As a frontier market, the countries of Africa represent both opportunities and risks. On the risk side are all the usual complications of international trade and investment compounded by the problems inherent in a developing, emergent continental market consisting of 54 countries and 1.1 billion people – it’s a lot to keep track of.
To help with that, AFK Insider has compiled news you need to know to slim down your currency risk.
As African leaders and diplomats meet in Washington, D.C. this week in order to be wined and dined by the White House, a move by the so-called BRICS countries—Brazil, Russia, India, China, and South Africa—is guaranteed to shake things up.
They have agreed in principle to establish a development bank to rival the International Monetary Fund and the World Bank — both based in and controlled by the West. While the world was watching the World Cup, the five countries—which account for 40 percent of the world’s population and 20 percent of its gross domestic product—will donate $50 billion for a fund to rival the World Bank and $100 billion to for an emergency stabilization fund to rival the IMF’s. According to Russian sources the BRICS bank will likely be headquartered in Shanghai, China’s commercial capital.
It’s not yet a done deal since the target start-up date is, according to the Russians, seven years from now—2021, but the idea of establishing an alternative to the Bretton Woods institutions that have long dominated development finance has been a long time coming. The nascent BRICS bank, like the BRICS nations, is already impacting Western relations with Africa. The fact that Washington has placed so much emphasis on the current U.S.-Africa pow-wow in D.C. is testament to just how much things have changed.
What’s more, future competition from the BRICS bank and current competition from China—which has become a major player in African development finance—has already led the World Bank to adjust its lending policies to remain competitive. According to leaked documents obtained by Britain’s “The Guardian,” environmental and social protections currently present in bank lending policies will be gutted to allow logging and mining in even the most ecologically sensitive areas.
Additionally, indigenous people will not have to be consulted as development plans are hashed out and worker protections—already weak under the World Bank—will be disregarded altogether. Countries will also be allowed to assess themselves in terms of how well they comply with bank rules, be able to opt out of biodiversity regulations, and generally do what they please with the money provided by the World Bank. Taken as a whole, even the bank’s top employees have apparently agreed that the proposed “reforms”—if they could be called that—are likely to increase the bank’s load of problem projects as accountability effectively is tossed out the window.
Competition has clearly spooked the World Bank and Washington, and for good reason. China, for instance, is already Africa’s largest trading partner, surpassing the U.S. in 2009. In 2012, China’s trade with Africa reached $198.5 billion, while U.S.-African trade in 2012 was $99.8 billion. Furthermore, Chinese companies have made strategic inroads into the continent’s mineral and energy sector via deals in which Beijing supplements bids for mining or petroleum concession with assistance and investment from other state-directed firms. A deal with CNOOC or CNPC, for instance, also means a deal with a vast array of other Chinese businesses and investment funds that provide follow-on finance, infrastructure, and a host of other services that Western firms—on their own— often can’t match.
Which in turn highlights what’s really at play in Africa—a struggle over leadership and influence, not resources. Sure, oil, gold or farmland may be what the West and China are ultimately competing over, but the game as such is not being played out in Africa’s farms, mines, or oilfields. They are the prizes to be won, not the field on which the new great game is being played. For that, look instead to presidential palaces and ministerial buildings across the continent.
That’s because China, unlike the West, is playing for Africa’s leaders, not its people. Cheap, no-strings finance is great for Africa’s political incumbents because it gives them control over a source of funds and development they can use at their discretion. Like oil money in corrupt regimes, Chinese money and development assistance can be directed to political supporters and denied to opponents and it liberates the political class in Africa from the need to consult their own people on the decisions they make. It gives them maneuvering room and resources with which to disregard political grievances and claims for representation that originate from below.
Not that the West is innocent of such things, of course. Colonialism and then later Cold War patron-client relations between the major Western powers and African clients saw some of the most brutal and corrupt tyrants propped up by arms and funds sourced from the likes of the U.S., France, Britain, and the Soviet Union. What’s rarely understood, however, is that when the Cold War ended the flow of funds stopped, it forced many African countries to democratize. Their leaders—no longer able to access funds or weapons from great-power patrons—were left twisting in the wind. Democratization in turn enabled reform which, while painful, nonetheless has led to the development of many flourishing African economies today.
This is ultimately why the competition from China and a future BRICS bank might not be such a good deal as many in Africa are making it out to be. No-strings finance and unaccountable money from China are likely to empower Africa’s leaders first and its people a very distant second, just as U.S., U.K., French, and Russian aid and lending did during the Cold War.
A return to the days when money was cheap, easy to get, and coming with no strings other than political loyalty to one great power or another means that Africa’s leaders and political class may once again feel free to disregard their own people. Given how far Africa’s politics have come since the end of the Cold War, that’s a very high price for the continent—and its long-suffering people—to pay.
Jeffrey Cavanaugh holds a Ph.D. in political science with a specialization in international relations from the University of Illinois at Urbana-Champaign. Formerly an assistant professor of political science and public administration at Mississippi State University, he writes on global affairs and international economics for AFK Insider, Mint Press News and BAM South.
