In a wide-ranging interview with Hichem Ben Yaïche and Guillaume Weil-Raynal, the former Executive Secretary of the UN Economic Commission for Africa shares his analysis of the coronavirus crisis and what the continent must do to emerge from it successfully.
How do you feel in the face of this pandemic that is shaking the world?
We have to take as our reference the Great Depression of 1929 and everything that happened during that period. The collective memory has forgotten that this depression followed a great pandemic – the Spanish flu or influenza. This comparison with the current situation makes me think that the effects on the economy will be of a comparable magnitude. People have also forgotten that the world was very different before and after that great depression. Regarding what is going to happen, we are in a situation of expectation and of ignorance.
Can we predict the effects of this pandemic on African economies?
A number of African countries were already engaged in what can be called structural transformation. Reforms had been made, with visible improvements in doing business to attract investment. Just before this pandemic, 16 African economies had been classed by the IMF among the fastest growing in the world for 2020. We could say there was a two-speed race. Some African countries were making the necessary efforts to better integrate their economies through technological transformation amid accelerating globalisation and others were still behind.
The situation has been turned upside down.
Absolutely. The good students now face the same difficulties as those who did not progress as fast. This is the first negative impact of this health crisis. And why? Because these good students were still suffering from many weaknesses. And this storm shows us that they were not really so advanced on the road to progress compared to others. It is a form of “flattening out” of the whole continent. This crisis shows us the limits of globalisation and reveals in particular the weaknesses of African growth.
This crisis looks like abolishing the rules of budgetary discipline and economic orthodoxy. Debt is sky high. How are we going to be able to rebalance all of this?
The Bretton Woods agreements that created institutions such as the World Bank and the IMF were inspired by Keynes’ vision: the basic doctrine of these institutions was based on the idea of a regulatory state favouring expansionary policies. Subsequently, various historical movements took place concerning the role of these institutions. In particular, when the monetary reference to gold was abandoned in favour of the artificial reference to the dollar.
We are therefore witnessing the birth of a completely different cycle, in which the value of debt will be radically reassessed in terms of economic policy. I will not be surprised if a good part of these debts are completely written off.
This marked the start of a new cycle that continued with the neoliberal policies of the Chicago school, which were in turn ideologically reinforced in the days of Thatcher and Reagan. Today, we are witnessing the end of this neoliberal wave and of these orthodox monetarist policies, which constitutes to a certain extent a return to the original ideas of these institutions.
Indeed, the rhetoric of Western leaders in recent weeks has been completely Keynesian! It is a rhetoric that proclaims the need for expansionist policies to restore the essential role of the state in the protection of publics goods, notably health. We are therefore witnessing the birth of a completely different cycle, in which the value of debt will be radically reassessed in terms of economic policy. I will not be surprised if a good part of these debts are completely written off.
Will cancelling African debt or postponing its repayment be enough to create a virtuous circle for a continent that has so far failed to learn from its past mistakes?
Much of Africa’s debt arose out of the need to finance our national economies, which have doubled in size, but the available concessional loans cannot be doubled. The size of our economies therefore no longer allows us to continue with the same concessional debt structure. This is the reason why many countries need to pay such high rates of interest compared to the rich countries. Japan even has negative rates. This differential results in a net capital transfer. The slightest crisis causes capital migration. Already this year in Africa, more than $20bn have migrated directly from the continent to safer markets, directly linked to the Covid-19 crisis.
Now, from a macroeconomic point of view, we must consider that African debt is not very high compared to the wealth of the continent. But today, African countries spend roughly a quarter of their budgetary revenues to pay for their debt service. It’s enormous! It prevents them from fulfilling other state obligations, including health and education.
All of this because we have the lowest tax rates in the world. The world average is 35%. Most African countries are at 16 or 17%. A few reach a rate of 20%, but they are rare. The oil countries are reaching the lowest level in terms of fiscal pressure. Nigeria, the continent’s largest economy, collects only 7% in taxes compared to the size of its economy. It’s scandalous!
It is therefore more a problem of managing fiscal policy than of debt. The debt levels we are experiencing today have become a problem because we are unable to collect the taxes that match the size of our economies. The other problem is that we pay excessive interest rates, which are the result of the unfavourable risk premium associated with Africa.
Is it premature to consider how Africa can find a favourable exit from this crisis?
I think we are going to have debt relief. The risks posed by the pandemic in areas of global poverty are enormous. If we do not help these countries to respond to this crisis and to get out of it, the international repercussions could be gigantic, far beyond their economic dimension.
These countries must therefore be helped, even if it is for selfish reasons! From a rational and practical point of view, the rich countries are obliged to help Africa. It’s in their own interest. So we will most certainly have debt relief.
But this relief will not be what we are used to. Rather, it will be a restructuring of debt and not all countries will be treated equally. We will see the emergence of different models depending on the country. At first, the moratorium will give countries room to manoeuvre, but it is only a temporary solution. What we are doing is therefore still too little. We know we need to do more.
The pandemic impacts 75% to 95% of the world’s economic sectors. We could call it a collapse. How can Africa get back on its feet?
The danger of collapse is real. I think African economies are indeed in danger of suffering a fatal crash. Without help that enables them to find a way out of the crisis in 2021, getting back on their feet will take much longer. Much of the progress we have made over the past 30 years will be lost. African economies therefore need to be helped for a period of six months to a year. And the stimulus that we need to envisage must be comparable to what we are seeing in the economies of the north. That means a stimulus package of at least 5% of GDP, either in the form of capital mobilisation, or in the form of debt relief or restructuring, or support for the social sectors.
African countries’ debt to China now stands at around $133bn. If China cannot cancel this debt, can it be reduced? It could be a way for China to preserve its interests on a continent where it is heavily implicated.
In my opinion, China does not like to discuss this type of issue in a multilateral framework. I think it will prefer to negotiate directly and separately with each African country. Within the framework of the G20, it accepted – to improve its image a little after its responsibility for the Covid-19 health crisis was brought up – the decision that was taken on the moratorium, because, from the point of view of macroeconomic implications, that doesn’t mean much. So China said yes, like everyone else. Most important, however, is the issue of debt relief for a number of countries. And there, I think they will only accept bilateral discussions.
The fate of the world is also linked to the fact that China controls the market for rare earths and other materials essential for the industries of the future. Does this give them too much power?
This is a question that, in geostrategic terms, brings us back to the fact that we are experiencing a paradigm shift in the distribution of power at the global level. We are witnessing the weakening of powerful countries in many areas. Look at how America is managing the health crisis, but also the way they are communicating; how they are presenting themselves to the world. For example, their lack of solidarity and world leadership – even going so far as to boycott the WHO, the very multilateral organisation that is in charge of the pandemic.
In this regard, China is emerging as a geostrategic power that will occupy much more space. And, from this point of view, we can say that African countries were “ahead”, since China was already their first trading partner, and now their biggest investor.
The geostrategic rivalry between the US and China seems to have been reignited. Does Africa risk ending up in the position of a hostage or a second-rank actor completely out of its depth?
Hostage? No, I do not think so! For some time now, the US has shown less interest in Africa, except for security issues. It is true that in terms of investment in the continent, it still occupies an extremely important place, but as regards new investments, the erosion is enormous. Despite all the rhetoric this is also the case for Europe, in terms of investments and trade positions.
China has already shown that it can occupy a lot of space in Africa with very little effort: only 4% of Chinese investment in the world goes to Africa. This very profitable ratio was made possible, precisely, by the withdrawal of the other players from their historical position in the continent. In this sense, I think that this rivalry can serve the interests of Africa.
But the international context can affect Africa indirectly. For example, a trade war between China and the United States could lead to changes in demand for raw materials. A certain instability of currencies can also affect Africa. We are currently suffering the consequences of a lack of global governance.
African leaders and decision-makers today appear to be in wait-and-see mode, as if in shock. Can we prepare for the future when we are so inert? Is this crisis not an opportunity for Africa to recover and enter a new cycle?
When I hear French President Macron talk about African debt and the importance of the necessary revival for Africa, I recognise a discourse that should be that of some of our African leaders. It contains a level of intuition and depth about the crisis and its opportunities, but also its dangers. Our African leaders no longer use this kind of discourse, which built the reputations of their illustrious elders. Our leaders are too shy … In fact, they are rather inert.
What are our main priorities?
In some countries we need to review our structural transformation processes, first and foremost placing much more importance on the issue of energy. Oil prices are at historically low levels. We must learn from this. Especially since demand is also very low in all sectors, due to the lack of significant economic activity.
So now is the time to end all fossil fuel subsidies across the continent. I think this is the first step to take because we will not have another chance to do it.
So now is the time to end all fossil fuel subsidies across the continent. I think this is the first step to take because we will not have another chance to do it. This should make it possible to revive economies when the recovery is there, on a basis where African taxation will no longer be allocated to subsidies, but to the promotion of renewable energies, and to higher public spending. This is the top priority.
The second measure would be to speed up the introduction of new technologies into services. Africa is a leader in mobile banking payments. It already has the basic experience to be able to migrate this to other services. Many countries are in the process of doing so, countries that are already well equipped, such as South Africa, Kenya, Rwanda and Morocco. It is a movement that we must accelerate.
In addition, the value chains of industrial production are experiencing shortages caused by a strong geographic concentration of some productive sectors. Africa must integrate these value chains and reduce the geographical risks for large companies. Today, everyone will accept some form of protectionism. We must practice regional, not national, protectionism.
Finally, from an economic point of view, the last important measure would be to create structures that can allow much greater food security in government policies. We have made huge investments to export flowers, coffee, cocoa, etc. Raw materials can suffer crises, not only in prices, but also in demand. We will have to seriously think about feeding Africans more consistently, in each country, so that we can protect ourselves.
We will also have to fight for debt relief and for an international economic system that allows access to finance at much lower interest rates. I think the special drawing rights of the IMF make this transition possible, in order to stabilise the public finances of the different countries.
Are we witnessing a form of deglobalisation?
I actually think that we will have another form of globalisation, which will accelerate a certain number of technological achievements which were experienced during the crisis and which are changing our habits. We will move towards a much franker acceptance of another concept of risk which will also include the dangers of too much concentration and too much dependence on certain geographic regions.
Could social impatience become explosive in the near future? People who want to eat, to have a normal daily life are in survival mode… especially in Africa, where the informal predominates.
I think the rules of social distancing will last. Because the problem is that viruses will continue to appear. It’s not just the coronavirus. There will be others. Other ways of reacting to these situations will therefore have to be devised. Because, in poor countries, it will not be possible to practice policies that require the support of social protection. It does not exist there. We will therefore very soon be faced with the need to respond to this type of health imperative, but in another way, because poor countries will not be able to continue like this.
You seem relatively calm. You do not see in this crisis a form of systemic rupture of a predatory capitalism?
It is a crisis that is global, not African. But Africans still count and risk paying a higher price than others because of their weaknesses. So, we will have to prepare. And the countries that prepare and react the best will be the ones that will emerge faster. South Africa’s capacity to manage this crisis has been surprising. Rwanda and Morocco have shown the same capacity. There are therefore many examples of governance that have demonstrated scientific skills and knowledge.