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SUB-SAHARAN AFRICA AND DEVELOPMENT FINANCE ***
by Mr. Bolaji Owasanoye
(Article Reference: Document No.6, July 1999)
Summary
Introduction
Africa with the rest of the world is on the threshold of the third millennium. The vision of developed economies is for a new century having a healthy economy, steady growth and sustainable development. In Sub-Saharan Africa(SSA) the expectation is no less high but is dampened by bouts of depression arising from the prevalence of political instability and the parlous state of the economies. In developing countries, more than 1 billion people representing about one fifth of the world population live on less than US$1 a day, a standard of living that the United States and Europe attained two centuries ago. Africa is engulfed in a development crises due to collapsing economies, deepening poverty, growing hunger and pervasive mismanagement. There is also human, political and economic crises. Only few African economies like those of Botswana, Lesotho and Gabon may be said to be growing.
Disparity in growth rates continues to fuel debates as to the factors responsible for the differential development in developing countries generally. The main issues are whether the differences are due to institutional, policy, external or other factors. In recent times, globalisation has crept in and Africa in particular is faced with the cost of globalisation but not its benefit. Inability to benefit from globalisation is also being debated as traceable to various factors including those listed above.
One traumatic experience of development since post colonial days is the external debt burden of developing countries. After independence, many developing countries were worried about the capacity of the private sector to lead the development process therefore they "looked inward" and relied heavily on the public sector for planning and economic growth. The assumption being that the state had better capacity to direct growth. This development strategy emphasized the promotion of heavy industry which was considered basic to growth of the industrial sector generally. But because there was no capital to promote these industries they relied on foreign capital. This reliance led to dependence on western economies and exposed many developing countries to the adverse impact of fluctuation in the world economy[1].
The excess capital needed by developing countries was found especially from mid 70's upward due to the surplus funds available in the commercial banks of developed countries from Organisation Petroleum Exporting Countries (OPEC) between 1973 and 1974. Whereas in some cases external borrowing was based on the development need of the borrower, in other cases it was due to pressure from lenders. In the case of Nigeria for example, the current civilian President, General Olusegun Obasanjo, was the military head of state during the petro-dollar season. He had this is to say of his experience with lenders during his first stint as head of state."In 1977 and 1978, at the time of slight dip in the oil market, international bankers were descending upon us in droves. They pressed the case that our economic strength was such that we were grossly under-borrowed, especially for a nation with our type of visionary development programme[2].In consequence of such pressure, many developing countries borrowed at rates which were then favourable but have today become a vicious debt trap.
While developing countries were being encouraged to borrow, industrialised countries adopted economic policies which though favourable to them at the time, had serious implications for the path embarked on by developing countries. Due to slow economic growth and problems of unemployment in many developed economies, they began to place limitation on free movement of goods and services. They limited the rate at which they imported labour intensive manufactured goods from developing countries, in particular clothing, textile and footwear. At the same time they increased protection for agricultural products. In the European Union for example, maximum barriers were imposed through the Common Agriculture Policy while in the United States similar protectionist policy was pursued[3]. This simultaneous turn of events had far reaching consequences on the debt situation of the borrower/primary agricultural products producing countries in the long run.
*** This article has been written by Bolaji Owasanoye (Associate Professor, Nigerian Institute of Advanced Legal Studies, Lagos) for UNITAR following his participation as a resource person in a joint UNITAR/WAIFEM Sub-Regional Workshop on the Mechanics of Loan Agreements for West African Nations (Banjul - The Gambia, 3 to 7 May 1999).
[1] Mike Kwanashie "Development: African and Non African Perspective" unpublished paper presented at International Seminar on Africa: National Unity, Stability and Development organised by the Yakubu Gowon Centre, Nigeria, October 1996.
[2] Olusegun Obasanjo "The Politics of International Debt" unpub. lecture delivered to members of the International Debt Management Lawyers Association, July 1992 at p.4.
[3] Mike Kwanashie op cit.
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