IMF’s influence in Africa increases again

Programmes on the continent reached around six billion euros by the end of 2017 – four times more than in 2014. Angola and Mozambique are among those funded. For an economist, commodities are an “eternal” problem.

As recently as August, Angolan President João Lourenço sought support from the International Monetary Fund (IMF) to implement economic reforms, as well as loans. Nine other African countries are using IMF funds, including Mozambique, Ghana and Congo-Brazaville. But resorting to these funds doesn’t seem to be tackling the “root” of the economic problems on the African continent.

The film is not new. In the 1980s and 1990s, African countries threatened to default on their payments to the IMF, which helped them with emergency loans. The loans came under certain conditions. The IMF and its sister organisation, the World Bank, demanded tough economic and political reforms from the recipient countries.

The reform package known as the “Washington Consensus” included the removal of subsidies for agriculture and industry, tax cuts, the privatisation of state-owned companies, as well as a free trade policy.

But instead of bringing about the expected economic recovery, the reforms have worsened the economic problems of the credit-receiving countries, criticises Rainer Thiele, an Africa specialist at the Institute for the World Economy at the University of Kiel in Germany.

“The conclusion is: the adjustment programmes have not been successful. Most countries have only managed to deal with their payment problems in the short term. However, they have not adapted structurally to increase productivity and growth in the long term,” says Thiele.

Commodities, a never-ending problem

Unlike in the past, the IMF and the World Bank are no longer the only potential creditors for African governments, which can benefit from money on the capital markets. And the rise of China as a major investor has changed the financial situation in Africa, argues Senegalese economist Ndongo Sylla.

“The arrival of China has brought new financing opportunities for African countries. The Asian country offers possibilities to ‘escape’, in some cases, if I may say so, from the IMF and the World Bank. China doesn’t demand conditions and, what’s more, it needs business, natural resources, markets and so on,” explains the economist.

But the “eternal” problem is the specialisation of African economies in natural resources. “African countries are in debt because they remain ‘peripheral’. They mostly export commodities to other countries and import everything else, i.e. industrial products, services and so on,” Sylla says.

As in the 1980s and 1990s, the current crisis is due to the fall in commodity prices – such as oil, cocoa or diamonds – and the rise in interest rates on foreign loans.

Angola is a good example of the fact that Chinese loans based on commodity concessions are not a solution. Experts estimate that – all backed by oil revenues.

And, according to a report in the English periodical “Financial Times”, this possibility is now exhausted – since the repayment of the loans with oil is already over-anticipated.

According to economist Ndongo Sylla, in order to seriously tackle the debt problem, Africa should be given the opportunity to develop its agriculture and industry and, furthermore, the continent should not “accept the ‘free trade’ agenda put forward by the IMF, the World Trade Organisation and, therefore, also by the European Commission through economic partnership agreements”.