Time to leave, our landlord is unwell
Western economies are heading towards a crisis as their growth is not being matched by the actual production of goods. Sooner or later, their currencies will be exposed as worth less than presumed. How should Africa react? By Kalundi Serumaga
I shall allow myself only one self-congratulatory sentence for accurately predicting, in these columns, a renewed interest by post-Brexit Britain in the Commonwealth; and also that the two Koreas, long divided by superpower rivalries, would make their own decision to bypass the US and start seriously talking to each other.
So here is another prediction: there will be no global economic recovery. Capitalism and its spouse called prosperity are headed for a very messy divorce. Only those places least entwined in that system, like Africa, will survive the catastrophe. We have been assuming that the usual symptoms point to the usual problems. But as medical professionals advise: a familiar symptom can sometimes mask a much graver malaise.
What have been the key pillars of the West’s global dominance, and to what extent are they still holding firm today?
The most important was the establishment, and control, of a global trade system. Everything, from trade finance and credit, to patents, to air, land and sea transport infrastructure, and even to an extent language, was owned and overseen by the West.
There was also the obvious military might that backs up these arrangements, through policing trades routes, to suppressing unrest among the globally exploited populations. A reality of failure and a sense of crisis hung over the Industrial Revolution even at its beginning in the 18th century, but the creative and fiscal wealth that flowed out of it simply drowned out the sound of those fears. What makes the problem critical now, is the decline in real material returns from this rickety system.
So, much as Western economies are growing, this does not necessarily mean they are working. Certainly not for significant swathes of their populations, which have undergone a massive shift from being makers of things to becoming speculators and service suppliers.
It is now a two-stage process of cannibalism. Commercial enterprises attach themselves to what is essentially public infrastructure (railways, education, and in Britain, the National Health Service) and then get paid for ‘service’ contracts. The top echelons then milk as much as they can out of those contracts through huge bonuses, regardless of the companies’ performances.
So here is the problem: money is being earned without any real material production to back it up. In earlier times, there was an Empire from which valuable (but critically underpriced) raw materials were brought to Europe and manufactured into merchandise. In the mid-1800s, approximately 85% of all cotton grown globally was being processed in Lancashire, north England, alone. This partly accounted for the development of the former great cities in the region (Liverpool, Manchester, Bolton, etc.).
Now it is a process of organised depletion that will become a quarrel over the value of Western currencies.
The US dollar is not worth what it claims to be, and has not been so for a long while. The EU currency cannot be what its member countries claim it is, whether or not the UK leaves.
This all means a currency breakdown; dollar abandonment; and uncertainty over the real value of debt. Since 1945, many of the West African states created by France remain – by law, policy and sometimes armed force – wedded to the French economy and banking system through their CFA regional currency. France reportedly sits on the boards of two central banks in the region where it holds veto powers.
As for the dollar: the real reason behind the US’s desperation to prop up the dollar, essentially supported by the global trade in crude oil, is the fear of exposing its real value.
Iran’s current issues stem from its recent decision to start trading her oil in a currency other than the US dollar. There were two earlier Middle Eastern leaders who made similar decisions: Saddam Hussein of Iraq, and Muammar Gaddafi of Libya. They are now dead, and their countries have become smoking wrecks. But the oil continues to be pumped out and is traded using the dollar. By wrecking the Iran Nuclear Deal and reimposing sanctions, Donald Trump has put European signatories to the treaty in a bind. If they continue to trade with Iran, for example, France’s Total oil company, they run the risk of triggering a US economic backlash and since virtually all oil transactions go through US banks, this would be catastrophic for Europe.
The EU Council President Donald Tusk hit back, saying “Someone could even think ‘with friends like that, who needs enemies?’ ” He went on to say, “Frankly speaking, Europe should be grateful to President Trump, because thanks to him we have got rid of all illusions. He has made us realise that if you need a helping hand, you will find one at the end of your arm.”
The President of the European Commission, Jean-Claude Juncker said: “We now need to replace the US, which as an international actor has lost vigour, and because of it, in the long term, influence.”
Does this imply a trade war between the US and the EU? Will the EU seriously begin looking for an alternative to the dollar for multinational transactions?
How will China react? It has been gradually pushing its own currency, the renminbi, as a global means of exchange. But China also holds a trade surplus in the hundreds of billions of dollars. If China begins to ditch its dollar holdings on the market, particularly in the light of Trump’s avowed ‘America first’ policy, the dollar could go into free fall.
Grave implications
The implications are many, and grave. How will the current debts of all countries in hock to the IMF, World Bank, European Central Bank and the US then be measured going forward, once the high value of the currencies of those debts is no longer a certainty? How will Western citizens react to learning that austerity is to be permanent?
The West’s challenge is how to maintain the infrastructural, cultural, domestic, consumer and social standards that their populations have, over decades, been acculturated to take for granted.
China is using an old moneylender’s trick of turning the ephemera of debt into actual real estate. Borrowers, Sri Lanka being the most recent example, are finding themselves handing to China valuable ports and other facilities on 99-year leases as a consequence of defaulting on loans for some grand but now idle project.
It also means entrenching their presences in those parts of the world that are resource-rich, but capital-poor. This means Africa, in the main. The US, through its Africa military command (AFRICOM), as well as France and Britain, maintain a much bigger physical presence on the continent than many of us realise. Even China, with a new base in Djibouti, is in on the game, and Turkey is not far behind.
We need a new discussion, which begins with an audit. What is the real value of Africa’s wealth? How much of Africa’s debt is actually real? How much is Africa owed for the historical plunder of her resources? For how much longer can the depleted Western economies dictate the values of their own currencies?
When an indebted landlord also falls gravely ill, his tenants should know it’s time to start packing. NA