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G8: who’s pulling Africa’s purse strings?

The 2005 summit was serenaded by pop stars and cheered by campaigners for cutting debt relief. So why is Africa still in an economic straitjacket?

Steve Daley

Topics Politics

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Two years ago, the Group of Eight industrialised nations (G8) met at Gleneagles in Scotland to discuss how to ‘make poverty history’ in Africa. G8 leaders were cheered on by anti-poverty campaigners and serenaded by rock bands at the Live8 concerts organised by Bob Geldof and Bono. Back then, the agenda focused on eradicating the debts owed by the poorest countries to international financial institutions, known as multilateral debts. It looked like a noble and worthwhile aim, yet behind the grand pronouncements there lurked another agenda: one focused on boosting the right and authority of the G8 nations to tell Third World countries how to conduct their financial and even political affairs.

Under Tony Blair’s presidency, the Gleneagles summit committed the G8 countries to cancel 100 per cent of multilateral debts. As a result, $40billion of debt has already been wiped off the slate of the World Bank, African Development Bank and the International Monetary Fund (IMF) for 22 countries who have finished the World Bank/IMF debt relief initiative for Heavily Indebted Poor Countries (HIPCs), including 18 states in Africa. Another $15billion may be cancelled if the remaining countries satisfactorily complete all the onerous conditions expected of the poor countries, now known as HIPCs. The HIPC initiative, launched in 1996, aims ‘to reduce to sustainable levels the external debt burdens of the most heavily indebted poor countries’. In reality, however, HIPC obligates apparently bankrupt countries to surrender to Western demands on poverty reduction and good governance.

As the G8 meets in Germany, again to decide on the affairs of Africa, it is timely to consider Africa’s experience of the Gleneagles debt cancellation two years ago, in terms of the purse and the strings.

What is the debt deal worth?

The official figure of $40billion debt write-off greatly exaggerates the benefits of the Gleneagles debt promise. African HIPCs jumped through all the hoops to get 100 per cent debt cancellation, only to discover that their hypothetical savings in debt repayments to the World Bank and African Development Bank are deducted dollar-for-dollar from their aid allocations from these two institutions.

In short, for the 40-year period from 2004 to 2044, debt forgiveness by these creditors is a worthless gesture for individual HIPCs, since the theoretical savings in debt servicing are cut from aid allocations. It is the World Bank and the African Development Bank, not poor countries, who are the main beneficiaries of the Gleneagles summit, since the G8 finance ministers agreed to reimburse the banks for their loss of income following debt cancellation.

Despite all the hype, only the debt owed to the IMF has been cancelled without any effect on aid. But that doesn’t amount to a whole hill of beans. For example, two African HIPCs with big debts to the IMF are Ghana and Zambia. The World Bank and Geldof’s thinktank, Debt Aid Trade Africa (DATA), boast that debt cancellation has been worth $490million in total for 2006, with Ghana and Zambia saving $57.9million and $23.8million respectively. In fact, because of the way debt relief has been clawed back through aid, the savings for the two countries were just $33.1million and $16.8million respectively. A back-of-a-beermat calculation puts that at a measly $1.45 (73p) per Ghanaian and $1.47 (74p) per Zambian for the year.

This miserable state of affairs is actually as good as it gets, and even these s(h)avings will evaporate before the end of the decade. As the DATA Report 2007 concedes, since IMF repayment schedules are ‘front-loaded’, ‘by 2010, it is very unlikely that any sub-Saharan African countries will be benefiting from debt cancellation.’ Conveniently, though, Geldof’s DATA omits to mention this fact in its chapter assessing the G8 debt promises.

Flattering the G8

It is remarkable, given the minuscule sums, that NGOs and donors make grandiose claims for this perceived largesse. Despite clear and compelling evidence that debt cancellation has provided insignificant additional resources to HIPCs, anti-poverty campaigners continue to praise G8 debt cancellation, and campaign for more countries to be allowed to enjoy its ‘benefits’.

‘For every dollar freed up from debt service, African governments have increased social spending by twice as much’, gushes the DATA report. Matt Phillips from Save the Children adds: ‘As a result of debt relief measures agreed, four million people in rural Zambia now have access to free healthcare.’

However, Zambians are unlikely to be too ecstatic with free medical treatment in a country that had only 600 doctors and 24 pharmacists for a population of over 11million in 2006. The country has one doctor for every 14,000 people, compared with one doctor for every 600 people in the United Kingdom.

Squeezing more money out of cash-strapped African HIPCs for basic education, primitive healthcare and unsanitary sanitation, and sharing out scarce resources ever more thinly, is nothing to celebrate. As Dr Yao Graham of Third World Network Africa argues in the WORLDwrite documentary Damned by Debt Relief: ‘You look at the whole thing, and you have to say “come on, this is not real”. It was good for Blair… there are a lot of words in that text, but if you actually look at the declaration, for what it actually offers, it’s very thin, and even what is substantial is very worrying. Everything rotates around what donors want.’

Africa’s loss of autonomy

NGOs and donors make flattering claims for minimal improvements in living standards, as this fits what they see as a ‘pro-poor’ agenda. This agenda has been institutionalised through the World Bank’s compulsory Poverty Reduction Strategies that Third World governments must draft and implement in order to cross the HIPC finishing line and receive their reward of debt relief.

In 2005, G8 leaders reinforced this ‘poverty reduction’ diktat by adding ‘100 per cent debt cancellation’ to the carrot of debt service rebates previously offered under HIPC. These savings are earmarked for poverty-related expenditures as specified in ‘nationally owned’ Poverty Reduction Strategy Papers (PRSPs). Worse still, African HIPCs are obliged to publish PRSPs as the paramount document of government policy, which effectively means that all government spending, not just debt savings, must be justified and assessed on their immediate and tangible benefits to the poorest.

It may seem logical, and good, for poor countries to focus on helping the poorest – but in reality the ‘pro-poor agenda’ comes from the World Bank (not previously known for its concern for the poor) and it opens up HIPC countries to further Western meddling. The rationale of poverty reduction strategies originated in the World Bank’s new thinking at the end of the 1990s. Poverty reduction is not based on a well-meaning assertion of prioritising the fight against material scarcity; rather it stems from a redefinition of development away from hard-nosed objectives like economic growth and industrialisation towards a softer, friendlier concern for the personal experience of impoverishment. Wellbeing, not wealth, is the goal of poverty reduction strategies. This has permitted Western donors to intervene in ever more intimate areas of life in poor countries – such as the education of girls, domestic violence, and sexual education – as well as in economic and political life. G8 leaders have openly embraced the poverty reduction agenda as it has opened up Third World countries to greater levels of interference.

The G8 countries and the international development community differ widely on their prescriptions for development. But they do agree that African elites must be watched carefully to ensure they make the right choices, since ambitious reforms and improvements always present opportunities for some to gain more than others. The idea that ordinary Africans could negotiate change without the guiding hand of Western donors is entirely absent. In the name of the poor, a wedge has been created between African governments and their electorate.

This division has had a corrosive impact on the democratic process within African HIPCs. In Ghana, for example, village-level committees of the poorest have been assembled. They are working with, and are funded by, the World Bank and international NGOs to monitor paltry sums allocated for the building of pit latrines and the siting of dustbins. Elected politicians and district assemblies are presumed untrustworthy, and thus civil society snoops are positively encouraged to ensure that the ringfenced HIPC funds are not diverted to more ambitious government priorities.

Under the guise of helping the poorest, the poverty reduction strategies prevent HIPC countries from pursuing meaningful development and industrialisation – which is surely the only real route out of poverty.

China: the spanner in the works

While Western governments and institutions have continued to lecture Africans on good housekeeping, China has increased its influence in the continent. The year 2006 was dubbed China’s Year of Africa. African leaders attended the Beijing Summit in November of that year, to seal a year of Chinese partnership with commitments of $10billion for African infrastructure.

The enthusiasm of African countries to borrow from China has irked G8 ministers and anti-poverty campaigners, because it provides an opportunity for African governments to evade the watchful eye of Western donors and the best laid plans of the Gleneagles deal. Mistrust fuels the G8’s obsession with good governance, responsibility and sustainability. In May this year, G8 finance ministers openly rapped the knuckles of China and Africa for agreeing $20billion in loans, saying it ran counter to ‘responsible’ lending practices. The real contest at the current summit in Germany is not over broken promises; rather it is between African aspirations for the freedom to borrow and develop and Western countries’ urge to call the shots.

The potential rise of China as ‘lender of first resort’ fuels anxieties among G8 leaders that debt cancellation has unwittingly provided African elites with an escape mechanism from Western influence. Chinese lending and investment is widely seen as bypassing the rules that Western governments and institutions routinely impose on African countries. Furthermore, Ghana plans to issue bonds in the Eurobond market in July to raise upwards of $500million. Nigeria and other African countries look set to follow on the same path.

G8 finance ministers were able to agree on one key challenge that needed to be faced at the current G8 summit: the prospect that a tide of cheap global money could wash up in Africa with few strings attached. Donald Kaberuka, president of the African Development Bank, told the Financial Times last month that the enormous sums that China is investing in Africa to fund hard-nosed infrastructure like railways, dams and roads ‘shows you what the traditional donors are up against’.

As Kenya’s finance minister Amos Kimunya explained at the World Bank’s annual meeting in Singapore, not only does China provide cash without strings, it also provides real goods not just consultancy: ‘From my experience in Kenya, the kind of package we are receiving from China comes in with more effectiveness, almost zero per cent in technical assistance. It is all tangible. Infrastructure is tangible cash flowing in, whereas most of the traditional assistance in the past has been, you know, more toward technical assistance than tangible goods.’

Senegal’s finance minister was even more candid in summing up Africa’s relationship with traditional donors at the African Development Bank’s meeting. In a succinct yet barbed comment, Aboulaye Diop explained that the ‘Chinese treat us like adults’.

Conclusion

In order to invest for the future and generate substantially greater levels of wealth than at present, Africa needs to invest in physical infrastructure, not simply put up with current levels of development. But when these countries look to China, or the international bond markets, to finance this investment, Western governments and institutions attack them.

The suspicion of G8 leaders and self-appointed anti-poverty campaigners that African states should not be free to act without the strings of poverty reduction, good governance or debt sustainability severely constrains African economic and social possibilities. African countries must be free to lend and spend as they see fit. And that can only happen if Africans can be spared the paternalistic attention of those in the West.

Steve Daley is a researcher for the charity WORLDwrite and Chew On It Productions. WORLDwrite and Chew On It have re-cut and released their documentary short Damned by Debt Relief, part of their Pricking the Missionary Position series, to coincide with the current G8 summit in Germany. The charity is hosting a G8 Uncovered event with a panel of experts and studio audience for broadcast on the web on 7 June. For details visit WORLDwrite.

To enquire about republishing spiked’s content, a right to reply or to request a correction, please contact the managing editor, Viv Regan.

Topics Politics

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