How France underdevelops Africa

How France underdevelops Africa

Anis Chowdhury and Jomo Kwame Sundaram

SYDNEY and KUALA LUMPUR, Aug 30 2022 (IPS) - Most sub-Saharan African French colonies got formal independence in the 1960s. But their economies have progressed little, leaving most people in poverty, and generally worse off than in other post-colonial African economies. 

Decolonization?

Pre-Second World War colonial monetary arrangements were consolidated into the Colonies Françaises d’Afrique (CFA) franc zone set up on 26 December 1945. Decolonization became inevitable after France’s defeat at Dien Bien Phu in 1954 and withdrawal from Algeria less than a decade later. 

France insisted decolonization must involve ‘interdependence’ – presumably asymmetric, instead of between equals – not true ‘sovereignty’. For colonies to get ‘independence’, France required membership of Communauté Française d’Afrique (still CFA) – created in 1958, replacing Colonies with Communauté.

CFA countries are now in two currency unions. Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo belong to UEMOA, the French acronym for the West African Economic and Monetary Union. 

Its counterpart CEMAC is the Economic and Monetary Community of Central Africa, comprising Cameroon, the Central African Republic, the Republic of the Congo, Gabon, Equatorial Guinea and Chad. 

Both UEMOA and CEMAC use the CFA franc (FCFA). Ex-Spanish colony, Equatorial Guinea, joined in 1985, one of two non-French colonies. In 1997, former Portuguese colony, Guinea-Bissau was the last to join.

Such requirements have ensured France’s continued exploitation. Eleven of the 14 former French West and Central African colonies remain least developed countries (LDCs), at the bottom of UNDP’s Human Development Index (HDI). 

French African colonies

Guinea was the first to leave the CFA in 1960. Before fellow Guineans, President Sékou Touré told President Charles de Gaulle, “We prefer poverty in freedom to wealth in slavery”. 

    Guinea soon faced French destabilization efforts. Counterfeit banknotes were printed and circulated for use in Guinea – with predictable consequences. This massive fraud brought down the Guinean economy.

France withdrew more than 4,000 civil servants, judges, teachers, doctors and technicians, telling them to sabotage everything left behind: “un divorce sans pension alimentaire” – a divorce without alimony. 

Ex-French espionage documentation service (SDECE) head Maurice Robert later acknowledged, “France launched a series of armed operations using local mercenaries, with the aim of developing a climate of insecurity and, if possible, overthrow Sékou Touré”.

In 1962, French Prime Minister Georges Pompidou warned African colonies considering leaving the franc zone: “Let us allow the experience of Sékou Touré to unfold. Many Africans are beginning to feel that Guinean politics are suicidal and contrary to the interests of the whole of Africa”.

    Togo independence leader, President Sylvanus Olympio was assassinated in front of the US embassy on 13 January 1963. This happened a month after he established a central bank, issuing the Togolese franc as legal tender. Of course, Togo remained in the CFA.

Mali left the CFA in 1962, replacing the FCFA with the Malian franc. But a 1968 coup removed its first president, radical independence leader Modibo Keita. Unsurprisingly, Mali later re-joined the CFA in 1984.

Resource-rich

The eight UEMOA economies are all oil importers, exporting agricultural commodities, such as cotton and cocoa, besides gold. By contrast, the six CEMAC economies, except the Central African Republic, rely heavily on oil exports.

CFA apologists claim pegging the FCFA to the French franc, and later, the euro, has kept inflation low. But lower inflation has also meant “slower per capita growth and diminished poverty reduction” than in other African countries. 

The CFA has “traded decreased inflation for fiscal restraint and limited macroeconomic options”. Unsurprisingly, CFA members’ growth rates have been lower, on average, than in non-CFA countries. 

With one of Africa’s highest incomes, petroleum producer Equatorial Guinea is the only CFA country to have ‘graduated’ out of LDC status, in 2017, after only meeting the income ‘graduation’ criterion. 

Its oil boom ensured growth averaging 23.4% annually during 2000–08. But growth has fallen sharply since, contracting by -5% yearly during 2013–21! Its 2019 HDI of 0.592 ranked 145 of 189 countries, below the 0.631 mean for middle-ranking countries.

Poor people

With over 70% of its population poor, and over 40% in ‘extreme poverty’, inequality is extremely high in Equatorial Guinea. The top 1% got over 17% of pre-tax national income in 2021, while the bottom half got 11.5%!

Four of ten 6–12 year old children in Equatorial Guinea were not in school in 2012, many more than in much poorer African countries. Half the children starting primary school did not finish, while less than a quarter went on to middle school. 

CFA member Gabon, the fifth largest African oil producer, is an upper middle-income country. With petroleum making up 80% of exports, 45% of GDP, and 60% of fiscal revenue, Gabon is very vulnerable to oil price volatility. 

One in three Gabonese lived in poverty, while one in ten were in extreme poverty in 2017. More than half its rural residents were poor, with poverty three times more there than in urban areas.

Côte d’Ivoire, a non-LDC CFA member, enjoyed high growth, peaking at 10.8% in 2013. With lower cocoa prices and Covid-19, growth fell to 2% in 2020. About 46% of Ivorians lived on less than 750 FCFA (about $1.30) daily, with its HDI ranked 162 of 189 in 2019.

CFA’s neo-colonial role

Clearly, the CFA “promotes inertia and underdevelopment among its member states”. Worse, it also limits credit available for fiscal policy initiatives, including promoting industrialization. 

Credit-GDP ratios in CFA countries have been low at 10–25% – against over 60% in other Sub-Saharan African countries! Low credit-GDP ratios also suggest poor finance and banking facilities, not effectively funding investments. 

By surrendering exchange rate and monetary policy, CFA members have less policy flexibility and space for development initiatives. They also cannot cope well with commodity price and other challenges. 

The CFA’s institutional requirements – especially keeping 70% of their foreign exchange with the French Treasury – limit members’ ability to use their forex earnings for development. 

More recent fiscal rules limiting government deficits and debt – for UEMOA from 2000 and CEMAC in 2002 – have also constrained policy space, particularly for public investment.

The CFA has also not promoted trade among members. After six decades, trade among CEMAC and UEMOA members averaged 4.7% and 12% of their total commerce respectively. Worse, pegged exchange rates have exacerbated balance of payments volatility. 

Unrestricted transfers to France have enabled capital flight. The FCFA’s unlimited euro convertibility is supposed to reduce foreign investment risk in the CFA. However, foreign investment is lower than in other developing countries. 

Total net capital outflows from CFA countries during 1970–2010 came to $83.5 billion – 117% of combined GDP! Capital flight from CFA economies was much more than from other African countries during 1970–2015. 

Related IPS commentaries

Neo-colonial currency enables French exploitation. 2 Aug 2022. https://www.ipsnews.net/2022/08/neo-colonial-currency-enables-french-exploitation/

Africa taken for ‘neo-colonial’ ride. 26 Jul 2022. https://www.ipsnews.net/2022/07/africa-taken-neo-colonial-ride/

Out of Africa: Rich continent, poor people. 3 May 2022.

https://www.ipsnews.net/2022/05/africa-rich-continent-poor-people/

Another false start in Africa sold with Green Revolution myths. 20 Apr 2021.

http://www.ipsnews.net/2021/04/another-false-start-africa-sold-green-revolution-myths/

Hunger in Africa, land of plenty. 14 Oct 2017. http://www.ipsnews.net/2017/10/hunger-africa-land-plenty/

How NOT to win friends and influence people

Anis Chowdhury and Jomo Kwame Sundaram

SYDNEY and KUALA LUMPUR. After four years of Trump’s ‘America first’ isolationism, US President Joe Biden announced “America is back”. His White House has since tried to find allies against China and Russia. 

But it has not found many, especially in the Global South. His summit with Southeast Asian leaders was well attended, but promised little. Worse, his Summit of the Americas revealed fading US influence in its long-time backyard.

Africa not aligned

The latest U.S. Strategy Towards Sub-Saharan Africa (SSA) was expected to do better on the continent of Trump’s “shithole countries”. But it delivered little more than rhetoric. As with its Indo-Pacific Economic Framework for Prosperity, it is seen as “a hamburger without the beef”. 

Biden’s strategy explicitly seeks to “counter harmful activities” by China and Russia, and “to expose and highlight the risks of negative PRC and Russian activities in Africa”. But it offers no evidence of such threats. 

It asserts China “sees the region as an important arena to challenge the rules-based international order, advance its own narrow commercial and geopolitical interests, undermine transparency and openness”. 

Similarly, it insists “Russia views the region as a permissive environment for parastatals and private military companies, often fomenting instability for strategic and financial benefit.” 

Presenting Biden’s SSA strategy in South Africa (SA), US Secretary of State Anthony Blinken claimed, “Our commitment to a stronger partnership with Africa is not about trying to outdo anyone else”. He emphasized, “our purpose is not to say you have to choose”.

While “glad” the US was not forcing Africa to choose, SA foreign minister Naledi Pandor reminded the Blinken mission no African country can be “bullied” or threatened thus: “either you choose this or else.” The host also reminded her guests of the plight of the Palestinian people and life under apartheid.

Visiting Rwanda just before Blinken’s announcement, US Ambassador to the United Nations Linda Thomas-Greenfield had threatened, “Africa could face consequences if they trade in U.S.-sanctioned commodities”. 

Pandor described the US Congressional bill, ‘Countering Malign Russian Activities in Africa Act’ as “offensive legislation”. The bill, the 2021 Strategic Competition Act and the US Innovation and Competition Act have all been criticized by Africans, including governments, as “Cold War-esque”. 

Calling for diplomacy, not war, Pandor urged, “African countries that wish to relate to China, let them do so, whatever the particular form of relationships would be.” 

US credibility in doubt 

Biden’s SSA strategy has four explicit objectives – foster openness and open societies, deliver democratic and security dividends, advance pandemic recovery and economic opportunity, and support conservation, climate adaptation, and a just energy transition.

The US strategy paper refers to the 2022 G7 Partnership for Global Infrastructure and Investment (PGII) promising $600bn. Confident the PGII will “advance U.S. national security”, the White House has pledged $200bn “to deliver game-changing projects to strengthen economies”. 

After all, the 2005 G7 Gleneagles Summit promise – to double aid by 2010, with $50bn yearly for Africa – remains unfulfilled. Actual aid has been woefully short, with no transparent reporting or accountability. 

Over half a century ago, rich nations promised 0.7% of their national income in development aid. The US has long ranked lowest among the G7, spending only 0.18% in 2021. Worse, US aid effectiveness is worst among the world’s 27 wealthiest nations.

Meanwhile, rich countries have fallen far short of their 2009 pledges to provide $100bn in climate finance annually until 2020 to help developing countries adapt to and mitigate global warming.

After his stillborn Build Back Better World initiative, many doubt how much Congress will approve, and what will be for SSA. Likewise, before mid-2021, the Biden administration promised support for pandemic containment. 

But it did not support developing countries’ request to the World Trade Organization (WTO) for a temporary waiver of related patents. The June 2022 WTO compromise was nothing less than “shameful”. 

Supplies of Covid pandemic needs from China and Russia have been decried as “vaccine diplomacy”. Sanctions against Russia have disrupted contracted delivery of 110 million doses of its vaccine. This jeopardizes UNICEF efforts to vaccinate many countries, including Zambia, Uganda, Somalia and Nigeria. 

With 43.87 vaccine doses per 100 people – less than a third of the 157.71 world average, or under a quarter of the US mean of 183 doses per 100 people – Africa had the lowest Covid-19 vaccination rate, by far, in mid-August 2022.

The SSA strategy paper highlights US-Africa HIV-AIDS partnerships. But it is silent about Big Pharma getting a US sanctions threat against SA for producing generic HIV-AIDS drugs. The US only backed down after a worldwide backlash as Nelson Mandela stood firm. 

West still exploiting Africa

Biden’s SSA strategy promises to “engage with African partners to expose and highlight the risks of negative PRC and Russian activities in Africa” in line with the US 2022 National Defense Strategy.

But it ignores why Africa remains underdeveloped and poor. After all, Africa has around 30% of the world’s known mineral reserves, and 60% of its arable land. Yet, 33 of its 54 nations are deemed least developed countries. 

The New Colonialism report showed British companies control Africa’s key mineral resources, with 101 mostly UK companies listed on the London Stock Exchange having mining operations in 37 SSA countries. 

Together, they controlled over a trillion dollars’ worth, while $192 billion is drained yearly from Africa via profit transfers and tax dodging by foreign companies.

France retains control of its former colonies’ monetary systems, requiring them to deposit foreign exchange reserves with the French Treasury. It has never hesitated to topple ‘unfriendly’ governments through coups and its military.

Recently, the US promised to continue providing intelligence, surveillance and reconnaissance support on Africa to France, using its advanced drone and satellite technology. 

As ex-colonial powers continue to control and exploit SSA, policies imposed by donors, the International Monetary Fund and multilateral development banks have ensured its continuing underdevelopment and impoverishment. 

Once a net food exporter, Africa has become a net food importer. With more pronounced Washington Consensus policies since the 1980s, food insecurity has worsened. SSA has also deindustrialized, making it more resource dependent and vulnerable to international commodity price volatility.

Forget the past?

Many Africans have suffered much due to colonialism, racism, apartheid and other oppressions. Pan-Africanism contributed much to the non-aligned movement during the old Cold War. Julius Nyerere famously declared in 1965, “We will not allow our friends to choose our enemies”. 

Half a century later, Mandela reminded the West not to presume its “enemies should be our enemies”. Older Africans still remember the former Soviet Union and China for their support through past struggles, when most of the West remained on the wrong side of history. 

Africans are correctly wary of the new “Greeks bearing gifts” and promises. While most do not want a new Cold War, many see China and Russia offering more tangible benefits. Unsurprisingly, 25 of Africa’s 54 states did not support the March 2022 UN General Assembly resolution condemning Russia’s invasion of Ukraine.

Related IPS commentaries

Neo-colonial currency enables French exploitation. 2 Aug 2022. https://www.ipsnews.net/2022/08/neo-colonial-currency-enables-french-exploitation/

Africa taken for ‘neo-colonial’ ride. 26 Jul 2022. https://www.ipsnews.net/2022/07/africa-taken-neo-colonial-ride/

Out of Africa: Rich continent, poor people. 3 May 2022.

https://www.ipsnews.net/2022/05/africa-rich-continent-poor-people/

Another false start in Africa sold with Green Revolution myths. 20 Apr 2021.

http://www.ipsnews.net/2021/04/another-false-start-africa-sold-green-revolution-myths/

Hunger in Africa, land of plenty. 14 Oct 2017. http://www.ipsnews.net/2017/10/hunger-africa-land-plenty/

Stagflation: From tragedy to farce

Stagflation: From tragedy to farc

Anis Chowdhury and Jomo Kwame Sundaram

SYDNEY and KUALA LUMPUR. Half a century after the 1970s’ stagflation, economies are slowing, even contracting, as prices rise again. Thus, the World Bank warns, “Surging energy and food prices heighten the risk of a prolonged period of global stagflation reminiscent of the 1970s.” 

In March, Reuters reported, “With surging oil prices, concerns about the hawkishness of the Federal Reserve and fears of Russian aggression in Eastern Europe, the mood on Wall Street feels like a return to the 1970s”.

Stagflation in the 1970s

Worse, it seems few lessons have been learnt from the last stagflation episode. There is no agreed formal definition of stagflation, which refers to a combination of economic stagnation with high inflation, e.g., when unemployment and prices both rise.

When growth is weak and many are jobless, prices rarely rise, keeping inflation low. The converse is true when growth is strong. This inverse relationship between economic activity and inflation broke down with supply shocks, particularly oil and other primary commodity price surges during 1972-75. 

Non-oil primary commodity prices on The Economist index more than doubled between mid-1972 and mid-1974. Prices of some commodities, e.g., sugar and urea fertilizer, rose more than five-fold!

As costlier energy pushed up production expenses, businesses raised prices and cut jobs. With higher food, fuel and other prices, rising costs, coupled with income losses, reduced aggregate demand, further slowing the economy. 

Fed chokes economy to cut inflation 

Years before becoming US Fed chair in 2006, a Ben Bernanke co-authored paper noted, “Looking more specifically at individual recessionary episodes associated with oil price shocks, we find that … oil shocks, per se, were not a major cause of these downturns”. 

They concluded, “an important part of the effect of oil price shocks on the economy results not from the change in oil prices, per se, but from the resulting tightening of monetary policy”. Their findings corroborated others, e.g., by James Tobin. 

Following Milton Friedman and Anna Schwartz, other economists also found “in the postwar era there have been a series of episodes in which the Federal Reserve has in effect deliberately attempted to induce a recession to decrease inflation”.

The US Fed began raising interest rates from 1977, inducing an American economic recession in 1980. The economy briefly turned around when the Fed stopped raising interest rates. But this nascent recovery soon ended as Fed chair Paul Volcker raised interest rates even more sharply. 

The federal funds target rate rose from around 10% to nearly 20%, triggering an “extraordinarily painful recession”. Unemployment rose to nearly 11% nationwide – the highest in the post-war era – and as high as 17% in some states, e.g., Michigan, leaving long-term scars.

Interest rate hikes reduced needed investments. Outside the US economy, these sharp and rapid interest rate hikes triggered debt crises in Poland, Latin America, sub-Saharan Africa, South Korea and elsewhere. 

Earlier open economic policies meant “the increase in world interest rates, the increased debt burden of developing countries, the growth slowdown in the industrial world…contributed to the developing countries’ stagnation”. 

Countries seeking International Monetary Fund (IMF) financial support had to agree to severe fiscal austerity, liberalization, deregulation and privatization policy conditionalities. With per capita incomes falling and poverty rising, Latin America and Africa “lost two decades”. 

Stagflation reprise

The IMF chief economist recently reiterated, “Inflation is a major concern”. The Bank of International Settlements has warned, “We may be reaching a tipping point, beyond which an inflationary psychology spreads and becomes entrenched.”

Central bankers’ anti-inflationary efforts mainly involve raising interest rates. This approach slows economies, accelerating recessions, often triggering debt crises without quelling rising prices due to supply shocks. 

Economic recoveries from the 2008-09 global financial crisis (GFC) remained tepid for a decade after initially bold fiscal responses were quickly abandoned. Meanwhile, ‘quantitative easing’, other unconventional monetary policies and the Covid-19 pandemic raised debt to unprecedented levels. 

GFC trade protectionist responses, US and Japanese ‘reshoring’ of foreign investment in China, the pandemic, the Ukraine war and sanctions against Russia and its allies have reversed earlier trade liberalization.

Higher interest rates in the rich North have triggered capital flight, causing developing country currencies to depreciate, especially against the US dollar. The slowing world economy has reduced demand for many developing country exports, while most migrant worker remittances decline.

Interest rate hikes have worsened debt crises, particularly in the global South. The poorest countries have seen an $11bn surge in debt payments due while grappling with looming food crises. Thus, developing country vulnerabilities have been worsened by international trends over which they have little control.

Lessons not learned

Supply-side cost-push inflation is very different from the demand-pull variety. Without evidence, inflation ‘hawks’ insist that not acting urgently will be costlier later. 

This may happen if surging demand is the main cause of inflation, especially if higher costs are easily passed on to consumers. However, episodes of dangerously accelerating inflation are very rare. 

Acting too quickly against supply-shock inflation can be unwise. The 1970s’ energy crises sparked greater interest in energy efficiency. But higher interest rates in the 1980s deterred needed investments, even to reverse declining or stagnating productivity growth. 

Raising interest rates also accelerated recessions. But similar commodity price rises before the 1970s’ and imminent stagflation episodes – involving energy and food respectively – obscure major differences. 

For instance, ‘wage indexing’ – linking wage increases to price rises – enhanced the 1970s’ inflation spiral. But labour market deregulation since the 1980s has largely ended such indexation. 

The IMF acknowledges globalization, ‘offshoring’ and labour-saving technical change have weakened unionization and workers’ bargaining power. With both elements of the 1970s’ wage-price spirals now insignificant, inflation is more likely to decline once supply bottlenecks ease. 

But the wage-price spiral has also been replaced by a profit-price swirl. Reforms since the 1980s have also enhanced large corporations’ market power. Greater corporate discretion and reduced employees’ strength have thus increased profit shares, even during the pandemic. 

In November 2021, Bloomberg observed the “fattest profits since 1950 debunks wage-inflation story of CEOs”. Meanwhile, the Guardian found “Companies’ profit growth has far outpaced workers’ wages”. 

Corporations are taking advantage of the situation, passing on costs to customers. The net profits of the top 100 US corporations were “up by a median of 49%, and in one case by as much as 111,000%”!

Meanwhile, many more consumers struggle to meet their basic needs. Interest rate hikes have also hurt wage-earners, as falling labour shares of national income have been exacerbated by real wage stagnation, even contraction. 

Hence, policymakers should ease supply bottlenecks and address imbalances to accelerate progress, not raise interest rates causing the converse. Thus, they should rein in corporate power, improve competition and protect the vulnerable. 

Allowing international price rises to pass through, while protecting the vulnerable, can accelerate the transition to more sustainable consumption and production, including cleaner renewable energy.

Related IPS commentaries

April Fool’s Inflation Medicine Threatens Progress. 9 Aug 2022. https://www.ipsnews.net/2022/08/april-fools-inflation-medicine-threatens-progress/

When Saviours Are the Problem. 17 May 2022. 

https://www.ipsnews.net/2022/05/when-saviours-are-the-problem/

Deepening Stagflation: Out of the Frying Pan into the Fire. 5 Apr 2022. https://www.ipsnews.net/2022/04/deepening-stagflation-frying-pan-fire/

Stagflation Threat: Be Pragmatic, Not Dogmatic. 22 Mar 2022. https://www.ipsnews.net/2022/03/stagflation-threat-pragmatic-not-dogmatic/

Fighting Inflation Excuse for Class Warfare. 24 May 2022. https://www.ipsnews.net/2022/05/fighting-inflation-excuse-class-warfare/

Finance Drives World to Stagflation. 10 May 2022. https://www.ipsnews.net/2022/05/finance-drives-world-stagflation/