Tuesday, April 12, 2016

LESSONS FROM NIGERIA, ZAMBIA, ANGOLA RETURN TO IMF


In recent days it has been reported that Angola, Ghana, Nigeria and Zambia are making determined overtures to the International Monetary Fund (IMF) for assistance as they struggle in the face of falling commodity prices and slower economic growth.

This comes barely a decade since these countries, their economies boosted by natural resource revenues, were being feted as the drivers of the continent’s growth.

Albert Einstein’s definition of insanity is instructive at this point, “Doing the same thing over and over again hoping for a different outcome.”

"This is not the first time that countries on the continent, their revenues boosted by commodity booms, have thrown all economic prudence to the wind, bowing to populism by increasing recurrent instead of development, expenditures. And when the party came to a close they are left with nothing to show for it...

In the 1970s the frost in Brazil meant a collapse in coffee supplies worldwide and veritable party for coffee producers including our own country. Copper, for which Zambia was and still is a leading producer, also experienced such a boom and the government of the day splurged on food subsidies and high living.

As inevitably happened, commodity prices came crushing down and the beneficiary countries in order to stay afloat had to cut down on their extravagance --- with the prompting of the IMF and World Bank, and many of them were kicked out of power by an irate population unwilling to let go of their perks.

Fast forward to the beginning of this century and it was like déjà vu.

Driven by the insatiable demand of China, commodity prices once again went through the roof, and in classic illustration of the say, “That thing we learn from history is that we do not learn from history” commodity driven economies went on a spending binge.

There were some token attempts at shoring up infrastructure, which would have helped diversify their economies, but not nearly enough was done, given the huge deficits in infrastructure stock accumulated since the 1970s.

And as night follows day the commodity prices have crushed again as China’s economy has started cooling down and western economies are still in the doldrums.

So Angola which boats the richest woman in Africa, President Eduardo do Santos’ daughter or Ghana which was thumbing its nose at Uganda who it pipped to oil production or Nigeria, which continues to be one of the biggest oil producers on the continent or Zambia, whose copper mines had enjoyed a revival with renewed Chinese interest have been left to pick the pieces.

Angola, which relies on oil revenues for more than half its budget, has seen its reserves plummet to $22b from $32b and its currency shed more than a third of its value. Zambia, which is the second largest copper producer on the continent has seen its economy contract by three percent and Lusaka is biting its nails while thinking of how to painlessly shed $660m in fuel subsidies. Nigeria has seen its reserves fall by $30b and economic growth dwindle to 2.7 percent in 2015 compared to 6.3 percent in 2014. Ghana as part of the IMF conditionalities will have to cut its public service numbers down, who enjoyed a 50 percent jump in pay when oil started flowing.

And you can go on and on.

"Uganda knows the necessary but painful steps that come with IMF involvement in trying to resuscitate an economy. With oil and other minerals on the verge of being exploited, it’s clear what we should do, but most importantly what should not be done...

The continued emphasis on infrastructure development is key.

Improved energy, transport and communications infrastructure will not only lower business cost for existing businessmen abut will also open up new economic activities.

Investing in education, health and other social services will improve the quality of the Ugandan human resource --- all the dams, roads and railways will count for nothing if you don’t have the manpower to exploit them.

It is essential even critical, that we hold steady on this part. Shifting new revenues to consumption rather than investment will provide some short term relief but will end up in long term pain.

One of the stories of the last 30 years is how diversified the economy has become.

In 1986 coffee revenues accounted for almost all our exports and were second only to donor funds in financing our budget (we used to tax coffee exports!).

Now coffee exports account for less than one in five dollars of our export earnings and their contribution to the budget is next to nothing.

Last week the IMF said the country’s economy will grow by 5.5 percent in the next financial year compared to five percent this year, and we are operating the same environment as our less prudent brothers.

The model we can adopt to our own circumstances is Dubai, which has entered successfully into the logistics and tourism business to the point that oil as a proportion of GDP is down to under five percent today.


At the bare minimum let us be the ones who learn from history.

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