles to the debt relief initiative. Despite the support of President Clinton, there are opponents in the US Treasury to the provision of debt relief until poor African countries have a sustained record of running their economies and good governance. But the biggest hurdle is lack of funding. The German authorities oppose the sale of a small amount of IMF gold, some 5 million ounces, to create a trust fund to support debt relief.
Despite these problems, there is a determination to lift those countries which have reformed out of poverty and expose them to the benefits of debt relief and capital flows. Some western financial institutions have already moved to establish a bridgehead, trading stocks and shares in the reforming African economies. As economic and political stability is restored, Africa will increasingly become a target for inward western investment as it seeks to use its new debt free environment to establish healthier growth.
Source: Airline Business