By Demba Moussa Dembele
DAKAR, Aug 29 2014 (IPS)

A few years ago, nobody could have imagined that some 50 Heads of States and Prime Ministers from Africa would meet the President of the United States for a summit. Yet, the first Africa/United States Summit took place in Washington from August 4 to 6, making headlines around the world.

It is obvious that geopolitical considerations were behind this summit, with the shadow of the BRICS (Brazil, Russia, India, China and South Africa) hanging over the meeting.

Demba Moussa Dembele

The United States would have never organised such a summit if the global balance of power had not been gradually shifting towards emerging powers, notably towards China and the BRICS.

Western economic domination is being eroded, as illustrated by the deepening crisis of the Eurozone and the worsening deficits of the United States. Meanwhile, the BRICS are increasing their economic and financial weight in the world economy, and represent about 20 percent of the world’s GDP and 17 percent of world trade, with China now the second economy behind the United States.

For most observers, the BRICS Summit in Fortaleza and Brasilia (Brazil) in mid-July heralds a new world monetary and financial order in the next decades or so. Observers from the South and the West are predicting the gradual shift to a new balance of monetary and financial order, with the BRICS at the centre.“Growing China-Africa ties are a disturbing development for Western countries, the European Union (EU) and the United States. They view these relations as a threat to their “traditional” neo-colonial relationships with Africa”

Indeed, the decision to set up the BRICS bank and the Contingency Reserve Arrangement (CRA) is seen as a serious challenge to the World Bank and the International Monetary Fund (IMF), which have been the tools of Western countries for more than half a century. They will gradually become more and more irrelevant to developing countries, as these increasingly turn to BRICS’ financial institutions.

On the other hand, China and the other members of the BRICS group are challenging the hegemony of the U.S. dollar through several swap arrangements, aimed at boosting their trade by using their own currencies. One of the most significant arrangements is the swap between China and Russia, when one takes into account the 400 billion dollars gas deal signed between Russia’s Gazprom and the China National Petroleum Corp. (CNPC).

The French online newspaper, Mediapart (July 5, 2014), reported that in the oil and gas sector, the top three investors in 2013 were all from the BRICS – PetroChina (50.2 billion dollars), Gazprom (44.5 billion dollars) and Petrobras (41.5 billion dollars). The first Western company was Total, which ranked seventh with 30.8 billion dollars.

It is obvious that these developments are of great concern to the United States, especially in light of the BRICS’ drive to strengthen their economic and financial relations with Africa and South America.

In a 2013 report, the United Nations Economic Commission for Africa (UNECA) indicated that Africa’s trade with the BRICS had doubled since 2007 to 340 billion dollars in 2012. It projected that the trade would reach 500 billion dollars by 2015.

Trade between China and Africa is estimated at about 200 billion dollars in 2013. It has become Africa’s main trading partner. And most African countries are now turning to China for loans while Chinese companies are involved in building roads, bridges, and other infrastructures across Africa.

Growing China-Africa ties are a disturbing development for Western countries, the European Union (EU) and the United States. They view these relations as a threat to their “traditional”, neo-colonial relationships with Africa.

While the European Union has tried to lock African countries into Economic Partnership Agreements (EPAs) – as part of a scheme to create a free trade area (FTA) between the European Union and the African, Caribbean and Pacific (ACP) group of countries – since 2007, the United States seems to be “wakening up” only now to the reality of the fast-changing economic landscape in Africa.

A Paris-based magazine, Jeune Afrique, wrote that with this Summit, Barack Obama was organising a “catch-up meeting”. The reason, said the magazine, was that the United States has lost too much ground to China and to a lesser degree to Europe. It is estimated that trade between Africa and the United States doubled between 2000 and 2010, while trade between Africa and China increased twenty-fold over the same period!

Most observers believe that without China building strong and growing economic and financial ties with Africa, the United States would not have thought about organising such a Summit. Clearly, China’s role in Africa has given a greater “respectability” to the continent and elevated its standing with Western countries, which are now looking at Africa through a new light.

Catching up for will not be an easy exercise for the United States. For one thing, its imports from Africa are essentially composed of crude oil, which accounts for 91 percent of total trade. Second, in its relations with Africa, security concerns have always topped the U.S. agenda.

This is why during the George W. Bush Administration, the United States set up “Africa Command” (AFRICOM) with the view to “helping” African countries fight “terrorism”. And the aim is to move AFRICOM headquarters – now in Germany – to Africa, preferably in the Gulf of Guinea, which is home to the bulk of African oil reserves. U.S. companies, like Chevron and ExxonMobil, have already invested billions of dollars in the area in order to control huge chunks of those reserves.

At the end of the Africa-U.S. Summit, Obama announced that 33 billion dollars will be invested in Africa between 2014 and 2017. But only seven billion dollars will come from public funds in order to boost trade between the United States and Africa, 14 billion dollars will come from the private banking and construction sectors, while 12 billion dollars are part of the “Power Africa” project aimed at bringing electricity to households and the industrial sector. This programme is financed by the World Bank and U.S. private companies such as General Electric.

So, the 33 billion dollars announcement is not really a “gift” made by president Barack Obama to African leaders, as some newspapers erroneously presented it. It will essentially serve the interests of U.S. private companies in their drive to compete against BRICS and European companies in Africa.

But, beyond “catching up” with China and the European Union, the Africa-U.S. Summit should be viewed in the context of the discourse on “Africa Rising”. Indeed, for neoliberal ideologues, Africa seems to hold the solution to the crisis of global capitalism.

In January 2014, Japanese Prime Minister Shinzo Abe toured Africa. In a speech at the headquarters of the African Union, in Addis Ababa, he was quoting as saying that “with its immense resources, Africa is holding the hopes of the world.” This was an echo to a report by the French Senate, released in December 2013, with the incredible title ‘Africa is our Future’.

This may explain French military adventures in Africa over the last several years, from Cote d’Ivoire to Libya, from Mali to the Central African Republic, among others.

Several forums are being organised to advise Western corporations to invest in Africa and tap into its resources. Apparently, Africa has become the “new frontier” of global capitalism, at the expense of its own people. As the renowned Egyptian economist Samir Amin used to say: “the West cares about Africa’s resources, not about its people.” (END/IPS COLUMNIST SERVICE)

(Edited by Phil Harris)

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By Yilmaz Akyüz
GENEVA, Jul 16 2014 (IPS)

Since the onset of the crisis, the South Centre has argued that policy responses to the crisis by the European Union and the United States has suffered from serious shortcomings that would delay recovery and entail unnecessary losses of income and jobs, and also endanger future growth and stability. 

Despite cautious optimism from the International Monetary Fund (IMF), the world economy is not in good shape. Six years into the crisis, the United States has not fully recovered, the Euro zone has barely started recovering, and developing countries are losing steam. There is fear that the crisis is moving to developing countries.

Yilmaz Akyuz

There is concern in regard to the longer-term prospects for three main reasons.

First, the crisis and policy response aggravated systemic problems, whereby inequality has widened. Inequality is no longer only a social problem, but also presents a macroeconomic problem. Inequality is holding back growth and creating temptation to rely on financial bubbles once again in order to generate spending.

Second, global trade imbalances have been redistributed at the expense of developing countries, whereby the Euro zone especially Germany has become a deadweight on global expansion.

Third, systemic financial instability remains unaddressed, despite the initial enthusiasm in terms of reform of governance of international finance, and in addition new fragilities have been added due to the ultra-easy monetary policy.“The external financial vulnerability of the South is linked to developing countries’ integration in global financial markets and the significant liberalisation of external finance and capital accounts in these countries” – Yilmaz Akyuz

The policy response to the crisis has been an inconsistent policy mix, including fiscal austerity and an ultra-easy monetary policy. While the crisis was created by finance, the solution was still sought through finance. Countries focused on a search for a finance-driven boom in private spending via asset price bubbles and credit expansion. Fiscal policy has been invariably tight.

The ultra-easy monetary policy created over one trillion dollars in fiscal benefits in the United States – which was more than the initial fiscal stimulus; the entire initial fiscal stimulus was limited to 800 billion dollars.

There was reluctance to remove debt overhang through comprehensive restructuring (i.e. for mortgages in the United States and sovereign and bank debt in the European Union). Thus, the focus was on bailing out creditors.

There was also reluctance to remove mortgage overhang and no attempt to tax the rich and support the poor, particularly in the United Kingdom and the United States – where marginal tax rates are low compared with continental Europe. There has been resistance against permanent monetisation of public deficits and debt, which does not pose more dangers for prices and financial stability than the ultra-easy monetary policy.

The situation in the United States has been better than in other advanced economies. The United States dealt with the financial but not with the economic crisis, whereby recovery has been slow due to fiscal drag and debt overhang. And employment is not expected to return to pre-crisis levels before 2018.

As for the Euro zone, Japan and the United Kingdom, all have had second or third dips since 2008. None of them have restored pre-crisis incomes and jobs.

Meanwhile, trade imbalances have not been removed, but redistributed. East Asian surplus has dropped sharply and Latin America and sub-Saharan Africa have moved to large deficits. Developing countries’ surplus has fallen from 720 billion dollars to 260 billion dollars. On the contrary, advanced economies have moved from deficit to surplus, whereby U.S. deficits have fallen and the Euro zone has moved from a 100 billion dollars deficit to a 300 billion dollars surplus.

As tapering comes to an end and the U.S. Federal Reserve stops buying further assets, the attention will be turned to the question of exit, normalisation and the expectations of increased instability of financial markets for both the United States and the emerging economies.

This exit will also create fiscal problems for the United States because, as bonds held by the Federal Reserve mature and quantitative easing ends, long-term interest rates will rise and the fiscal benefits of the ultra-easy monetary policy would be reversed.

Developing countries lost steam as recovery in advanced economies remained weak or absent due to the fading effect of counter-cyclical policies and the narrowing of policy space. China could not keep on investing and doing the same thing. Another factor contributing to the change of context in developing countries has been the weakened capital inflows that became highly unstable with the deepening of the Euro zone crisis and then Federal Reserve tapering. Several emerging economies have been under stress as markets are pricing-in normalisation of monetary policy even before it has started.

The external financial vulnerability of the South is linked to developing countries’ integration in global financial markets and the significant liberalisation of external finance and capital accounts in these countries. These include opening up securities markets, private borrowing abroad, resident outflows, and opening up to foreign banks. While developing countries did not manage capital flows adequately, the IMF did not provide support in this area, tolerating capital controls only as a last resort and on a temporary basis.

Several deficit developing countries with asset, credit and spending bubbles are particularly vulnerable.  Countries with strong foreign reserves and current account positions would not be insulated from shocks, as seen after the Lehman crisis. When a country is integrated in the international financial system, it will feel the shock one way or another, although those countries with deficits remain more vulnerable.

In regard to policy responses in the case of a renewed turmoil, it is convenient to avoid business-as-usual, including using reserves and borrowing from the IMF or advanced economies to finance large outflows. The IMF lends, not to revive the economy but to keep stable the debt levels and avoid default. It is also inconvenient to adjust through retrenching and austerity.

Ways should be found to bail-in foreign investors and lenders, and use exchange controls and temporary debt standstills. In this sense, the IMF should support such approaches through lending into arrears.

More importantly, the U.S. Federal Reserve is responsible for the emergence of this situation and should take on its responsibility and act as a lender of last resort to emerging economies, through swaps or buying bonds as and when needed. These are not necessarily more toxic than the bonds issued at the time of subprime crisis. The United States has much at stake in the stability of emerging economies. (END/IPS COLUMNIST SERVICE)

*   A longer version of this column has been published in the South Centre Bulletin (No. 80, 30 June 2014).

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