Africa's Future Is Limited by Trade Ties to Europe

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Sierra Leone Finance Minister Samura Kamara and Kenya's Uhuru Kenyattaat IMF/World Bank meeting. (Nicholas Kamm/AFP/Getty)

By Njaramba Gikunju

When the global financial system went into a convulsion that eventually became what economic experts now refer to as the Great Recession, most pundits said that Africa, with its unsophisticated financial systems, would sail through the crisis unscathed. Proponents of this theory argued that Africa was "de-coupled" from the global economy, and the popular thinking was that the stunning collapse of erstwhile financial giants like Lehman Brothers would have ramifications only in the U.S., Europe and Asia, whose monetary systems were conjoined by subsidiary operations of the mammoth multinational banks and mortgage providers.

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But this prognosis changed swiftly as the economic woes in the developed world deepened, drying up demand for African export goods, killing tourism and battering African countries' currencies, with most losing value at a frightening rate because of the sudden drop in foreign cash inflows. The slowdown in demand from advanced economies pulled back economic growth for the 53 African states from an average of 5 percent in the decade before the crisis to a paltry 1.8 percent in 2009.

Africa's economies were also affected by the global economic downturn because of the millions of Africans who reside and work in developed economies — the majority of them in the U.S. — and send home billions of dollars every month. The World Bank estimates that the Great Recession caused a 6 percent drop in such remittances last year, in which developing countries received $316 billion.

Economic chiefs who gathered in Washington, D.C., this week for the annual International Monetary Fund and World Bank meetings, however, all agreed that the global economy has turned the corner since those ominous months in late 2008 when news about collapsing banks seemed to come at a greater frequency than weather updates. And the African continent, with its population of 1 billion, is once again getting rosy assessments of its economic prospects.

"The rate of growth [in sub-Saharan Africa] is back to something like 5 percent. This time, growth is coming back in Africa at the same rates as other parts of the world," IMF Managing Director Dominique Strauss-Kahn declared at the opening plenary on Friday.

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A Brighter Future for Africa?

The glowing reports will rightly hearten many in the world's poorest continent, whose huge economic potential remains bottled up by a fateful combination of historical injustices and corrupt leadership. But the bullish projections are also an eerie reminder of the mistakes that African policymakers, acting on similar assessments, made in late 2008 and early 2009.

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Convinced that the crisis had little chance of spilling over to their borders, African finance ministers continued implementing the policies they had before the crisis, only to realize rather late in the day that they also needed to cushion their economies by rolling out stimulus packages similar to the ones that were announced in advanced and emerging economies.

It does not take a genius to realize that Africa's colonial past has strapped the continent's economic fortunes to its former colonial masters, who have erected such enormous trade barriers within the continent that only about 10 percent (by IMF estimates) of total exports produced in Africa are traded within the continent. More than half of all other exports — which are primarily unprocessed agricultural goods, oil and minerals — find their way to European countries, which to this day continue to benefit from economic exploitation of the continent.

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China and the United States make up the other key destination markets for African goods.

By imposing national borders without regard to the harmonious coexistence and trade ties that had prevailed for centuries, the colonialists split up not only a continent but also, in many cases, families. They then introduced punitive cross-border trade tariffs that to this day make it staggeringly more expensive to transport goods from, say, Kenya in the east to Nigeria in the west than it is to send them to London.

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It therefore seems disingenuous at best to assert that Africa's economy will continue to boom even as recovery in advanced economies and particularly Europe remains in doubt. By the IMF's and the World Bank's own assessments, economic recovery is still weak in Europe and is not likely to translate into the kind of demand for goods and services that Africa needs in order to return to and sustain pre-crisis growth rates. 

Trade Beyond Europe

High unemployment and jitters about the possibility of a double-dip recession have knocked consumer confidence in Europe and the U.S., diminishing growth-fueling demand that was the key driver of these economies before the downturn. The unusually high debts of some European countries, such as Greece and the Republic of Ireland, have also overshadowed the recovery, fueling market fears that these governments are holding too much debt on their books, which could trigger a default.

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Africa is increasingly turning to China, Brazil, India, and other Asian and Latin American countries for new trade partnerships that not only seek to exploit the continent's natural resources but also promise — as in the case of China, which is building thousands of miles of roads on the continent — to be mutually beneficial.

It is not easy to undo overnight what has been well-established for more than a century, but the movement toward the East, and ongoing promotion of intra-Africa trade, are steps in the right direction for African economies that seek to gain true economic independence.

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For the time being, however, and as the Great Recession has demonstrated, Africa's economic fortunes will continue to rise and fall with those of Europe and the U.S. As a result, the continent should take all of those rosy economic projections with a pinch of salt.

Njaramba Gikunju is a journalist based in Nairobi, Kenya. 

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