Pan-European Fiscal Crisis and Africa
The prevailing pan-European public debt, and more broadly the European fiscal crisis, has many unintended consequences. Predictably, over the next decade or so, the G7 club of countries will face economic decline, and steadily lose their economic domination of the globe, as well as their geo-political stature, influence, and control over the institutions of governance such as the IMF, WTO, and the World Bank. This gradual but inevitable decline will entail numerous complex internal socio-political consequences, most of them socially painful, politically disruptive and financially uncertain. Systemically, this will test Europe’s socio-political and intellectual limits. It will challenge many of Europeans’ cherished cultural and expected living standards. All said and done, the Europeans (with the exception of Germany) have to get used to much lower living standards, work much harder, save more, and learn to live within their means. The age of debt-financing current generation’s living standards, hoping that future generations will take care of the fiscal legacy, has finally ended. The “future” is upon the Europeans now! Without a doubt, global growth will suffer considerably, and with it Africa’s expected growth will decline accordingly. Meanwhile, through trade, FDI, migrant remittances and ODA, the global financial and economic crisis does have knock-on effects on the continent. Africa is bound to be saddled with the implications of the short term fall in export earnings, decline in number of tourists, overseas development aid levels, the loss of value of national currencies, and remittances from migrant workers. Already a number of African countries are under severe stress, politically, and socio-economically. Whilst Africa has to diversify away from its historic European partners, the socio-economic circumstances in Europe will help reverse Africa’s well-established and much acknowledged ‘brain drain’. Over the past fifty years, as much as 40% of Africa’s human resources capital was drained out of the continent- mostly to the x-colonial capital cities. Together with approximately 60% of the continent’s savings, the loss of skilled human capital was detrimental to the continent’s developmental ambitions. Currently, and in the near future, however, scores of young, educated and skillful Africans will increasingly find the European business environment unattractive and unpromising in terms of its prospects. For such young professionals, returning home will certainly receive serious considerations for the first time in many decades. This provides many African countries with a real opportunity to focus on the evident developmental requirements, knowing that the necessary human capital is available. There is also a critical, and potentially explosive factor, that needs consideration and urgent attention by the political leadership in African countries. The return of professionals requires a socio-political environment that admits their meaningful participation in the planning, implementation, and the governance of the developmental process. Chances are that there needs to be a transformation of the domestic political culture with regard to transparency, accountability, and clean governance. If such transformation is too slow or too cosmetic, the clash of “reality” and “expectations” could become highly disruptive. In effect, a profound mindset shift, underpinned by a new set of moral and ethical value system, is required. Not only should the Europeans abandon their hegemonic practices, exploitative objectives, and historic maneuverings, but also the “African leaders” need to recognize the unsustainability and destructive consequences of their mode of governance. The culture of governance in Africa needs as much transformation as in Europe. The return of African professional to the continent may well act as the catalyst to effect such governance revolution. Of course, in a number of African countries much has been achieved in improving good governance, yet a great deal still to be done. In...
Read MoreBeneath the Unprecedented Global Glum
The global economy finds itself, once again, on the brink of another crisis. Escalating market volatility, vacillating political leadership in OECD member countries, and the Pan-European public debt combined with the US political stalemates have contributed to the current global conditions. However, there are deep-rooted structural factors that lie beneath these apparent phenomena. The most basic of the structural factors is the failure of Anglo-Saxon governance value system, both in the private and public sectors- most visibly within the financial sector. This failure has been brewing for awhile, and became manifest over the past two decades via the collapse of the US Savings & Loan crisis (1989), Enron (2001), HIH Insurance of Australia(2001), WorldCom (2002), Lehman Brothers(2008) Satyam (2009), and a couple of ‘reputable’ audit firms in the US. It is true that the failure of Anglo-Saxon monitoring and compliance framework was a contributing factor, but so were the US Federal Reserve’s Greenspan ideology and hence the mismanagement of the monetary policy for political ends as well as President Clinton’s desire to see American capital being dominant in the global markets. The economic philosophers of the 18th and 19th century, the forefathers of modern economics, argued convincingly that the market economy could not survive without a set of underpinning moral value system. Nor could the operations of the state be able to complement the outcome of the market economy unless the state’s operational framework had a well-define social value framework based on “the public interest’. The very notion of ‘public service’ arose from the premise that the state’s value system would operationally exercise a check on the inherent and predictable excesses of the market system, would provide a set of checks and balances for the ultimate benefit of the society. This critical line was crossed on the altar of ideological warfare and the so-called ‘the imperatives of the national security’, most prominently and openly after the 9/11 in 2001. When this line is crossed, the failure of prudential and regulatory framework is simply a matter of time! Another structural root cause has been and continues to be the global trade regime. Ever since the 1970s, the global system has been at the mercy of an unfair, unsustainable trade regime that caused structural imbalances from time to time. Economists have been warning on the dangers of this issue for a long while. But expressions of concern and awareness of the issues, per se, do not prevent a disaster! This has been the most spectacular failure of political leadership in OECD over the past three decades. Last year alone, OECD member countries spent in excess of US$750 billion on their misguided agriculture subsidies. From an economic point of view, this is a distortionary expenditure with negative effects on the global GDP. China’s manipulation of its currency, together with others, has been another source of structural imbalances! In effect the global economy has been subjected to a pervasive ‘trade war’ for well over three decades. Since 9/11-2001, we have had another rising structural factor contributing to the destruction of value globally, namely the three resultant wars- the ‘War on Terror’, the Iraq War and the Afghan War. These three wars augment the adverse effects of the above mentioned “trade war” on the global economy. The sum-total of these four wars adds up, in terms of my estimates to 3 to 3.8% of the global GDP! This is a colossal destruction of value, far exceeding the so-called stimuli packages offered by various OECD governments. Such value destruction did not tip the system when the global economy was riding the super- cycle...
Read MoreBeware of Economic CODESA
South Africa’s political economy has found itself, once again, in a state of damaging uncertainty. In many respects, the country’s young democracy manifests all symptoms of its evolutionary ‘teenagehood’, namely: pretentious ideological contestations, careless social conduct, self-centred preoccupation with short-term goals, and self-defeating machinations for power and wealth accumulation. The socio-political milieu is burdened by the triangle of market failure, state failure and corruption. The fact that these phenomena are as prevalent in many other emerging democracies and economies is cold comfort for the poor and disadvantaged in South Africa. The root causes of these socio-economic problems are well known and generally acknowledged. Yet the absence of an inspired and principled leadership has allowed this configuration to persist thereby inflicting substantial damage to the country’s social fabric, with widespread negative impact on investment and job creation. The situation calls for urgent attention given the prevailing high and rising unemployment, widespread poverty, volatile global conditions and dwindling investment trends Understandably, therefore, some have called for the formation of a socio-economic CODESA- inspired by the process that helped resolve the political and stability crisis that bedevilled the country in the period preceding its 1994 democratic dispensation. However, an economic CODESA has very little chance of success in the prevailing circumstances. And, in fact there are reasons to believe that it might help delay the interventions that are so urgently needed. For any consultative process to succeed, the first prerequisite is the presence of inspired, trusted and committed leaders within the various participating stakeholders. Otherwise, the process itself is bound to get embroiled in endless contestations about the bone fide of the representative leaders and their credibility to be around to oversee the implementation of whatever is agreed upon. A case in point is the fractured state of the business organisations, their leadership credibility and their long term commitment to sustained focus on complex interventions that are needed if issues such as the shortage of skills, poor training, collusive behaviour within the business sector, and the inequities within the business environment are going to be resolved. Likewise, within the public sector the cohesive leadership commitment is lacking in order to remove the abuse of public resources, the systemic inefficiencies within the state sector, poor service delivery and the corrosive spread of manifest corruption. Other social structures such as trade unions, the media, academia, religious groupings and similar potential stakeholders suffer from some or other critical leadership fault-lines too. The congregation of such stakeholder leadership within a socio-economic CODESA is likely to create a platform for political grandstanding, opportunistic brinkmanship, and self-serving short-termism- all of which are exactly what South Africa does not need at this point in time. South Africa has achieved a great deal over a short period of time since its dawn of democracy. A careful and objective analysis of these achievements would demonstrate that the successes were the result of inspired leadership and commitment to the long term goals despite their short term pains. This is also the lesson of all successful societies. The remaining challenges that South Africa faces are no different in essence. We need to accept a few foundational truths. First and foremost is that there are no quick fixes. Long and inspired commitment is needed to remove systemic fault-lines. In so doing, there is no self-enrichment, nor is there necessarily any short term political popularity. And, there is no room for vacillation. Second, and as importantly, no amount of public promises, manifestos, and policy propositions is a substitute for consistent and sustained action. Social progress and economic development require the implementation...
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