The Cold War end, 1970s global meltdown, all shook up Africa. What will give in 2015 with China's slowdown?


8 scenarios on how the current economic turmoil can make way for political and social change in Africa

THIS year’s big story for Africa has been the economic shake-up in China. Like in most of the emerging world, Africa is being hit by one of the worst falls in oil and metal prices in years, as Chinese demand for commodities slumps, and the expansion of US shale oil drilling drives oil prices to what seems to be a long-term new low.

It has meant currency turmoil in many commodity-exporting African countries and mounting debt – soon, some may even be staring recession in the face.

Still, this is not the first time that seemingly remote events on the global stage have had a very direct – and sometimes quite unexpected – impact not just on African economies, but on political and social life.

The global commodity crisis of the 1970s led to the one-party dictatorships, countless coups and rebellion in Africa, as governments suddenly found themselves broke and in turmoil. The crisis also weakened Portuguese colonial outposts in Angola and Mozambique and led to a victory by nationalist rebel movements in both countries.

The fall of the Berlin Wall in 1989 and the subsequent end of the Cold War was the start of the end of Africa’s one-party dictatorships, a return to multiparty politics, and economic liberalisation.

The question then is how will Africa use today’s crisis, so it doesn’t go to waste, for political and economic change?

The World Bank says today’s troubles are likely to slow down poverty reduction. And in many African countries, teachers, nurses, the police and civil servants are hurting as governments struggle to keep with wage payments.

Also, with treasuries running dry and debt bulking, borrowing costs for African government are rising sharply. Sovereign credit ratings for Angola, Nigeria, Gabon and Kenya all have been downgraded in the past year.

In Kenya’s case, the government is facing a cash crisis and has come close to admitting that it is broke; Treasury bond yields are at a 17-year high: which suggests that investors are worried about the government’s ability to pay its debt.

Something has got to give, but who will be the first to blink? And what are some of the likely – and unexpected – political and social changes that the current turmoil will bring in Africa?

1. Running back to the ex

First, the crisis seems to have stopped the “move East” movement, as China goes soft – not so long ago, Africa was thumbing its nose at the Bretton Woods institutions and falling into China’s arms.

Today, with debt piling, it’s almost inevitable that African countries will run back crying to the World Bank and International Monetary Fund – Ghana already did, securing a $1billion lifeline, Zambia is said to mulling the same.

That could mean a new round of pressure from multilateral donor institutions for reforms, including spending cuts and privatisation that had largely stopped in Africa in recent years.

2. Angola: The Writing on the Wall

Angola’s strongman, 73-year-old Jose Eduardo dos Santos, in power for 36 years now, might be among those who will have to jump.

Last week, the Luanda government announced it was slashing spending by 50%. Angola is Africa’s second largest exporter of oil after Nigeria; oil accounts for two-thirds of fiscal revenue. With prices more than halving since June last year, Angola is under pressure. Its currency, the kwanza, has been hammered, and the central bank has devalued the currency twice this year and raised the benchmark interest rate four times in response.

However, dos Santos didn’t show up in Parliament to deliver the tough love to his country. He sent Vice President Manuel Vicente to deliver the message in a state-of-the-nation address on his behalf. He himself was said to be “indisposed”, according to parliamentary Speaker Fernando da Piedade Dias dos Santos.

In 2011, dos Santos left the country and largely dropped out of sight for 40 days, giving fuel to wild speculation about his health, with rumours even suggesting he had died. When he emerged, his office said he had been in Spain for most of that time, and the reason he had been away for longer than expected was because of repairs being done at the presidential palace! Dos Santos had in the past travelled to Barcelona for medical attention.

Angolan president Jose Eduardo Dos Santos. (Photo/ File)

In July, Dos Santos signaled that he was aware the clock was running down, saying he planned to step down in 2017 when his current term ends and asked his ruling MPLA party to prepare for a leadership change.

Leaders older than than Dos Santos, like Zimbabwe’s Robert Mugabe, 91, have changed their minds and stayed on, but Angola’s case might be different. When the petrodollars were flowing in, Dos Santos enriched himself, family, and inner circle. Now that the source of his patronage is drying out, and limiting his ability to buy loyalty, the better option is to limit his exposure and get out.

3. Zambia: Praying for a miracle

In Zambia, President Edgar Lungu called a divine weekend, during which the country will pray to God to turn around the kwacha’s fortunes. Zambia’s currency has fallen 45% in the past 12 months, the steepest decline in 155 currencies tracked by Bloomberg. The country is dependent on copper for 70% of export revenue, and copper prices have fallen by more than a fifth in the past year.

Zambia goes to the polls next year, and if there is no change, he might well be out of a job in a country reputed for its closely contested elections.

4. Nigeria: A chance for a fresh start

But in the other countries where the crisis has hit hard, there may not necessarily be a political fall-out. In Nigeria, President Muhammadu Buhari was only just elected, in the first election in the country’s history where the opposition defeated the incumbent party and president.

The fall in global oil prices over the last year has affected the revenue of the oil-dependent nation, which derives more than 90% of its foreign exchange earnings from crude sales. Revenue from Nigeria’s oil sales declined by over two-thirds between September last year and July this year with “dire consequences” for Africa’s largest economy, the country’s state-run oil giant said.

Nevertheless, the crisis has enabled Buhari, reputed for being a disciplinarian and anti-corruption czar from when he was once a military ruler, to try and use it to clean out the inefficient and graft-riddled oil sector.

Nigeria’s national oil corporation has reportedly ‘eaten’ more than $30 billion in oil revenue since 2009. That exceeds the annual economic output of more than half the nations in Africa and roughly equals the federal budget, but Buhari is determined to clean it up. He is in for a monumental task, as the corporation is deeply opaque and has been linked to “mind-bogging” theft of public funds.

5. Egypt: A strong hand

Meanwhile, Egypt has had to depreciate the pound for the third time this year after the nation’s foreign reserves tumbled and the currency fell to a record in black-market trading.

Government spending helped boost economic growth to 4.1% in the fiscal year that ended in June—the fastest expansion since 2010. Still, non-oil private business activity contracted in six of the first nine months of 2015.

Food subsidies are a crucial lifeline for Egyptians, almost half of the population lives below or near the poverty line, according to a World Food Programme study. Indeed, the initial demands of protestors in Tahrir Square in early 2011 was related to the price of bread.

Tahrir Square protest in 2011. (Photo/ File)

With government activity being an increasingly significant driver of the economy, that sets the stage for a strengthened state as the government contract becomes the surest source of money. It’s the kind of arrangement that will favour the authoritarian instincts of army-general-turned-civilian-president Abdel Fattah al-Sisi.

6. Africa’s middle class, private sector – and opposition politics – in peril

But a bigger, stronger government isn’t going to be unique to Egypt. Economic turmoil like what is besetting Africa at the moment has the tendency to hit the private sector particularly hard, as the first casualty is interest rates, putting financing out of the reach of businesses.

It also portends tough times – or even the collapse – of the just-emerging African middle class, who tend to be the most exposed to financial risk.

Middle-class Africans tend to hold more wealth in financial assets like mortgages, stocks and bonds, while the ultra-rich may be the business moguls who have the political connections to insulate themselves from financial risk. With the middle class subdued and private businesses in peril, that is likely to dry up the sources of economic support for the democratic opposition in Africa.

7. East Africa: the ‘benevolent dictator’ rises; the third term debate is lost

With government being the major source of money, and the private sector and opposition held back, that sets the stage for strong institutions – and because in Africa the political structures are very much a mirror of the person in charge, it means that the sympathy for strongmen, or the ‘benevolent dictator’, returns.

So African countries should prepare for more third term debates, and possibly a shift to a more authoritarian model: the current economic situation favours it.

In East Africa for example, two years ago there was a flurry of mega regional infrastructure projects launched by Kenya, Uganda and Rwanda that have now gone eerily silent as investor money gets hard to come by.

But that shifts the advantage to centrally planned, less corrupt, authoritarian regimes like Ethiopia that are able to deliver credibly – though that would mean squeezing out private business and collapsing the middle class in the process.

Light rail in Addis Ababa in operation. (Photo/ File)

In September, Ethiopia launched sub-Sahara Africa’s first light rail project, to envious glares of the rest of East Africa. Ethiopia and Djibouti oversaw the completion of a railway linking their two capitals Addis Ababa and Djibouti in June, and have invested heavily in joint infrastructure, in a bid to make the Ethiopia-Djibouti belt the logistics hub of the continent in the long-term, but more immediately for the wider East and Central Africa.

8. The last hope: Technology and intra-Africa trade

But ultimately, Africa is resilient, and unlike the 1970s and 1980s when the continent last went through these troubles, today technology is a reality, and may be a lifeline for many economies, and businesses. 

The crisis just might see a rallying in the tech sector that has never been seen before, as companies seek to reduce costs, and innovators try and create solutions around areas with low start-up costs.

It could also be the final spark that sparks real progress in intra-African trade, as African countries realise that the solution may be to look at home.

This year the Tripartite Free Trade Area (TFTA) was signed. Bringing together a market of nearly 650 million people, it’s a $1 trillion GDP zone comprising trading blocs EAC, Comesa and SADC.

The hard part lies ahead – making it work. Africa is a region where only 12% of total trade is among African countries. By comparison, intra-regional trade is 21% in South America, 50% in Asia, and 70% in Western Europe.

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