If the 2007/8 crisis was a point blank warning shot that shook the decades old development model in Africa and beyond, the coronavirus induced economic crisis has completely broken its foundations. Africa is at an inflection point.
The inflection point did not arrive in 2007/8 due to the rather subdued effects of the crisis on Africa. Save for South Africa, the continent’s under-developed financial markets and their weak integration into the developed North had a cushioning effect. Today, Africa’s financial markets are rather different.
With strong statements from European leaders like “The old Washington Consensus is over” by then British Prime Minister Gordon Brown, and that we have turned a page on “ the free-wheeling Anglo-Saxon model” by French President Nicolas Sarkozy during the G20 meeting in 2009, Africa sought to participate in what promised to be the emergence of a globally coordinated push towards a resilient and equitable new global economic order.
What emerged instead was a highly fragile World Bank developed, G20 driven “Maximising Finance for development” agenda. An agenda to engineer a new financial order based on shadow banking so as to financialise development. What this order has done and continues to do is to not only increase the already high economic fragilities in developing nations, but also rob them of the autonomous policy space necessary to pursue development strategies like industrialisation.
Central to this new agenda is getting developing nations to enact a range of domestic policy reforms, that essentially deregulates their financial sectors so as to allow international banks and shadow banking institutions from advanced nations to establish securitisation markets built around domestic currency bonds and short-term liquidity markets.
This has additionally exposed Africans to rhythms of global financial cycles of which they have no control over, and yet there exist no global safety nets to protect developing nations. Furthermore, it is these very shadow markets’ repo and derivatives activities that both policy makers and academics agree as having been behind the Lehman Brothers global systemic event of 2007/8.
In addition to the new deregulations and other reforms implied by the new financial order, developing nations are required to de-risk projects through subsidies and guarantees, thus placing a strain on already constrained fiscal space.
Recent high capital outflows from developing nations, the collapsing currencies and economies, the skyrocketing debt, rising unemployment and crashing poverty and the subsequent dash for help to the IMF and World bank are some of the disastrous consequences which the Washington Consensus development model and the current G20 driven agenda dubbed the “Wall Street Consensus” have for Africa.
The coronavirus pandemic has simply laid bare the inherent dangers of the current orthodoxy and the urgent need to retreat from foreign-engineered policy fixes for Africa, argue a range of highly informed commentators on the continent.
While the full cost of the COVID-19 crisis will only be known in many months to come, the prognosis looks gloomy. This has not only focussed the minds of policymakers, it has sprang into action an array of progressive thinkers seeking to the see an end to the model of development that has yielded little to show for.
Behind the scenes debates across the continent are intensifying not only among academics and policy makers individually, but also jointly.
In South Africa, a team of economists issued an open letter calling on the Treasury and the Reserve Bank to do urgently do away with the neoliberal agenda that has failed the economy for 26 years since Mandela rose to power. This follows a series of technical articles in the press casting doubt on the relevance of the IMF/World Bank inspired development framework. Debates within the powerful African National Congress are leaning towards the rejection of the current economic model.
Beyond debates, legislation in neighbouring Botswana has curved a large chunk of the economy for citizens only. All these follow an open letter from African intellectuals urging the continent’s leaders to use the crisis caused by the coronavirus pandemic to spur radical change in direction.
As the world watches the crisis force Europe to rip apart the neoliberal playbook and shun unmitigated market forces towards a China-like economic planning, industrial strategies and regulatory measures, Africa is busy integrating its medical, economic, technological and related responses to the crisis and general development.
In Rwanda, President Kagame has wondered why Africa should borrow when it can use its central bank and public banks to issue money for development, just like Germany, East Asia and others did. This idea has focussed minds in South Africa and elsewhere in West Africa too.
While the few who benefit from the current failed order exert disproportionate influence over development policy and do not want to see change, the African horse appears to have bolted towards a more resilient continental finance resource mobilisation plan that can engineer a new balanced and sustainable development future.
Redge Nkosi is executive director of Firstsource Money, a research and advisory organisation specialising in Money, Banking and Macroeconomics, Johannesburg/South Africa.