Debt Issues in Africa: Thinking beyond the HIPIC Initiative Alemayehu Geda
Debt Issues in Africa: Thinking Beyond the HIPC Initiative to Solving
Structural Problems
(Paper for a WIDER Conference on Debt Relief, Helsinki, August 2001)
Alemayehu Geda
The Kenya Institute for Public Policy and Research (KIPPRA) and Addis Ababa University
This paper attempts to answer the following question: If the HIPIC initiative is
fully successful and managed to write-off all debt that owed to Africa, will the
debt problem be over. The answer is No. This pessimist answer is arrived at by
examining the historical origin of African debt and the structural problems the
continent is confronted with. The literature about the origins of the African debt
crisis lists a number of factors as its cause. The oil price shocks of 1973-74 and
1978-79, the expansion of the Eurodollar, a rise in public expenditure by African
governments following rising commodity prices in early 1970’s, the recession in
industrial countries and the subsequent commodity price fall, and a rise in real
world interest rate are usually mentioned as major factors. Surprisingly, almost all
the literature starts its analysis either in the early 1970s or, at best, after
independence in 1960s. The main argument in this paper is that one has to go
beyond this period not only to adequately explain the current debt crisis but also
to propose its possible solution. The conclusion that emerges from such analysis
is that the African debt problem is essentially a trade problem. Thus, long run
solution to debt points to the importance of addressing trade and trade related
structural problems in the continents.
1. Introduction
Notwithstanding the highly publicized debt relief initiative, the Highly Indebted Poor
Countries (HIPC), the African debt problem is one among myriad of problems the
continent is facing. A number of studies, in particular on Latin American countries debt,
have attempted to explain the origin of the debt crisis. This literature attributes the
developing countries debt (including that of Africa’s) to shocks generated in the early
1970s. In this paper an attempt to explain the historical origin of the African debt crisis is
made. It will be argued that understanding the African debt and proposing its solution
requires understanding its historical origin. The paper is organized as follows. In section 2
an attempt to provide a brief summery of the policy debate about African economic crisis
is given. This is primarily intended to show the general context under which the debt
problem is understood by major institutions. This is followed by section 3 where the
external finance problems of Africa will be described. In section 3 I will focus on the
structure of African economies created by its colonial history and its impact on current
Resident Economist at ISS-KIPPRA project and Assist. Professor, Department of Economics,
Addis Ababa University
or :
debt problem. Section 4 will examine the evolution of the debt problem form 1970’s
onwards. Section 5 will conclude the paper.
2 Background on African Debt and Macro Policy Debate
2.1 Africa's Economic Crisis – What caused it.
There are three sets of contending explanations for Africa's economic crisis. The first is set
out in World Bank (1981) - also known as ‘the Berg Report’- and a number of subsequent
World Bank publications. An alternative explanation for Africa’s economic problems,
associated with the United Nations’ ‘Economic Commission for Africa’ (ECA) is outlined in
African Alternative Framework to Structural Adjustment Programs, AAF-SAP (ECA, 1989a).
Finally, there exists a third view, which is less clearly associated with any particular institution
and largely held by academics of a Marxist orientation. This latter position is often offered as
a critique to the other two explanations. Although the scope of all three sets of explanations
is general, encompassing every aspects of the African economic crisis, we focus mainly on
how problems in the external sector of the economy are explained. Nevertheless, by
referring to this wider debate, we aim to locate the problems and the role of the external
sector in a wider context.
The World Bank's Agenda for action (1981) argues that Africa's problems relate to
underdeveloped human resources, political fragility, problems of restructuring colonial
institutions, inheritance of poorly shaped economies, climate, geography and population
growth. Set in the context of these problems, disappointing performance of the external
sector is, perhaps, a little more understandable. The Bank argues that, in spite of external
shocks, associated particularly with a rise in oil prices in the periods 1973-74 and 1978-80
and a decline in world demand for primary commodities, the balance of payments problems
experienced by most African nations since the 1970s cannot generally be attributed to
deterioration in terms of trade
. With the exception of mineral exporters, it is suggested that
terms of trade for most African nations have, in fact, been either favourable or neutral
The main cause of the balance of payments problem, according to the Bank, has been a
decline in the volume of exports. The decline in terms of trade faced by African nations is
attributed to three factors. Firstly, structural changes in the composition of world trade; with
trade in commodities growing at a slower rate than that of manufactures has resulted in a
decline in the African share of total world trade. Secondly, drought and civil strife has
negatively affected Africa’s supply capacity. And thirdly, trade restrictions and agricultural
subsidy policies of industrial countries represent a barrier to African trade
. The Bank goes
on to argue that the failure of Africa’s export sector may be explained in terms of three main
factors. Firstly, government policy has tended to be biased against agricultural and export
production. Secondly, increased consumption associated with rapid population growth has
placed a burden on resources, which might otherwise have been used by the export sector.
And, thirdly, inflexibilities in African economies are seen as representing an obstacle to
diversification. The Bank’s insistence that policy failure represents the main explanation for
Africa’s economic crisis, and consequent emphasis on the need for reforms, has continued
with the publication of its long-term perspective study (World Bank, 1989). Moreover, as
recently as 1994, the Bank continues to argue that orthodox macroeconomic management
represents the road to economic recovery in Africa and, hence, that more adjustment, not
less, is required (World Bank, 1994). This assertion has been the subject of various criticisms,
coming from a host of different angles (see inter alia Adam (1995), Mosley et al (1995), Lall
A number of other analysts have arrived at conclusions, in line with those of the Bank. van
Arkadie (1986), while sympathetic to the problems posed by external shocks, argues that
stagnating or falling output has had an important impact on export earnings. On the latter
point the World Bank (1989) argues, rather vigorously, that declining export volumes, rather
than declining prices, account for Africa's poor export revenue. Grier and Tullock’s (1989)
analysis supports this view. Based on their survey of empirical studies into the causes of the
African economic crisis, Elbadawi et al (1992), also found domestic policies to be important.
White (1996b), citing the case of Zambia, argues that economic decline following Zambia’s
independence may largely be attributed to economic mismanagement. Using a simple pooled
multiple regression equation for thirty-three African countries, Ghura (1993) also found
significant support for the Bank/ IMF viewpoint. Easterly and Levine (1996) suggest
political instability, low levels of schooling, deterioration in infrastructure, as well as policy
failures as representing possible causes of Africa’s growth problems. They conclude,
however, that policy improvements alone are likely to boost growth substantially. (See also
Collier and Gunning (1999) for a similar argument). Although the above survey is not
exhaustive, the aforementioned works would tend to lend strong support to the Bank/
Fund’s viewpoint. The logical conclusion to be drawn from this survey, therefore, is that the
remedy to Africa’s economic problems is to implement Structural Adjustment Programs
In contrast, the ECA (1989a), prefers to explain Africa's problems in terms of deficiencies in
basic economic and social infrastructure (especially physical capital), research capability,
technological know-how and human resource development, compounded by problems of
socio-political organization. The ECA sees inflation, balance of payments deficit, a rising
debt burden and instability of exports as resulting from a lack of structural transformation,
unfavourable physical and socio-political environment, as well as an excessive outward
orientation and dependence. The ECA study suggests that weaknesses in Africa’s productive
base, the predominant subsistence and exchange nature of the economy and its openness (to
international trade and finance) have all conspired to perpetuate the external dependence of
the continent. Hence, one of the striking features of the African economy is the dominance
of the external sector. This has the effect of rendering African countries quite vulnerable to
exogenous shocks
. Consequently, according to the ECA viewpoint, perceiving African
problems in terms of internal and external balance problems and seeking a solution within
that framework (most notably, through the implementation of Structural Adjustment
Programs) implies not only the wrong diagnosis but also the wrong treatment. The ECA
study argues that '...both on theoretical and empirical grounds, the conventional SAPs are
inadequate in addressing the real causes of economic, financial and social problems facing
African countries that are of a structural nature' (ECA, 1989a: 25).
Based on this alternative diagnosis, and the major objectives of ‘the Lagos Plan of Action’
(OAU, 1981), the ECA formulated an African alternative framework to the Bank/ Fund’s
policy recommendations. The ECA framework focuses on three dynamically interrelated
aspects, which need to be taken into account. First, the operative forces [political, economic,
scientific and technological, environmental, cultural and sociological
], second the available
resources [human and natural resources, domestic saving and external financial resources] and
third the needs to be catered for [i.e. focusing on vital goods and services as opposed to luxuries
and semi-luxuries]. The adoption of this general framework would allow the different
categories of operative force to influence not only the level and structure of what is
produced but also the distribution of wealth. Moreover, these forces may then influence the
nature of needs to be catered for and the degree of their satisfaction. At a concrete level this
is envisaged as taking a number of policy directions. Firstly, improving production capacity
and productivity, mobilization and efficient use of resources, human resource development,
strengthening the scientific and technological base and vertical and horizontal diversification.
Secondly, improving the level and distribution of income, adopting a pragmatic balance
between the public and private sectors, putting in place ‘enabling conditions’ for sustainable
development (particularly economic incentives and political stability), shifting of (non-
productive) resources, and improving income distribution among various groups. And,
finally, focusing on the required needs, particularly in relation to food self-sufficiency,
reducing import dependence, re-alignment of consumption and production patterns and
managing of debt and debt servicing.
Just as many have argued in favour of the Bank/ IMF view, so too, many analysts have come
out in support of the ECA’s position. Thus, various studies have emphasized Africa's
extreme dependence on primary commodity exports (See Ngwenya and Bugembe (1987),
Fantu (1992), Adedeji (1993)). Setting this discussion in a broader historical context, these
studies have highlighted the impact of colonialism in establishing the rules by which Africa
might participate in the world economy. According to these rules, African nations produced
raw materials and agricultural goods for Europe's industries. –Further, it is argued that this
pattern of trade has changed very little since the time of political 'independence' (Fantu,
1992: 497-500, Adedeji, 1993: 45). Indeed, Stefanski (1990) argues that, understood in the
context of direct continuum with the colonial experience, Africa’s economy still depends on
external factors to a much greater degree than any other developing region. As a result of
this dependence, Africa’s economic crisis is seen as being intricately interconnected with
external factors such as falling terms of trade, declining demand for African exports and
related external shocks (Stefanski, 1990: 68-77, Adedeji, 1993: 45). Collier (1991) also argues
that abrupt external shocks (be they negative or positive) have represented important causes
of the poor long-term economic performance of Africa
. Ali (1984) has touched on another
dimension of the problem. He argues that, for most African nations, the mitigation of their
problems depends not only on the characteristics of the commodities they export (and
specifically their elasticities) but also on the presence or absence of the necessary market
staying power. Wheeler (1984) has made an exploratory econometric analysis of the sources
of stagnation and suggests that ‘environmental’ factors (especially terms of trade and
international conditions of demand) have had a greater impact on growth than policy
variables. Indeed, based on Ghura’s (1993) recent econometric analysis, world interest rates
represent a further significant variable, which should be added to Wheeler’s list of adverse
‘environmental’ factors.
The negative impact of dependence on exports of primary commodities is reflected in three
interdependent phenomena. Firstly, a decline in prices faced by exporters (‘terms of trade’).
Secondly, instability of exports earnings. And, thirdly an absolute decline in levels of demand
and supply. Attempts to compensate for deterioration in the exchange rate facing exporters
by increasing supply have resulted in a further decline in prices (Fantu, 1992: 502, Stefanski
(1990) Stein (1977)). Stein (1977) examined export trends in East Africa (Uganda, Kenya and
Tanzania) in order to determine the causes of the divergence of each country's export
growth from that of the world. He found that unfavourable commodity composition;
opposed to the favourable/ unfavourable nature of its market and increased competitiveness
went a long way in accounting for this divergence. Because African countries depend on a
few commodities, whose prices swing cyclically and may decline over time, these countries
face export-earning instability. Naturally, such instability adversely affects their economies.
However, Fosu (1991) examining the evidence for sub-Saharan Africa argues that export
instability per se is less important than fluctuation in capital formation (capital instability) in
affecting economic growth. Yet, as his own work shows, in sub-Saharan Africa, high export
instability may render export proceeds a relatively unreliable source for funding for
investment projects (Fosu, 1991: 74-75). This usually forces countries to depend on external
finance (discussed, at length, below).
The third view differs from the other two in its understanding of what crisis means in the
African context. For these analysts crisis ‘...has a connotation of systemic breakdown, but
more generally it can refer to a moment or a specific time period in the history of a system at
which various developments of a negative character combine to generate a serious threat to
its survival’ (Lawrence, 1986:2). Sutcliffe (1986) for instance, argues that the African crisis
represents the continuation of a complex process of polarization trends. It emanates from
Africa's economic dependence. For him, the African crisis is best understood in terms of the
combined result of long-term secular effects of imperialism suddenly aggravated by the
impact of the world capitalist crisis. Thus, according to these viewpoints, Africa's problems
are best understood as resulting from long-term underdevelopment, following dependency
, and short-term vulnerability, following international aspects of crisis theory (Amin
1974a, 1974b, Ake 1981 cited in Ofuatey-Kadjoe 1991, Sutcliffe, 1986:19-20; Harris,
1986:93; Onimode, 1988: 13, Moyo et al, 1992: 210). In general, these writers are against the
view that there is a ‘norm’ from which African countries are in a temporary deviation, with
associated implications that these countries may return to that norm given a particular
adjustment measure (Harris, 1986:84). Harris (1986) and Mamdani (1994) for instance, argue
that the IMF and Bank’s ultimate objective is not to correct distortions in a free market
international system, but to construct such a system (Harris, 1986:88). In doing so, these
institutions may undermine any attempt to create an independent, integrated and self-
sustained [African] economy (Mamdani, 1994:129).
While there are areas where the first two approaches both converge and diverge, the third
explanation for Africa’s economic crisis stands firmly in opposition to both. Thus, the core
of the disagreement between the bank and ECA views centers on 'the role of the market'
(Oskawe, quoted in Asante, 1991:179). While the Bank believes in the market
mechanism as representing the fundamental instrument of resource allocation and income
distribution, the ECA questions this viewpoint. Thus, while the bank focuses mainly on
financial balances, the ECA considers a much broader transformation as an enabling
condition for the former. While the Bank emphasizes the export sector, the ECA strategy
advocates selectivity (See also Asante, 1991:180). While the Bank expresses concern about
anti-export bias and population policy, the ECA prefers to emphasize the need to ensure
total structural transformation and food self-sufficiency. While the Bank places more
emphasis on short-term policies than on Africa’s long term needs, the ECA Strategy, as
defined in the Lagos plan of action, stresses the importance of also addressing issues of long
term transformation alongside these short term policies.
However, these institutions do
agree on some major issues, such as the need for human resource development, improving
the efficiency of parastatals, and sound debt management. The ECA analysis is quite
comprehensive in addressing the causes of the crisis and in suggesting not only short run
solutions but also a framework for long-term transformations
. Thus, the analysis of the
external sector of Africa, adopted in this study, will be conducted within this broader
context. Within this perspective, it is not difficult to show that the African debt crisis has
developed as part of the broader external economic problem of the continent.
2.2 Background on African Debt
One of the major external problems of African countries is the external finance problem in
general and the debt crisis in particular. As can be seen from Table 1, the total external debt
of Africa grew nearly 25 fold, from its relatively low level of US $12.6 billion in 1971 to
nearly US $300 billion today. The most important component of this foreign burden is long-
term debt outstanding. The use of IMF credit became important in the late 1970s and early
1980s when structural adjustment and enhanced structural adjustment facilities became
important components of flows to Africa.
Debt Issues in Africa: Thinking beyond the HIPIC Initiative Alemayehu Geda
Table 1: Major Debt Indicators of Africa (in billions of US Dollars, unless otherwise stated)
(In billions of US dollars, unless otherwise stated)
1971 1975 1980 1985 1990 1991 1992 1993 1994 1995 1996 1997 1998
Total External Debt Stock (EDT)
East and Southern Africa (ESA)
4.9 11.4 28.3 55.4 85.2 88.8 91.1 93.4 101.4 106.0 104.0 103.2 107.3
North Africa (NA)
5.1 12.9 51.3 75.0 93.0 90.9 88.7 86.7 94.1 99.6 98.0 92.2 94.4
West and Central Africa (WCA)
3.9 8.2 32.2 51.7 91.7 94.2 90.9 94.7 98.2 103.9 101.7 94.5 98.1
Sub-Saharan Africa
8.8 19.7 60.8 107.1 176.9 183.4 182.7 194.8 221.3 235.4 231.8 223.1 230.1
All Africa
13.9 32.6 112.1 182.1 269.8 274.2 271.4 281.5 315.4 335.0 329.9 315.3 324.5
Long-term External Debt (total, All Africa) 11.9 27.2 84.6 140.1 227.7 231.7 227.2 234.0 253.0 266.9 260.9 249.2 256.3
Multilateral (DOD),
East and Southern Africa
0.5 1.4 4.0 8.9
18.9 20.7 21.5 23.4 25.9 27.7 28.0 28.0 29.8
North Africa
0.2 0.6 4.1 7.2
12.4 13.8 14.2 15.4 17.0 18.4 18.2 17.2 18.5
West and Central Africa
0.5 1.2 3.6 7.8
19.4 20.9 21.7 22.8 25.3 27.1 26.7 25.6 27.3
Sub-Saharan Africa
1.0 2.6 7.6 16.7 38.2 41.6 43.2 46.1 51.2 54.7 54.7 53.6 57.0
All Africa
1.2 3.2 11.7 23.9 50.6 55.4 57.4 61.4 68.2 73.0 72.9 70.7 75.6
East and Southern Africa
2.6 5.0 11.1 23.7 36.6 37.3 37.2 36.8 39.2 40.0 39.5 38.2 39.8
North Africa
3.0 6.0 17.5 31.9 36.6 37.8 38.2 38.1 44.4 49.8 50.7 48.0 49.1
West and Central Africa
2.0 3.2 6.9 10.5 33.9 36.7 37.1 37.0 40.4 42.8 41.2 38.7 40.7
Sub-Saharan Africa
4.6 8.3 18.1 34.2 70.5 74.0 74.4 73.8 79.6 82.7 80.7 77.0 80.5
All Africa
7.6 14.3 35.6 66.1 107.2 111.7 112.6 111.9 124.0 132.6 131.4 125.0 129.7
Private creditors (DOD)
East and Southern Africa
1.1 2.6 5.4 8.6
13.3 13.3 13.0 13.0 12.9 13.5 12.6 12.6 12.3
North Africa
1.2 4.8 21.0 23.8 34.5 30.8 29.0 27.3 26.1 24.5 21.5 18.7 17.6
West and Central Africa
0.7 2.3 10.8 17.6 22.1 20.2 14.5 14.6 13.9 13.4 12.2 10.6 10.6
Sub-Saharan Africa
1.9 4.9 16.3 26.3 35.4 33.9 28.2 33.4 34.6 36.8 35.1 34.7 33.6
All Africa
3.0 9.7 37.3 50.1 69.9 64.7 57.2 60.7 60.8 61.3 56.6 53.4 51.1
Interest and Principal Arrears (Percent of total external debt)
East and Southern Africa
0.3 3.6 10.3 16.4 21.1 25.2 28.4 32.5 34.0 36.7 35.0 34.2 35.4
North Africa
1.5 0.2 0.9 6.9
6.3 0.9 0.3 0.3 0.3 0.4 0.5 0.5 0.5
West and Central Africa
2.8 3.9 1.6 3.1
9.6 10.3 14.1 19.2 19.5 21.9 23.8 22.7 25.6
Sub-Saharan Africa
1.4 3.7 5.6 10.0 15.2 17.5 21.2 25.0 24.2 26.3 26.2 25.5 27.5
All Africa
1.4 2.3 3.5 8.7
12.1 12.0 14.4 17.4 17.1 18.6 18.6 18.2 19.6
Source: World Bank ‘Global Development Finance’ (2000).
Table 2: Major Debt Indicators of Africa (in Billions of US Dollar, unless otherwise stated)
1971 1975 1980 1985 1990 1991 1992
1993 1994 1995 1996 1997 1998
Net Transfer on Debt
East and Southern Africa 1.09 2.19 2.48 2.49 2.07 0.80 2.45
0.84 -0.04 0.47 -0.45 1.65 -1.32
North Africa
0.54 4.68 2.25 -0.06 -5.64 -3.39 -5.71
-5.85 -2.80 -3.33 -3.58 -4.86 -5.97
West and Central Africa 0.40 1.12 4.01 -1.89 -0.27 -2.22 -2.02
0.83 -2.80 -0.57 -1.33 0.31 -3.28
Sub-Saharan Africa
1.50 3.31 6.56 0.55 1.78 -1.18 0.74
2.53 5.48 2.01 -2.57 0.15 -6.48
All Africa
2.04 7.99 8.81 0.49 -3.86 -4.57 -4.98
-3.32 2.68 -1.32 -6.15 -4.71 -12.45
Aggregate Net Transfer
East and Southern Africa 1.08 2.30 4.18 5.37 7.62 7.57 7.55
6.46 5.66 5.76 3.77 5.37 4.13
North Africa
0.46 5.19 2.95 2.60 3.08 0.54 -0.75
-1.80 0.39 -1.54 -0.23 0.29 -2.20
West and Central Africa 0.29 1.14 1.16 -1.28 2.32 1.80 1.49
4.19 5.45 3.05 2.77 2.52 1.95
Sub-Saharan Africa
1.43 3.41 5.11 4.44 9.23 8.97 8.83
10.21 11.75 15.36 8.66 13.33 6.68
All Africa
1.90 8.60 8.06 7.04 12.31 9.51 8.08
8.41 12.14 13.81 8.43 13.61 4.48
Technical co-operation grants (as percentage of total grants)
East and Southern Africa 61.81 36.39 36.77 32.06 24.31 25.61 26.44 28.94 24.26 29.06 33.98 31.25 24.94
North Africa
38.70 16.33 58.53 39.71 20.31 22.50 31.49 52.21 38.85 51.19 40.04 43.32 33.25
West and Central Africa 51.54 46.90 54.37 36.61 30.04 31.78 35.62 37.18 26.81 32.06 30.01 32.53 28.86
Sub-Saharan Africa
61.36 49.23 42.60 35.52 29.76 31.79 32.91 33.86 28.45 30.70 32.69 31.30 27.82
All Africa
50.03 32.78 50.57 37.61 25.04 27.14 32.20 43.04 33.65 40.94 36.36 37.31 30.53
Debt (EDT)/GNP (%)*
East and Southern Africa 19.87 23.12 44.32 77.66 99.45 94.71 115.66 116.12 141.51 133.18 114.93 103.40 111.55
North Africa
29.33 31.56 57.07 84.27 71.98 75.11 68.30 67.02 69.68 68.75 61.36 58.15 55.81
West and Central Africa 21.35 27.61 59.61 106.68 121.16 127.89 147.63 167.20 158.63 145.95 146.27 163.02
Sub-Saharan Africa
14.55 15.52 23.45 56.37 63.01 63.68 62.91 70.99 82.57 77.57 73.82 67.74 72.32
All Africa
21.94 23.54 40.26 70.32 67.50 69.39 65.61 69.00 76.13 73.16 67.59 62.94 64.07
Debt service Ratio (%)*
East and Southern Africa 8.54 9.63 14.23 21.89 20.87 21.73 18.79 17.55 14.86 21.26 15.26 12.39 15.49
North Africa
21.77 8.52 22.27 30.24 32.96 34.58 37.21 36.49 29.86 24.48 21.15 20.10 22.38
West and Central Africa 5.28 6.88 13.16 22.08 19.29 18.12 15.83 14.52 21.12 18.98 18.39 15.92 17.08
Sub-Saharan Africa
.. ..
7.20 17.58 12.92 12.46 12.28 9.20 14.57 15.29 14.22 14.72 14.68
All Africa
.. ..
14.73 23.91 22.94 23.52 24.74 22.84 22.21 19.88 17.69 17.41 18.53
* Simple arithmetic mean (based on those countries that have relevant data Source: Based on World Bank ‘Global Development Finance’ (2000).
Net transfer = Loan disbursements less amortization and interest payment [as defined in World Debt Tables]
Aggregate net transfer = Aggregate net resource flows (Loan disbursements less amortization) plus official grants (non-technical) and foreign direct investment (FDI) less interest payment and FDI profit [as
defined in World Debt Tab
Debt Issues in Africa: Thinking beyond the HIPIC Initiative Alemayehu Geda
Another dimension of the structure of African debt is the changing pattern of its creditors.
Based on Table 1, it can generally be said that bilateral debt is the most important component
of the total debt. This is followed by multilateral debt. Private inflows are showing a declining
trend. A final observation is that a larger share of the official debt is on concessional terms
(See Alemayehu 1997 for detail). It is also interesting to note that the debt problem is
aggravated by capitalization of interest and principal arrears, which constitute nearly a quarter
of the external debt.
Although the share of African debt in the total debt of developing countries’ is very low, its
relative burden is very high. As can be seen from Table 2 (See Alemayehu 1997 for details)
the debt to GNP and debt service ratio rose from 20% and 9 % in 1971 to 100% and 17%,
respectively, in 1997. Both had reach as high as 110% and 25%, respectively, in the late
. The burden of debt on meagre resources can also be read from the net transfers to
the sub-regions. It is interesting to note from Table 2 that if grants and net foreign direct
investment inflows are not taken, African countries are on a net basis transferring resources
to the developed countries since 1985. The figure picking from its low level of 1.7 billion in
1985 to nearly 7 billion in 1997. Moreover, even a good part of grants, nearly 35%, goes to
‘technical experts’ that came from the North.
In sum, the last three decades have witnessed an unprecedented increase in the level of
African debt. This debt is characterized by its predominant long-term character, the growing
importance of debt owed to bilateral and multilateral creditors, a trend away form
concessionality to nonconcessionality and an increasing importance of interest and principal
arrears (usually capitalized through the Paris and London clubs) in the growth of long term
debt. Indicators of the debt burden also revealed that the African debt is extremely heavy
compared to the capacity of the African economies, in particular their export sectors.
Moreover, African countries in general are characterized by net outflow since the mid 1980s.
The performance of these economies coupled with the mounting debt surely shows that
African countries are incapable of simultaneously servicing their debt and attaining a
reasonable level of economic growth, not to speak of poverty alleviation.
Whereas the mere size of debt is not ordinarily an economic problem in itself, being tackled
by rescheduling and similar temporary arrangements, its relative (to capacity) level and
subsequent impact in the economy are serious problems. In this respect three inter related
implications of the debt problem can be singled out. First, the servicing of the external debt
erodes the meagre foreign exchange available for imports. This has led to the import
compression problem that adversely affected both public and private investments. This issue
has become the main feature of African macroeconomics. Second, the debt stock creates a
debt overhang problem that could shatter the confidence of both foreign and domestic
private investors who are usually sensitive to uncertainty. The declining trend of private
investment (as share of GDP) in most African countries from the late 1970s onwards can
partly be attributed to this factor. Finally, servicing of debt in the African context is placing
an enormous fiscal pressure. Such pressure has an adverse effect on public investment (as
can be read from the declining share of public investment in GDP from late 1970s onwards
in most African countries) and on physical and social infrastructure. Thus, the debt issue is a
crucial part of the overall economic crisis facing Africa. The important question is: how this
crisis comes about..
The literature on the origins of the African debt crisis lists a number of factors as its cause.
The oil price shocks of 1973-74 and 1978-79, the expansion of the Eurodollar, a rise in
public expenditure by African governments following increases in commodity prices during
the early 1970’s, recession in the industrialised nations and subsequent fall in commodity
prices, as well as rises in real world interest rate are all mentioned as major factors.
Surprisingly, almost all of this literature focuses on the post-independence period, with a
greater part of the analysis contained therein relating to the 1970s, 80s and 90s. The main
argument set out in this paper is that we need to extend this analysis to the pre-
independence period if we are to adequately explain the current debt crisis, as well as
propose possible solutions for its resolution. From this point of departure, the following
section traces the historical formation of an African economic structure incapable of
handling the current debt crisis.
2.3 The Historical Origin of Africa’s Economic Linkage with the
Industrialized Countries / The North/
Following Amin (1972), African economic history may be classified into: (i) the ‘pre-
mercantilist period’ (from pre-history to the beginning of the seventeenth century); (ii) the
‘mercantilist period’
(from the seventeenth century to 1800) characterized by the operation
of the slave-trade; (iii) the ‘third period’ (from 1800 to 1880) characterized by attempts to set
up a European dependent African economy; and finally, (iv) the ‘period of colonization’ in
which the dependent African economy became fully established (Amin, 1972:106). This
section will not pretend to discuss the details of Amin’s periodization. Rather, after briefly
reviewing the economic history of the other periods, it will focus mainly on the colonial
period, during which time the economic structure African countries inherited at the time of
independence became established.
2.3.1 African Trade before Western Europe
Pre-colonial African economic interactions with the rest of the world, and especially Europe,
date back many centuries, before culminating in fully-fledged colonisation in the latter part
of the nineteenth century.
During the first part of this period, Africa had autonomy in its
linkages with the rest of the world
(Amin, 1972:107-110). However, during the sixteenth
century, African trade centers moved from the savannah hinterland to the coast, in reaction
to changes in European trade, which shifted increasingly from the Mediterranean to the
Atlantic (Hopkins, 1973:87),
Various studies have documented how pre-colonial Africa was characterized by production
of diversified agricultural products (see for instance Rodney, 1972: 257). The internal trade
of the continent was distinguished by regional complementarities, with a broad natural
resource base. Thus, a dense and integrated network was set in place, dominated by African
traders, which included, inter alia, trade among herdsmen and crop farmers, supply of exports
and distribution of imports. This was dominated by trade in salt, West African ‘spices’,
perfumes, resins and kola nuts, of which the latter was the most important (Amin, 1972:117,
Hopkins, 1973: 51-86; Neumark, 1977:128-130, Vansina, 1977: 237-248, Austen, 1987:36).
Brooks’ account of the economic conditions prevailing in this period provides an impressive
insight into African trade at the time (Brooks, 1993). Specifically, one is struck by: (a) the
extent of local and long distance trade; (b) the range of goods traded; and, (c) the degree of
processing of commodities (for instance in textile manufacturing, dyeing and metalworking)
particularly in West Africa. According to his account, the major commodities traded among
West Africans in pre-colonial times include salt, iron, gold, kola, and malaguetta pepper and
cotton textile. Of these, Kola and malaguetta pepper were important, not only in West
Africa, but also in the trans-Saharan trade. Indeed, this trade was so extensive that
Europeans were able to obtain malaguetta pepper at inflated prices from Maghreb
middlemen from at least the fourteenth century onwards (Brooks, 1993: 51-121). Moreover,
in this period, Europeans were able to purchase cloth from Morocco, Mauritania,
Senegambia, Ivory Coast, Benin, Yorubaland and Loango for resale elsewhere (Rodney,
1972:113; Hopkins 1973: 48). It is curious to note that, in a geographic and economic sense,
North Africa was connected, rather than separated, by the Sahara to other parts of Africa
It is also worth noting that the quality of many of these processed goods was quite
comparable with products originating in other parts of the world. For instance the level of
manufacturing of textiles in pre-colonial West Africa was so sophisticated that these textiles
were not only traded in West, North and Central Africa but also in the European market
(See Hopkins, 1973:48 for detail). Moreover, none of the goods brought by Europeans
supplied any of the basic or unfulfilled needs of African societies. Indeed, similar
commodities and/ or substitutes were obtainable through West African commercial
networks. Specifically, African artisans of the time manufactured high quality iron, cotton,
textiles, beers, wines and liquors (Brooks, 1993:56). Austin argues that this trade, sometimes
referred to as the ‘Sudanic economy’, represents “an ideal African development pattern:
continuous and pervasive regional growth with a minimum of dependence upon foreign
partners for provision of critical goods and services” (Austen, 1987: 48). However, this
autonomy in traditional industries was to be undermined by subsequent events (Konczacki,
The early development pattern of Africa varies between regions. In contrast to West Africa,
East and Southern Africa (ESA) were characterized by a well-established economic
interaction with the Arabian and Asian countries, long before the arrival of the Europeans.
More specifically, this part of Africa supplied a range of products, such as gold, copper,
grain, millet, and coconut to the Middle East and Indian Ocean economies. There also
existed a dynamic caravan trade and commercial plantations long before the onset of
European colonial rule. According to Austen, the towns in this part of Africa degenerated
into little more than entrepôts for raw material exports and manufactured imports, rendering
them dependent on the external economy (Austen, 1987:67-74). However, as documented
by Kjekshus, during the mid-nineteenth century, prior to the onset of the colonial period,
the interior of what is now mainland Tanzania carried an estimated four and a half million
head of cattle. Indeed, the entire coastal region also supported a rich agricultural and pastoral
economy (quoted in Leys, 1996:111). Further, Nzula et al (1979)
argued that the region was
characterized by peasant production, which was mainly a natural and closed economy, with a
substantial number of people leading a nomadic existence (Nzula et al, 1979: 38). The
existence of an independent and autonomous economy dating back to antiquity is also well
documented in Ethiopian history
. Amin also notes that the African societies of the pre-
colonial period, including this region, developed autonomously (Amin, 1972: 107-108). Thus,
one may reasonably conclude that, although its economy was not as complex as that of West
Africa, nevertheless, that the ESA region had some degree of autonomy in its economic
activity, and, hence, was not as dependent on the export of commodities, particularly to
To sum up, there would appear to be a long history of integrated and autonomous economic
activity in most regions of Africa with local and long distance trade playing a linking role.
This is not an attempt to paint a ‘golden past’ for Africa. Rather, it is meant to underline the
fact that Africa had a healthy and fairly independent economic system, before colonialism
intervened to force a structural interaction with Europe.
2.3.2 The Formation of a Commodity Exporting and External Finance
Constrained Economy
The period leading up to the industrial revolution, and the 16th and 17th centuries, in
particular, witnessed the beginning of the shaping of the African economy by European
demand. A clear example is the pressing demand for gold coin in Europe, and the
subsequent search for gold in West and Central Africa (WCA)
. Indeed, demand for labour
required in the American gold search was instrumental in the formation of the European
slave trade (Rodney, 1972:86-87). Thus, the shaping of the African economy by Europe
began, even before the onset of the formal colonial period.
With the onset of the industrial revolution in Europe, Africa lost its remaining autonomy
and was reduced to being a supplier of slave labour for the plantations of America (Amin,
1972 :107-110). The European slave trade, and the so-called ‘triangular trade’, both of which
are beyond the scope of this paper, are widely discussed issues in the economic history of
Africa. Any resistance to the slave trade was silenced, not only by the co-opting of local
chiefs, but also by sheer force. Such use of force has been documented in what is now
Angola, Guinea and various other parts of the continent (Rodney, 1972:90-91. See also
Bernstein et al (1992) for a brief summary of the triangular trade). Moreover, this era
witnessed a widespread expansion of European control. This expansion was undertaken with
the dual aims of: (a) incorporating new areas under primary crop production, using African
land and labour (which were priced below world market prices); and, (b) increasing the level
of production of existing primary commodities. On the import side, cheaper and purer iron
bars, and implements such as knives and hoes were made available, displacing some of the
previous economic activities undertaken by local blacksmiths. This had knock-on effects in
terms of a reduction in levels of Iron smelting and even a decline in the mining of iron-ore
(Wallerstein, 1976: 34-36; Baran, 1957:141-143
Within the ESA region, cloves grown in Zanzibar and Pemb islands, for export to the Asian
and European markets, were the first cash crops successfully produced prior to European
colonialism. Mainland estates, dominated initially by Arab and Asian traders, were involved
in externally oriented production through sales of copra, sesame seed and oil-yielding
materials, for which France was the principal market (Munro, 1976: 55). Following
colonization, peasant cash cropping developed in East Africa. However, unlike the WCA
region, this was mainly as a consequence of a combination of political injunction and
regulation. Such imposition from above was usually resisted, the Maji-Maji uprising, in
today’s Tanzania, being a case in point. In other instances cash cropping simply failed to
take hold, as in the case of a cotton scheme proposed for Nyanza province, Kenya (Munro,
1976: 116). However, in spite of these initial setbacks, eventually the colonial powers were
successful in implementing their policy of introducing cash cropping to the region.
As described above, there existed a reasonable degree of trade linkage with Europe in the
pre-colonial period. Leaving aside the slave trade, the main feature of this trade was the
export of primary commodities by African colonies to Europe. Thus, even before the onset
of the colonial era, the seeds of Africa's subsequent role (as a supplier of raw materials and
foodstuffs for Europe, and a market for European manufactures) as well as its dependence
on external finance had already been sown
. Or, to take a slightly different perspective, a
move from the production of primary products to processing of these products (by Africans
and in Africa) was interrupted. This represents the first pre-designed attempt to articulate
African economic activity to the requirements of the outside world. This development was
vigorously followed up during the colonial period as a consequence of: (i) the so called
imperial self sufficiency in raw materials scheme; (ii) the impact of the first and second world wars;
and, (iii) financing requirements for the creation of public utilities designed to serve (i) and
i) The Imperial Self Sufficiency Scheme
As noted above, the export structure associated with colonialism did not arise by accident.
Rather, it was preceded by various experiments to produce agricultural products demanded
by the developing European industries. A French experiment to produce crops similar to
those produced in America, the establishments of plantations in Senegal, during the 1820s,
British experiments with ‘model farms’ in Niger, during the 1840s and cotton experiments
in Senegal, Nigeria and the Gold Coast (Ghana) all represent cases in point (Hopkins,
1973:137). In Germany, German commercial interests persuaded Bismarck, initially reluctant
to create a colonial empire, that overseas territories could provide raw materials for German
industries, as well as markets for their products (Longmire, 1990: 202). This growing demand
for raw materials, the search for a market for finished products from Europe, inter-
European competition, and a number of other factors conspired to form the basis upon
which colonialism was to evolve.
During the colonial period, one of the main phenomena, which strengthened primary
commodity exports from European colonies in Africa, was the so-called ‘imperial self
sufficiency’ scheme. Thus, British, French and Belgian textile industries sought to obtain
cotton from Africa, and invested accordingly. A similar scheme was also developed for
tobacco. This was administered both by colonial governments and by some European based
companies (Munro 1976: 128-137) and resulted in an expansion in colonial trade. With the
onset of colonialism, the centre of African trade shifted from the hinterland to the coast, and
the composition of this trade also changed in response to the demands of the increasing
external orientation of the economy (Amin, 1972:117). For example, expansion in the
production of palm products and groundnuts in Africa was directly linked with increased
demand for inputs required in soap and candle factories, lubricants (particularly for the
railways) and European economic growth in general (Hopkins, 1973:129).
At the same time, the processing of such primary products in Africa, except in white settler
colonies, was actively discouraged. Indeed, this was the case even when factories were
owned by Europeans. For example, in Senegal, the proportion of groundnuts, which could
be processed prior to its export to France, was strictly controlled (Fieldhouse, 1986: 48; Fyfe
quoted in Wallerstein, 1976:36; Onimode, 1988:177). In Angola the Portuguese prevented
the operation of flourmills, with the country exporting wheat to Portugal and importing
wheat flour back (Konczacki, 1977:81). According to Austen, the fact that colonial
governments, (with the possible exception of the Union of South Africa), saw themselves
primarily as representative of the ‘mother’ (colonial) country which was benefiting from the
existing pattern of trade, explains why they pursued policies which were directly and
indirectly designed to block efforts at local industrialization (Austen, 1987: 133).
In order to achieve these dual objectives, of inducing the colonies to be suppliers of inputs,
and markets for manufactured goods, various methods of coercion were employed. Africans
were forced, by superior firepower, to abandon small scale manufacturing industries and
trade with rival European nations (Dickson, 1977:142). At the same time, large European
firms were encouraged to concentrate on growing and trading in agricultural products. This
was easily achieved for a variety of reasons. Specifically, African peasants moved into cash
cropping: (a) to ensure access to European goods, to which they had become accustomed, in
a limited way, in the pre-colonial era; (b) to earn cash, which was required to pay various
taxes; and, finally: (c) as a result of force
. In other cases, Africans were simply exterminated
to pave the way for settlers.
In other parts of Africa Europeans directly controlled the
production of commodities such as cotton, sugarcane and tobacco (Amin, 1972: 112-113).
Indeed, in areas such as British East Africa the law required that farmers grow a minimum
acreage of cash crops. However, these peasants were not wholly dependent on cash crop
production. Rather, they also produced food for own consumption, this being in the
interests of the big firms, since it enabled them to pay only minimal wages, which did not
have to cover maintenance of the labourer and his family (Rodney, 1972: 172). Nevertheless,
the colonial authorities ensured that the extent of such food production was not large
enough to ensure self-sufficiency. For instance, in British Guinea it was a criminal offence to
grow rice (at a time when it was imported from India and Burma) because it was feared that
rice growing would lead to the diversion of labour from the sugar plantations (Frankel,
1977:236). Thus, in this manner, Africa’s economic role basically as a producer of primary
commodities, continued to be shaped to serve Europe's industrial and commercial interests.
ii). The First and Second World Wars (W.W.I and II)
The impact of W.W.I on African colonies was devastating. Although trade was disrupted
during the period, nevertheless African colonies were forced to supply commodities to
finance the war. The end of the war was followed by a surge in major commodity prices and
hence high export earnings for the African colonies (Munro, 1976: 119-23). Similarly,
W.W.II also resulted in an increased demand for primary commodities, and especially those
with military strategic importance such as vegetable oils, metals and industrial diamonds
(Ibid. 170, Burdette, 1990:84.). This had the effect of reinforcing the commodity producing
and exporting role of the European colonies in Africa. In addition to the direct effects of the
war, the post-war reconstruction of Europe, rising levels of European incomes and removal
of restrictions on consumer demand and commodity stockpiling, engendered by the
outbreak of the Korean war in 1950, resulted in the price of African exports surging to
unprecedented heights (Munro, 1976: 177). Thus, when war erupted or was expected to
erupt in the colonizing countries, commodity production and exports by African colonies
was boosted by non-price mechanisms. Further, the end of the war was usually also followed
by a commodity price boom and associated increase in the level of the commodity exported,
this time through the operation of the price mechanism. In the process, the specialization of
European colonies in Africa as producers and exporters of primary commodities became
firmly established.
iii) Financing Public Utilities and Commodity Export
In general, in the pre 1929 international financial order, which was dominated by
government bonds (i.e. portfolio investment), Asian and African colonies had little choice in
relation to the nature of their involvement in international financial systems. Political
considerations were at the heart of regulating access to capital markets (Bacha and
Alejandro, 1982: 2-3). Besides, such inflows to Africa were generally negligible (UN, 1949:
26-28). Capital inflows from W.W.II onwards were increasingly in the form of Foreign
Direct investment (FDI). There was a moderate flow of such capital from the United States
and Britain to Africa. However, such investment that did come (especially that originating in
the United States, which was the largest supplier) was concentrated mainly in South Africa,
Egypt and Liberia, the latter relating to the introduction of a shipping line by the United
States (UN, 1954: 15-16). In almost all cases the investment went into plantations and
mineral extraction (UN, 1949: 32-33).
The colonial period also witnessed a flow of loans and grants from European centers to the
African colonies. In almost all cases these funds were spent on public infrastructure
development such as railways and roads to link ports to export production sites, and, to a
lesser extent, on schools and health facilities. This was undertaken with the aim of
developing the primary commodity exporting capacity of the colonies (see UN, 1954: 32-33).
In some circumstances the colonial powers were also motivated by military-strategic
considerations. It is estimated that, from the mid 1940s to 1960 only 15 to 20 per cent of
such inflows were allocated for social and production sectors, while the rest went into
infrastructural development (Munro, 1976:183). The nature of these financial flows to the
colonies also differs before and after W.W.II. In general, it can be said that the pre-W.W.II
flows came mainly in loan form, while the post W.W.II flows, and especially those from
France, increasingly incorporated a grant element (See also Austen, 1987:197-202 for details).
However, the repayment of this debt by colonial administrators created serious difficulties.
These financial difficulties were exacerbated by instability in the world commodity market
and the vulnerability of the African colonies to this. Indeed, various analogies may be drawn
between the current debt crisis and the situation in this period. For instance, after the great
depression (1929-1932), African exports declined by about 42 per cent. The depression also
resulted in contraction of credit flowing to the colonies. These events led to a serious
incapacity to service debt owed to the ‘mother’ (colonizing) country. Since colonies were not
in a position to default on these debts, there was effectively no way out for them. This had
repercussions for every African economy, with widespread Bank failures, retrenchment
programs in colonial administrations and liquidation of businesses (See Munro, 1976: 150-53
for details).
Setting in place a vicious cycle, the financial difficulties being experienced by colonial
governments forced the colonies to vigorously follow a policy of producing export
commodities, at the expense of other alternatives (Munro, 1976: 155, Austen, 1987:127).
Peasant cropping, with its attractive minimum cost for colonial governors, was chosen as a
convenient vehicle to address this problem. This, the so called the ‘peasant path’ to financial
solvency, became a universal phenomenon throughout the colonies, and especially in the
present day WCA. It was attained by forced involvement of ordinary peasants in the primary
commodity export sector. Indeed, this coercion was sometimes so harsh that the ordinary
peasants were paid not in cash, but in bills of credit to the administration’s head tax (Munro,
1976:156). In the British colonies of East Africa a similar emphasis to the ‘peasant path’ was
also followed (Ibid. 156-57).
In summary, through the process discussed above, the foundations for the existing
economic structure of African countries were laid during the colonial period. This was
achieved through two channels. Firstly, by directly contributing to the expansion of an
enclave of primary commodity exporting economies. And, secondly, by bringing about a
situation of indebtedness, it further accentuated the importance of these activities as sources
of foreign exchange required for settling of this debt. Although this general pattern was
applied throughout the African colonies, some variations existed across these regions. The
next section addresses this issue.
2.3.3 The Three Macro-Regions of Colonial Africa: The Amin-Nzula Category
Although colonialism shaped the production structure in a similar way across Africa,
nevertheless one may observe certain variations in this general pattern between different
macro regions. Leaving aside North Africa, Nzula et al (1937),
and Amin (1972) divide the
continent into three distinct regions, based on their colonial structure. Firstly, Africa of the
labour reserves (Nzula et al (1979) label this ‘East and Southern Africa’). Secondly, Africa of the
colonial economy (Nzula et al label this the ‘British and French West Africa’). And, thirdly, Africa
of the concession-owning companies (Nzula et al label this ‘Belgian Congo and French Equatorial
Africa’). The fundamental distinction between these regions is derived from the manner in
which the colonial powers settled the ‘land question’(Nzula et al, 1979: 36).
In West Africa, commodity production did not take a plantation form. Besides, until quite
recently the mineral wealth of the region remained largely untapped (Amin, 1972: 115). The
amount of African peasant land expropriated was also negligible (Nzula et al 1979). However,
in spite of this, the control and growth of the commodity sector was governed by European
interests, while land remained in the hands of small peasants. The mechanisms for this
control were as much political as economic (Amin, 1972: 115). Hopkins lists a number of
reasons why plantation-based production never became fully established in West Africa.
Firstly, some traders were opposed to plantations for fear that they might compete with the
export sector for scarce capital (Such objections were voiced, for example, by businessmen
such as Lever and Verdier). Secondly, a few plantations, which were established, failed
because of lack of capital and ignorance about tropical conditions. The third, and perhaps
most important reason why plantations failed to became fully established in West Africa was
that small African peasants had already succeeded in forming an export economy by their
own efforts. Moreover, establishing plantations would have created conflicts with traditional
land rights. Indeed, some crops, such as groundnuts, would not have been suited to
plantation agriculture (Hopkins, 1973: 213-214). Finally, it is worth pointing out that it was
not necessary to develop formal plantation agriculture, since it was possible to influence the
nature of production and control the export supply of peasants through monopolistic
trading practices, customs restrictions, fiscal controls and appropriate credit arrangements
(Nzula et al, 1979:38).
In much of today’s Central Africa, and part of Southern Africa, concessionaire companies,
usually supported by their European state, dominated the entire economic structure through
their involvement in mining, fishing, public works and communication, and even taxation
(See Seleti, 1990:40). In these regions, the indigenous population were reduced to semi-
slavery, and exploited by open and non-economic forms of coercion on the plantations and
mines (Nzula et al, 1979: 37, Austen, 1987:140-142). The establishment of such
concessionaire companies was further facilitated by the indigenous population fleeing and
seeking refuge in the more inaccessible parts of the region. Discouraged by this population
exodus, the colonial authorities encouraged adventurer companies to ‘try to get something
out of the region’ (Amin, 1972: 117). The activities of these companies were organized in
line with demand in the 'mother country’. One example of this was the demand for raw
materials required in the European war effort. Thus, the mining companies, in co-operation
with colonial officials, designed and determined the nature of their enclave activity to meet
the increased demand for copper and other base metals required by the European war
industries (Burdette, 1990:84).
In Southern and Eastern Africa both systems referred to above were intricately interwoven
with a number of specific features (Nzula et al, 1979: 36). In this region the extraction of
mineral and settler agriculture was accompanied by the creation, often by force, of a small,
and often insufficient, reserve of labour comprising land owning peasants and the urban
unemployed. This was undertaken with the labour demands of mineral extraction and settler
agriculture firmly in mind (Amin, 1972: 114, Nzula et al, 1979:37). This labour was further
supplemented by inter regional migration. Other economic instruments, such as taxation,
were also used to create reserve labour for European plantations and mining (Seleti, 1990:34;
Konczacki, 1977:82). The reduction of the cost of labour in such regions to mere
subsistence levels rendered the exports of the colonies competitive, in comparison to similar
goods produced in Europe. Clearly, the formulation of such a structure was 'as much
political as economic'
(Amin, 1972:115; Seleti, 1990:47). However, since the focus of this
paper is on the economic, we do not go further into such political considerations here.
Rather, we would simply observe that, during this period, an economic structure was set in
place, characterized by the export of primary commodities.
By the end of the colonial period, what had been achieved in all these macro-regions was the
creation of a commodity exporting economy and virtual monopoly of the African trade
(both import and export) by Europe (see Hopkins, 1973: 174). The commodity export-led
strategy was vigorously followed during this period. As a result, not only did production for
overseas markets expand at a high rate, but also several new items (especially foodstuffs)
began to appear on the import list (Hopkins, l973: 178). In some cases, European business
interests were so pervasive that they created a protected market, on which to dump their
manufactured goods
. Summarizing the stylized facts in the colonial period, Konczacki
described the economic pattern of what is called ‘matured’ colonialism
as having three
distinct components. Firstly, both imports (which were mainly manufactured goods), and
exports (mainly raw materials), were fixed with the 'mother' country. Secondly, capital
investment in the colony was determined by the trading interest of the 'mother' country, and
concentrated in exporting enclaves. Finally, a supply of cheap labour was ensured through a
variety of mechanisms (legal, monopolistic employment and through other economic
instruments.) (Konczacki, 1977:75-76). Indeed, it is worth noting that this pattern has not
changed fundamentally, even today. Another important characteristic of this period relates to
technological change. For example, if one focuses on cotton production, during the colonial
era, Africa ‘...was concentrating almost entirely on export of raw cotton and the import of
manufactured cotton cloth. This remarkable reversal [compared to the pre-colonial period] is
tied to technological advance in Europe and to stagnation of technology in Africa owing to
the very trade with Europe’ (Rodney, 1972:113). Colonialism further exacerbated this
situation. Thus, as Amin notes, when we speak of the exchange of agricultural products
against imported manufacture (i.e. the terms of trade), ‘the concept is much richer: it
describes analytically the exchange of agricultural commodities provided by a peripheral
society shaped in this [colonial] way against the product of a central capitalist industry
(imported or produced on the spot by European enterprises)’ (Amin, 1972: 115).
To sum up, it has been shown that African nations were in possession of an integrated and
autonomous economic structure prior to their intensive interactions with Europeans during
the colonial period. It is hard to speculate what the future of such a structure might have
been, in the absence of colonialism. However, it goes without saying that it would not have
been what it is now, since clearly the present is the result of specific historical process. More
specifically, historical interaction with today’s developed countries has shaped the structure
of the economic activity of African nations, particularly in the areas of international trade
and finance. Indeed, economic domination, accompanied by colonization, has further
cemented this structure. Thus, given such historical process it is not surprising to find that
almost all African nations had become exporters of a limited range of primary products, and
importers of manufactured goods, by the time of independence, in the 1960s.
This was
further accompanied by a demand for external finance, when export earnings were not
sufficient to finance the level of public expenditures required for maintaining and expanding
the commodity exporting economy. This structure has not changed in any meaningful way in
the post-colonial era. Thus, when one examines the financial problems of Africa (which I am
arguing relate to its role as a primary commodity exporter) one is, compelled to conclude
that these problems are a direct outcome of historical process.
The Implication for the Post-Independence Period
In the previous section we have explained how a primary commodity and external finance
dependent economy has been created in Africa. The impact of the subsequent (after political
independence) events of the boom in commodity prices, the oil price shocks of 1973-74 and
1978-79 and the evolution of African debt from the early 1970s onward would be difficult to
understand unless an explicit link is made between the historically formed structure and the
pattern of trade and finance in the period 1970-1990. This section briefly summarizes this
This evolution of African trade and finance in the post independence period
could be categorized under three periods.
The first period refers to the late 1960s and early 1970s. This period is characterized by the
first oil shock and the rise in commodity prices. The commodity price boom is followed by a
sharp bust in 1974, and again after 1977 for coffee and cocoa (See Figures 1 and 2). The
response in most African countries is a rise in government expenditure in particular in
infrastructure sector. When the commodity price fall governments were not only unable to
cut expenditure but also in need of marinating on going projects. This has been
accompanied by increased borrowing owing to improved credit worthiness when prices of
export commodities rise and due to belief in cyclical nature of prices when commodity prices
decline. This pattern is examined and can be read from the pattern of trade and finance in
sample of countries examined in the context of this study
(See Alemayehu 1997 for details).
The major point that emerges from examining this period is that following the rise in
commodity price and access to loan there was a rise in public expenditure. Given the
inherited colonial structure that necessitated spending on social and physical infrastructure,
the rise in government expenditure (and hence the beginning of debt creation) is not a policy
mistake, as seems to be depicted in the good part of the African debt literature. This
spending is necessitated by fundamental problems, which were structural/historical, and the
resulting policies are the reflection of this reality (See Alemayehu 1997).
Figure 1:
Price Index of Some Major Agricultural Export Commodities of Africa (1965=100)
Cocoa Coffee
Source: Alemayehu (1997)
Figure 2
Price Index of Some Major Mineral Export Commodities of Africa (1965=100)
Copper Iron Ore
Source: Alemayehu (1997)
The above analysis shows that the period 1970 to mid 1970s was characterized by a rise in the
price of commodities on which African countries had specialized for historical reasons. It was
also a period in which imports of capital and intermediate goods (mainly to develop
infrastructure) increased. This effort was complemented by foreign borrowing. It is at this
particular juncture that almost all countries were hit by the first oil price shock. This shock was
tackled, partly, by resorting to external financing. This was the case in Ghana, Zambia, Sierra
Leon, and many other countries. The same was true in Kenya (although price of coffee rose in
the first half of 1970s but fall in the second half leading Kenya to finance its balance of
payment deficit by a rise in private capital inflow). Malawi also experienced similar problems
and private capital inflows (especially of supplier's credit) were important in tackling the
balance of payment difficulties. Another way of viewing the latter phenomenon is to consider
the additional external finance (which eventually turned into debt) requirements of African
countries as a policy response to the external shocks they were facing ( See Balassa 1983, 1984;
Hardy 1986; Ezenwe 1993). The question is whether such policy responses were rational.
Should the shock be seen as a temporary one. Both on the part of African governments and
creditors these shocks were believed to be temporary. Given this belief (that is the expectation
of an eventual rise in commodity prices) and given the then prevailing low real interest rate
(which was even negative, see Khan and Knight, 1983:2), it seems reasonably rational that both
lenders and borrowers responded in the same way. As it turned out, the frustration of these
expectations (secular decline in commodity price and rise in real world interest rate) put an
enormous burden on Africa and not on Northern creditors
In all these cases the rise in commodity prices during this period was followed by an increase in
government expenditure. True, there were domestic policy problems in managing public
expenditure in this period. However, the nature of public expenditure did not constitute a
reckless spending as is usually implicitly portrayed in the African debt literature. For instance
in Nigeria after the first oil boom nearly 80% of public expenditure was on physical and social
infrastructure. Capital expenditure was twice that of current expenditure. Public expenditure on
trade, industry and mining rose from 7.3% in 1970-74 to 26% in 1975-80, transport from 21.3%
to 22.2% in the two periods while general administration dropped from 22% to 13.6%
(Mohammed 1989).
Contrary to the case of Nigeria current expenditure in Zambia was nearly
75% of total expenditure in 1970-74 and this is largely attributed to the Zambianaization policy,
which is dictated by the inherited colonial structure (see Mwale 1983). Nonetheless, from 1972
(strengthened in 1974) the government attempted to curb current expenditure. For instance
consumer durable import was reduced from 28% in 1974 to 18% in 1978. Similarly subsidies,
with attending political costs, had been reduced in the early 1970s (Mwale 1983). In general by
the mid 1970s public and private consumption had been substantially reduced from its high
level in 1970 (Mulalu 1987). In Sudan the rise in government expenditure following the early
1970s was largely owing to decentralization, infrastructure development and debt servicing
(Galil, 1994:31-33). This pattern was similar in many African countries (See Alemayehu 1997
for detail).
Thus, following the rise in commodity prices and access to loans there was a rise in public
expenditure. However, this in itself did not constitute a mistake. Given the inherited colonial
structure that necessitated spending on social and physical infrastructure to address the problem
of the hitherto neglected sections of the population; prevailing hope in technology transfer
through import substitution; and the uncertainly about commodity prices, the expenditure was
not reckless. In fact, in most African countries the relative share of functional expenditure
hardly changed following the commodity boom of 1973-74 in general and 1976-77 for cocoa
and coffee exporters. The capital expenditure did change, however, owing, as noted above,
owing to the import substitution strategy pursued (See Alemayehu 1997). In retrospect, it
might appear a policy problem. However, it is difficult to expect that such infant government
structures (which were themselves the result of a unique historic process) would have had full
foresight of commodity price decline
. Even had they had such insight, the root cause of the
problem was the deterioration of the terms of trade. The policy problem that emanated from
failing to predict commodity price collapse and mange demand was a secondary one. This
argument should not be take as endorssing some white-elephant investments carried in some
African countries, however. Perhaps the major domestic policy problem associated with the
rising expenditure was the way in which the import substitution (IS) strategy was conducted.
While the IS strategy was a sound one, it was carried out in the context of a disarticulated
production and consumption structure. The latter is in particular vivid in the neglect of: the
industrial and agricultural linkages (as it was based on the urban elite's patterns of
consumption); future demands for recurrent cost of intermediate inputs; and development of the
human capital required. However, the fundamental problems were structural/historical and the
resulting policies are therefore a reflection of this reality and hence secondary in their effect
This pattern was compounded by another development in the global financial markets. The oil
price hikes not only forced oil importers to become more dependent on borrowing, they also
created what is called the OPEC surplus -pax Arabica. (Bacha and Alejandro 1982). This
surplus was circulated through the international banking system. The Euromarket became an
important source of financing for a number of African countries, which had never borrowed
before (Krumm 1985, Mistry 1988). The situation was reinforced by a second oil price shock
(Kruger 1987, Salazar-Carrillo 1988 in Taiwo, 1991:39; and Ezenwe 1993). The new funds
borrowed were spent on mining companies and major public projects. But, in general, these
loans were characterized by harder terms. When the second oil price shock came in the late
1970s, with commodity prices continuously deteriorating as shown in Figures 1 and 2, most
countries were unable to absorb the shock (Krumm, 1985: 1-9). Thus, by the end of the 1970s
the total external debt grew almost ten folds
The second period refers to the late 1970’s and early 1980s.
The end of the 1970s had witnessed
the second oil price shock.
Major commodity prices continue to decline, prompted, inter alia, by
the recession in the industrial countries. The early 1980s was also characterized by a hike in real
interest rate in industrial countries, chiefly due to lax fiscal and tight monetary policy of the
By 1981 the real foreign interest rate was 17.4% compared to -17.9% in 1973 (see Khan and
Knight, 1983:2). The latter aggravated the interest rate cost of nonconcessional and private debts
that became increasingly important during this period (see Alemayehu 1997 for detail). This
development prompted many African governments to continue borrowing (and get credit) on the
assumption of a cyclical turn around in commodity prices. These new loans were used to finance
enlarged oil bills and avoid sharp politically/socially disruptive cut backs in public expenditure
(Mistry, 1988:7). The experiences of most countries’, such as Ghana, Zambia, Malawi, Tanzania,
Sierra Leone, Libya and Nigeria, discussed in detail in Alemayehu (1997), experiences during this
period generally confirm this pattern.
The third period refers to the late 1980s to the 1990s. This pe
riod, as that of late 1970s was
generally characterized by continually declining commodity prices and the deterioration of terms
of trade. For the period 1985-90, when a large number of African countries undertook adjustment
programs, the deterioration in the barter terms of trade of nine major export commodities resulted
in a 40% decline in average export revenue (compared to 1977-79 average), despite a 75%
increase in export volume (Husain, 1994:168). As a result, African countries became more
vulnerable to further indebtedness. Moreover, the capitalization of amortization and interest
payment through the Paris and London clubs rescheduling had also started pushing the debt stock
upward (van der Hoeven, 1993 and Alemayehu 1997). This pattern is obvious from the reports of
many countries examined in detail in Alemayehu (1997).
Given this general pattern from the mid 1980s to early 1990s, African economies were extremely
indebted by the 1990s. Moreover, apart from investment in infrastructure (like the transport
sector) which needed external finance for its maintenance, almost all countries had become
dependent on external finance for securing imported intermediate inputs and ensuring the smooth
functioning of their economy (See Ndulu 1986, Ngwenya and Bugembe 1987, Fantu 1991, Rattos
Mbelle and Sterner 1991). Thus, throughout the two decades analyzed the value of import
was persistently increasing in almost all countries
. This recurrent import demand problem was
compounded by actual running down of the capital stock, including infrastructure.
Thus, by late 1980s and early 1990s such historically structured African economies were
vulnerable to events such as the industrialized economies recession, following the global monetary
shock of 1979-81, which depressed commodity prices. This is also a time where the world
economy witnessed (i) the emergence of high, positive real interest rate throughout the 1980s
which increased the debt service burden of indebted countries, (ii) protectionism in the world
market for agricultural products and low technology manufacturing which hampered
diversification attempts and, finally, (iii) the prevalence of repeated official and private
rescheduling, often at punitive terms (see Mistry, 1991:10-11 for detail). This crisis widened the
role of multilateral finance despite being available at unacceptable terms - policy conditionality.
Thus, another major development in the 1980s and early 1990s was the growth of multilateral
debt, especially that owed to the World Bank and African Development Bank and to a lesser
degree the IMF. The main reasons for an increase in debt owed to multilateral agencies were (a)
the stepping in of these multilateral banks to finance the partial bail-out of commercial banks in
the 1980s, (See Alemayehu 1997 for detail), (b) the fact that these debts were denominated in SDR
and ECU while most African countries earned their currency in US dollars, which had depreciated
against both SDR and ECU for the last 30 years
and finally (c) the growth of adjustment
financing (Mistry, 1994, 1996). In sum, by the 1990s African countries found themselves not only
being extremely indebted but also structurally unable to pay back their debt.
4. Conclusions
The descriptive analysis at the beginning of this papers revealed that the current level of debt is
beyond the capacity of the continent to service. Thus, the insolvency issue is at the heart of the
African debt crisis. Various contending explanations about the cause of the problems of Africa’s
external economy in general and its external finance in particular have been forwarded in the
literature. These contending explanations range from those that emphasize policy as the main
problem to those that favour historically formed structures. A third view emphasizes the systemic
nature of the crisis. The recent literature on the origin of African debt problems limits itself
largely to the events of the 1970s and late 1980s. Certainly these are crucial but explain only part
of the story. The analysis of the African debt crisis needs a historical explanation of how a weak
and vulnerable economic structure has been built as a result of Africa’s specialization as a
primary commodity exporter. I have shown that this was the case in Africa. Such analysis also
explains how such structure paved the way for indebtedness by creating the necessity for
borrowing and by making debt servicing difficult.
It is interesting to ask whether the financial, physical, human and institutional ‘capital’
inventories from colonial era have somewhat reproduced themselves in the last three decades.
The answer is undoubtedly, yes. There are at least four fundamental reasons for this. First, the
demand from the previous colonial powers and hence the pattern of trade and finance is not
fundamentally changed. For instance by 1988 88% of sub-Saharan export went to Europe (See
Sommers and Assefa, 1992 for details). This old division of labour was strengthened by what is
called the Lomé convention (See Amin, 1996). Second, the new agents that came to power after
‘independence’ attempted diversification. This was largely a failure not only due the
conceptualization of the whole process, notably of the disarticulation of agriculture and industry
but also fundamentally because such efforts required huge investments, which were beyond their
capacity. This severely limited the policy options available. Third, despite politically both the
radical -i.e. radical departure form colonial pattern- Casablanca (Nasserism, Algerian FLN,
Nkrumahism and to a degree followers of Lumumba) and the moderate- i.e. adaptation to the
pattern- Monrovia groups (Ivory Coast and Kenya being the main) after ‘independence’ have
been reconciled to an African perspective by Emperor Haileselassie of Ethiopia and hence the
OAU formation in 1963 (see Amin, 1996), their subsequent existence in power is informed by
maximization of short run gains subject to the constraint of inherited trade and financial structure.
This necessarily implies relying on primary commodities and loans instead of structural
transformation. Finally, since the mid 1980s (for some even before that) the economy of Africa
was essentially (mis) managed by the Bank and the Fund which itself is a failure (see Adams
1995, Lall 1995, Mosley and Weeks 1993, Mosley et al 1995, ECA 1989b among others). It is
within this broader framework that the specific problem of the African external finance and debt
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In subsequent publications, notably Africa’s adjustment and growth in the 1980s published jointly with
UNDP, the Bank argues forcefully that Sub-Saharan Africa has been in relatively ‘good shape’ compared to other
parts of the developing world and that policy mistakes have been the principal cause of its economic crisis.
However, the ECA (1989b) argues that the Bank has based its conclusions on ‘pseudo-statistics’ and selective
reporting. Re-examination of the data by ECA analysts would tend to suggest that the Bank’s argument can- not be
substantiated (See ECA 1989b and Mosley and Weeks 1993 for a brief summary).
However, according to the Bank, the effects of the protectionist policies of developed nations may be
rendered less significant due to the low capacity of African manufacturing, an inability to produce temperate
products as well as the continent’s preferential status within the EEC. See also Amjadi et al (1996) for a recent
argument along these lines, as well as proposals for possible policy conditionality plan for privatizing African
shipping lines.
See White (1996) for a review of this debate.
In contrast, Collier and Gunning (1999) argue that lack of openness represents one of the major causes of
poor performance of African economies.
This basically includes the system of government, public enterprises, the private sector, domestic markets,
research and development, forces of nature and climate, ethnicism and society's value system, external commodity
markets and finance and transnational corporations
Collier (1991) cites the Zambian economy and copper price as a classic example of negative shocks. In
Collier’s opinion two errors are made. Firstly, the price fall was treated as temporary, and, secondly, foreign
exchange shortages were handled by rationing. Notwithstanding an acknowledgment of the effect of negative
shocks, he emphasized poor policies in what he called ‘controlled’ economies as representing a major problem.
However, it could be argued that the root cause of these policy problems lies in the structure of the economy of these
countries, and in their external trade in particular. Taken in this light, policy problems, per se, may be of only
secondary importance.
However Ghura (1993) is extremely optimistic in stating that judicious macro and trade policies may
stimulate growth in Africa, even if external conditions do not improve. This viewpoint is essentially similar to the
types of empirical studies undertaken in support of Bank type policies.
This is measured as the divergence in the rate of growth of a country's exports from that of the world as a
whole over the period under study, multiplied by the total exports of the country in question. This is taken from a
simple model, which specifies the different factors affecting exports (See Stein, 1977:106).
See Leys (1996) and Ofuatey-Kodjoe (1991) for critiques of dependency theory, in the African context.
Makandawire (1989 cited in Elbadawi et al 1992) summarizes the two contending views about the cause of
African crisis as structuralist and neoclassical. He note
The structuralist view is one which highlights a number of features and ‘stylized facts’ that almost every point
contradicts the neoclassical view...class based distribution of income rather than marginal productivity based
distribution of income; oligopolist rather than the laissez-faire capitalist market; increasing returns or fixed
proportion functions rather than ‘well-behaved’ production functions with decreasing returns and high rates
of substitution; non-equivalent or ‘unequal exchange’ in the world rather than competitive, comparative
advantage based world system; low supply elasticities rather than instantaneous response to price incentives
(Makandawire (1989) quoted in Elbadawi et al (1992).
See Stewart (1993) for a discussion of this issue.
See, however, Helleiner (1993) who argues for an emerging consensus on this issue.
By and large these figures show the average scenario. However, there are some exceptions. Burundi and
Guinea-Bissau in WCA region had a debt service ratio of 40% and 94%, respectively, by 1992; Uganda and
Madagascar in ESA region had a ratio ranging from 40-70% and 50-60%, respectively, from the mid 1980s. In terms
of debt to GNP ratio, Mozambique recorded 300-580% from the mid 1980s to early 1990s; Guinea-Bissau had a debt
to GNP ratio of 130-300% from 1980-1990. Similarly Congo and Cote d’Ivoire had a ratio close to 200% in the mid
1980s (World Bank, World Debt Tables, electronic, 1994).
See Amin (1974), chapter two, on the mercantilist period.
Amin (1972) has termed this the Pre-mercantile period.
Wallerstein characterizes the trade of the period as trade in "luxuries", with such trade being undertaken
between external arena and not in an integrated world economy framework. Wallerstein and Amin define luxuries as
those goods, the demand for which comes from the part of the profit that is consumed. Suraffa defines luxuries as
goods that are not used in the production of other goods. He, however, took it as trade/ exchange in which 'each can
export to the other what is in his system socially defined as worth little in return for the import of what in its system
is defined as worth much'. Or, in Alpers’ phrase 'trade from which each side believed itself to be profiting'
(Wallerstein, 1976:31 and footnote 3).
Maghreb refers to North Africa.
This stands in sharp contrast to the current categorization of North Africa as geographically and
economically distinct from Sub-Saharan Africa. For justification of this view see Sommers and Assefa (1992) and
various World Bank/IMF classification schemes for Africa.
The original work is written in 1933.
The commonly argued case that, since Ethiopia was not colonized, it represents a ‘counter factual’ for how
other parts of Africa might have developed, in the absence of colonialism is a very weak one. Firstly, a good part of
the history of Ethiopia has been a history of wars under the ideology of either religion, region, nationality or a
combination of these. This has created a serious crisis in the agricultural sector (See Gebrehiwot, 1917). Secondly,
Ethiopia’s history has been characterized by the existence of two clearly distinct antagonistic classes: the landed
aristocracy and the peasantry, with corresponding state structures (see Gebru, 1995). Given the history of conflict,
which characterizes Ethiopia’s history, the main preoccupation of the landed aristocracy and the church, has been to
maintain its power. Thirdly, colonialism had the effect of disrupting the dynamic caravan trade, which linked the
Southwest parts of Ethiopia to the rest of the East African region. And, finally, Ethiopian independence was
basically a besieged one. Since hostile and powerful colonial forces encircled it, naturally this had an influence on
the political and economic structure of the country. More specifically, Ethiopia developed as a militaristic nation,
with a dependent economy based on the export of commodities and import of manufactures.
First by the Portuguese, and later by the British, Dutch, Germans and Scandinavians.
In describing the impact of underdeveloped nations’ interaction with Western Europe Baran noted " [the
population of these nations] found themselves in the twilight of feudalism and capitalism enduring the worst features
of both worlds. Their exploitation is multiplied, yet its fruits were not to increase their productive wealth; these went
abroad or served to support parasitic bourgeoisie at home. They lived in abysmal misery, yet they had no prospect of
a better tomorrow. They lost their time-honored means of livelihood, their arts and crafts, yet there was no modern
industry to provide new ones in their place. They were thrust into extensive contact with advance of the West, yet
remained in a state of the darkest backwardness" (Baran, 1957:144). Perhaps we should not be surprised that Baran’s
description, written nearly four decades ago remains relevant today.
Imports of palm oil by Britain, groundnuts by France, palm kernels (for cattle cake) by Germany (and for
the manufacturing of margarine) by the Dutch represented the main items traded during the 19th century, prior to the
onset of formal colonialism at the end of that century (For a description of this, see particularly Chapter 4 of Hopkins
(1973) ).
These were prompted by the so called ‘cotton famine’ in Europe, following the American civil war.
The motives underlying colonialism represent a widely debated topic. For instance, Austen (1987) argues
that “within [the] general context of intense multifaceted international competition, the economic rational for African
colonization was to a considerable extent pre-emptive -designed to assure access to potential rather than actual
markets and commodities as well as trade routes... to Asia” (Austen, 1987:116).
There are many examples of Africans being forced into cash crop production. This occurred in Tanganyika
(today’s mainland Tanzania), in the Portuguese colonies, in French Equatorial Africa and French Sudan (today’s
Mali). In Congo Brazzaville the French enforced cotton cultivation by banning traditional agricultural activities.
These policies of coercion were resisted to the extent possible. The revolts in Tanganyika and Angola represent cases
in point (See Rodney, 1972:172-181, Austen, 1987:140-142).
This was the policy followed by Germany in what is now called Namibia. Indeed, the extermination of the
Africans was so extensive that, when they discovered diamond, the Germans had to look for migrant labour for
mining from other regions (See Longmire, 1990:203-204).
The English translation appeared in 1979.
See also Amin (1972) for a political and social analysis of how the region’s commodity production and
exports were controlled.
Pim places this at the center of his investment analysis and argues that the main investment was in areas
with extensive mineral wealth, plantation possibilities and a mass of unskilled labour. This involved heavy
expenditure in communications, which required an expansion of the export sector for its finance. The latter, in turn,
required a large labour supply, which was secured by direct and indirect compulsion, affecting every aspect of native
life (Pim, 1977:229).
France was in possession of such a protected market in West Africa. The protectionist policy was the result
of pressure from French metallurgical, textile and chemical industries, which had difficulty competing with Britain
(Hopkins, 1973:160). Portuguese industrialists had also created such protected markets in Africa, especially for their
textile industry (Seleti, 1990:36).
Portuguese colonialism does not qualify as ‘matured’ in his analysis.
In virtually all African countries, one to three commodities account for 50-90% of total exports. Indeed, in
the period 1982-86, in 13 African countries 1 product, in 8 countries 2 products, in 6 countries 3 products, and
finally, in 8 African countries 4 products accounted for over 75% of export earning (see Adedeji (1993) for details).
This list includes, Zambia, Sierra Leone, Tanzania, Ghana, Zambia, Kenya, Malawi, Nigeria, Egypt (See
Alemayehu 1997 for detailed information about the evolution of the pattern of trade and finance since 1970 in each of
this counties which are picked from each macro regions outlined in this paper).
The situation was a little different for oil exporters (See Alemayehu 1997 for details).
This investment was not without result either. Following this expenditure universal primary education was
almost achieved, more health infrastructure was built, infant mortality rate declined more than by third. However, the
public enterprises built were seriously affected by recession in the North, high import content (59-60%), lack of
domestic demand, which adversely affected their capacity to be self-sufficient (see Mohammed 1989).
Let alone the then African government’s, even an international institution like the IMF that was
supervising some countries’ economic evolution (like Zambia) did not foresee some of the events. Observing this,
Mulalu (1987) noted the irony of IMF blame of the Zambian government despite its close monitoring of that country
from 1975.
One common comments is that East Asian countries (such as Korea, Singapore and Hong Kong) that were
under colonial rule have developed while Africa is not. Such comments are not credible because the historical
parallel is completely different. Hong Kong and Singapore prospered as enterpots owing to direct British colonial
interest. Moreover, they are city-states incomparable to African colonies. Probably the only comparable country is
Korea and to some degree Taiwan. However, the Japanese colonialism (which was as harsh as the others) had an aim
of creating heavy industry and self-sufficiency in its empire, and, hence, has done better than the colonizers in
Africa. Some figures may substantiate this point. Taiwan and Korea experienced higher GDP growth than their
colonizer (Japan) between 1911-1939; their infrastructure has also developed (Taiwan having 600 kilometres of rails
and 3,553 kilometres of road where there were none before. By the end of the colonial period primary school
enrolment in Taiwan stood at 71% and similar pattern is observed in Korea. Owing to geopolitical factors (the cold
war) Korea, for instance, obtained US $6 billion grants from USA between 1946-78 compared to US $6.89 billion
for the whole of Africa. US military delivery to the two countries in 1955-78 stood at US $9 billion, the combined
figure for Latin America being US $3.2 billion- one can imagine what the economic impact of this might be (see
Chowdhury and Islam 1993). In Korea alone aid financed nearly 70% of total imports and equalled 75% of total
fixed capital formation (See Haggard 1990 which also provides the political economy of this event). Hopefully, the
above points show that this experience is incomparable to the situation in Africa.
However, Taiwo (1991) using regression analysis based on data from eleven sub-Saharan African
countries (1970-88) noted that the most important factor for the debt crisis was the relative (periphery to center) level
of economic development (measured as the ratio of per capita income of LDC to industrial world) and to a lesser
degree terms of trade, relative prices, real cost of borrowing and openness of the economy.
However, the collapse of oil price from its 1979 hike although relived the oil importing countries it
adversely affected oil exporting economies of North Africa and some of the countries in West and Central African
regions (mainly Nigeria).
Besides, the terms for African countries were harder even compared to South Asian countries. For instance
in 1980 African countries on the average had to pay an average interest rate of 6.6% on loans with a maturity of 18
years. The comparable figures for South Asian countries were 3.1% and 30 years (van der Hoeven, 1993:1).
An interesting area of further study is to explore the impact of services (especially of insurance and
shipping), which seriously affected a number of small countries in Africa.
According to Mistry (1996) if this fact is taken into account one need to question the concessionality of
this debt. For instance the effective average annual exchange-risk adjusted cost of their concessional debt in US
dollars may be between 4-6% annually instead of the 1% or lower coupon rate which such debt nominally carry.
Besides, the residual principal value of the concessional debt, which needs to be repaid, had increased by between
30-45% in US dollar terms, aggravating the debt servicing problem of African countries. Thus, had it been borrowed
in US dollars in the first place such concessional debt is as expensive as market debt. This exchange rate effect not
only effectively reduces the cocessionality of such debt (form 80% which donors usually say to 40-50%) but also
makes African countries vulnerable to macroeconomic policies of industrialized countries (Mistry, 1996: 26).