The continent of Africa really is difficult to embrace without stolid concepts shaped from both geography and history. Can one really make sense of Ghana and its British heritage as a west African nation state surrounded by failed French colonies? How about Senegal, a longtime French ally now home to English vacationeers? What of viewing Tunisia and its strong French (Catholic) secularism lodged alongside the Magreb? There remain more questions than answers, but even still, by any calculation, the Limpopo river and its national tributaries in Mozambique, Kenya reaching up the African Horn has more symmetry with the Mughal-Afghan led empires that dominated the western Renaissance than all of the long Romanesque history of north Africa.
By any calculation, the continent is moving, but which framework encapsulates the myriad components shaping its volatility?
When the U.S. Federal Reserve imposed zero interest rate policy, hordes of money left the U.S. continent in search of return in developing economies. That had to end. But with cheap labor, commodity rich resources and compliant governments, African political economies saw an upsurge that has unwound. The painful slowdown reveals a lot about Africa.
Accelerating population growth was used by economists to justify raging GDP & productivity growth; not anymore. Rwanda’s capital city of Kigali looks like a Keynesian ghost town of empty skyscrapers and hollowed out cities. The demand side of Keynesian aggregate growth being driven by central bankers never really had any historical credibility here. Even Nigeria and Angola, we’ve witnessed nearly 90% of federal revenue tied to oil, burst. Given its un-diversified national portfolio, these nation states have nothing to replace oil with. The Saudi’s are watching what just may happen to Riyadh.
The commodity turmoil is exacerbated by drought & volatile currency regimes. Even farmers can’t get to unload their wares.
When Nigeria refused to let its currency float freely in response to plummeting oil, an overvalued currency met a black-market that coalesced blunting all monetary transmission vehicles. When credit agencies downgraded them, the central bank was faced with current-capital account crisis’ and surging black markets.
Wait, it gets worse. Kenya’s government has capped interest rates effectively halting all lending; Mozambique and Tanzania face bond bankruptcies. The Keynesian mess is a vortex from which African government cannot escape.
The fragility of the entire continent is on display, with exceedingly high debt to GDP ratio’s coupled to weak industrial bases, these economies don’t have the fiscal strength to address growing problems.
For Africa to kick its addiction to commodity export growth, it must dump its overt love affair with centralized-demand driven Keynesian growth models.
The dhow’s of the Swahili in Mozambique