Dr. Wolassa Kumo
1. Introduction

At present the world is in the first networked recession of its kind triggered by the combination of three factors: the crisis in the credit markets, the collapse of the housing markets and decline in equity markets.

The World’s biggest economy, the United States entered into recession in December 2007, followed by the European Union and Japan around November 2008. Declining demand in advanced economies has dampened the growth prospects in several emerging economies such as China.

Many believe that the root cause of the current global economic crisis is the adoption of neoliberalism (promulgated in the Washington Consensus coined by Williamson in 1989 (Williamson 2004)) as the new orthodoxy following the collapse of the dominance of Keynesian economics in 1979. The theoretical foundations of the proposals of the Washington Consensus are the usual analyses advanced by neoliberal economic theory. According to this argument economies are in crisis because of impediments to the free operation of the market. The impediments came from the over inflated interventionist Keynesian state and its expansionary and redistributive policies that deform market data and signals. The solution, according to the neoliberal thinking is the withdrawal of the state from the economy and the reinstatement of the unhindered operation of the market (Mavroudeas & Papadatos, 2005).

Neoliberalism propagated further that the operation of the financial system should be liberated from the state grip and prerogatives and be left to the free operation of the market forces while the interest rate should be determined competitively. Moreover, the withdrawal of the state from the economy required the privatization of all the activities and enterprises that were state-owned and directed, the limitation to a minimum of all state regulations and adequate guarantees for property rights, opening of the economies to liberalise international trade, capital movements and financial activities including the market determination of exchange rate between currencies, and abolition of protectionism (Mavroudeas & Papadatos, 2005).

For over two decades, therefore, neoliberal philosophy turned the global economy into a headless chicken. President Reagan and Prime Minister Thatcher were the prime drivers of the neoliberal philosophy in the 1980s. However, there is a widespread debate regarding whether the neoliberal economic theory promoted development or hindered it especially since the onset of the current global financial crisis in mid 2007. At present many agree that the Washington Consensus and its neoliberal philosophy was a total failure. The neoliberal economic theory led to crises after crises and impoverishment of many both in developed and developing countries.

The financial meltdown caused by excessive greed and speculation and the virtual absence of any meaningful regulatory intervention proved that the free market economy does not have any mechanism to self correct itself.

The Keynesian economic theory that markets do not have any automatic mechanism to self correct in the short run is incontestably true now as it was in the 1930s and subsequently.

2. The Keynesian Economics

The Keynesian economics emphasises the role of aggregate demand in the determination of aggregate output. It argues that the decisions of private economic agents some times lead to inefficient macroeconomic outcomes such as lower employment and output. During such business cycles, the government can stabilise output and employment through expansionary fiscal policy in combination with appropriate monetary policy actions. Keynes’s General Theory of Employment, Interest, and Money Published in 1936, is considered to be the foundation of macroeconomics.

According to the Keynesian economics, aggregate output in an open economy is composed of aggregate private sector consumption, aggregate private sector investment, aggregate government consumption and investment and the aggregate trade balance. The Keynesian economics postulates that an increase in government consumption and investment leads to an ever greater increase in output through a multiplier effect. The basic concept of the Keynesian multiplier is that an increase in fiscal expenditure contributes to multiple rounds of spending which could finance itself thereby ensuring higher output and increased employment.

The Keynesian macroeconomic analysis proved an indispensable tool of economic policy after Hicks (1937) developed the IS-LM model, representing investment-saving and liquidity-money supply relations respectively. This model combines equilibria in the goods and services market (IS) and financial markets (LM) thereby establishing an equilibrium level for demand in the economy.

Another central concept in Keynesian economics is the notion of uncertainty. Keynes argued that economic agent’s face uncertainty in their daily decision-making processes . Agents’ inability to predict the future accurately is one of the reasons why free market economy may not always lead to optimal economic outcomes. According to Perlman and McCain (1996), in contrast to Knightian aleatory or factual uncertainty, Keynesian uncertainty refers to epistemic uncertainty that exists owing to man’s limited ability to understand beyond a limited sphere. Moreover, for Keynes uncertainty involves the absence of any scientific basis on which to form probabilities making the concept different from risk, i.e. no objective probability distribution could be assigned to the occurrence of the future uncertain events as opposed to risky events.

From 1941 -1979 Keynesian economics dominated macroeconomic analyses and policy. Based on the Keynesian economic theory, governments in industrialised countries intervened in the business cycles by increasing spending and reducing taxes and interest rates to boost aggregate demand during recessions. However, the 1973 oil shock and repeated recessions with rising unemployment and inflation (stagflation) undermined the prescription of demand management. Monetarists and supply side economists began to provide alternative economic views on how business cycles ought to be managed.

3. Criticisms of Keynesian Economics

The Monetarist Critic of Keynesian Economics

Monetarism is a type of macroeconomic theory that focuses on the role of money in the economy. This differs significantly from Keynesian economics, which emphasizes the role that the government plays in the economy through expenditures, rather than on the role of changes in monetary policy. According to monetarists, managing the money supply is a key in ensuring the stability in the economy. The markets will take care of the rest in the economy. Thus, according to this theory, markets are more efficient at dealing with inflation and unemployment.

The main proponent of monetarism is Milton Friedman, a Nobel Prize winning economist, who argued that markets naturally move toward a stable centre, and that it was an incorrectly set money supply that causes the market to behave erratically. With the collapse of the Bretton Woods Institutions system in the early 1970s and the subsequent increase in both unemployment and inflation, governments turned to monetarism to explain their predicaments and it was then that this economic school of thought gained more prominence (Radcliffe, 2008).

The key features of Monetarism are: (a) The control of the money supply is the key to setting business expectations and to fighting the effects of inflation; (b) Market expectations about inflation influence forward interest rates; (c) Inflation always lags behind the effect of changes in production; (d) fiscal policy adjustments do not have an immediate effect on the economy; and (e) A natural rate of unemployment exists; trying to lower the unemployment rate below that rate causes inflation ( Radcliffe, 2008).

The supply side economics, economic thinking that focuses on free market system that encourages supply or production of goods and services through such incentives as tax cuts complimented monetarism as a tool of neoliberal economic policies of Western governments since the 1980s.

The Lucas Critic

In his famous 1976 article: Econometric Policy Evaluation: A Critique, Robert Lucas, the 1995 Nobel Laureate in economics, discussed the meaning and the failure of “the theory of economic policy.” The theme of the Lucas critic concerns the nature of the responses of the private economic agents to changes in government policy. He argues that policy changes are ineffective because agents anticipate such future policy changes. Accordingly, since private agents anticipate monetary disturbances, any monetary policy change is ineffective. Any real effects in the economy occur through price level shocks, i.e. difference between anticipated and non-anticipated monetary shocks (Muchlinski, 2005). Thus the Lucas critic is also known some times as “the hypothesis of rational expectations.”

The Lucas critic led to the emergence of New Classical Macroeconomics (NCM) with a paradigm opposed to Keynesian economics. The NCM opposes the view of an inherent instability in the economy which needs to be governed by macropolicy or government intervention, the view also shared by monetarists. Both schools of economic thought believe that all instabilities and fluctuations in the economy are due to the erratic behaviour of the authorities.

The rise of the NCM was associated with the fundamental theoretical upheavals among economists and economic theory such as the emergence of new phenomenon like stagflation which led to controversies and terminological changes in traditional Keynesian economics. The key principles of the Lucas critic are (1) representative agent model and the rational expectations hypothesis, (2) the rejection of Keynesian macroeconomics and macroeconometrics, and (3) the neutrality of money (Muchlinski, 2005).

The Austrian School Critic

Another school vehemently opposed to Keynesian economics is the Austrian school. This school advocates an ultra free market system in which government should not play any role. For this school individual human actions necessarily bring optimal solutions to economic problems. In particular, the Austrian economist, Hayek criticizes Keynesian economics as fundamentally collectivist and economic analysis based on economic aggregates as fallacious. According to him, recessions are caused by microeconomic factors.

However, the scope of this school in economic thinking is limited mainly due to its rejection of the use of mathematics and econometrics in economic analysis.

4. The New Keynesian Economics

The new Keynesian economics emerged as a response to the various criticisms of Keynesian economics during the 1970s. It is a modern macroeconomic School of thought based on the ideas of John Maynard Keynes.

The main disagreements between New Keynesian Economics and one of the staunch critics of Keynesian economics, the New Classical Economics is that the latter build their theories on the assumption that wages and prices are flexible, agents are rational and prices clear market and adjust demand and supply quickly while for Keynesians prices and wages are sticky, thereby causing involuntary unemployment (Mankiw and Romer, 1991).

Keynesians as well as Monetarist believe that monetary policy affect employment and output in the short run because prices respond sluggishly to change in out put while for New Classical Economics money is neutral.

The elements of new Keynesian economics?such as menu costs, staggered prices, coordination failures, and efficiency wages?represent substantial deviations from the assumptions of classical economics, which provides the intellectual basis for economists’ usual justification of laissez-faire. In new Keynesian theories recessions are caused by some economy-wide market failure. Thus, new Keynesian economics provides a rationale for government intervention in the economy, such as countercyclical monetary or fiscal policy (Mankiw and Romer, 1991).

However, the neoclassical synthesis tries to marry key ideas of Keynesian and classical economics as a compromise. The heart of the new synthesis is the view that the economy is a dynamic general equilibrium system that deviates from an efficient allocation of resources in the short run because of sticky prices and perhaps a variety of other market imperfections. In many ways, this new synthesis forms the intellectual foundation for the analysis of monetary policy at the Federal Reserve and other central banks around the world (Mankiw and Romer, 1991).

5. The Keynesian Revival of 2008 / 2009

The 2008/09 global economic crisis has shaken the foundation of the free market consensus of the past two decades. Several countries including the United States have embarked on massive fiscal stimulus plans to rescue the financial and the real sectors of the economy. Barrack Obama’s stimulus package of $878 billion approved by the government in February 2009 represents the biggest fiscal stimulus ever.

Some of the EU countries have moved beyond fiscal stimulus and nationalized some of their failing banking industries. The current responses of the governments across the globe on the global recession fully recognizes the Keynesian view that markets do not have any automatic mechanism to self correct and that government intervention is necessary to revive the economy. We hope the famous New Keynesian economists such as Paul Krugman, Joseph Stieglitz and Greg Mankiw are behind Obama’s stimulus package and advocate for more stimulus than less. The biggest fear at present is not that the stimulus is too big but that is it too little and hence many not be effective. If the multiplier effect fails to raise the current level of spending beyond the $2 trillion gap in the US consumer demand at present, the Obama stimulus plan may not rescue the US economy from the current recession soon.

Among the emerging economies, China has already begun a massive government spending programmes to compensate for the sharp decline in aggregate demand due to the contraction in global demand for the country’s export. Keynesian aggregate demand management has once again become a critical policy instrument for both developed and developing economies.

We are all Keynesians now! However, as Keynes himself agrees, in the long run, the market forces will drive the economy into equilibrium, if the government takes appropriate actions to correct the short run fluctuations through appropriate macropolicies. Price still provides the best signal in resources allocation if greed and speculation are minimized and adequate level of regulatory measures are instituted.

Capitalism has survived numerous booms and busts since 1690s, and 122 recessions in 21 advanced countries since 1960 alone. With economic policies based on Keynesian principles of demand management, capitalism will survive many more business cycles to come.

References:

•   Hicks, J. 1937. ‘Mr. Keynes and the Classics: A Suggested Interpretation,’ Econometrica, vol. V (April, 1937),

•   Mankiw, N. Gregory, and David Romer, eds. 1991. New Keynesian Economics. 2 vols. Cambridge: MIT Press,

•   Mavroudeas, D. S. & Papadatos. D. 2005. Neoliberalism and the Washington Consensus. Available at http://www.econ.uoa.gr/UA/files/1435329852..pdf

•   Muchlinski, E. 2005. The Lucas Critic and Keynes’s Response – Considering the History of Macroeconomics, Freie Universitat Berlin, Department of Economics, Institute for Economic History and Economic Policy.

•   Perlman, M. and McCain, CR. 1996. Varieties of uncertainty, In Uncertainty in economic thought, edited by C. Schmidt, Cheltenham, UK: Edward Elgar, 9-20.

•   Radcliffe, B. 2008. Monetarism: Printing Money To Curb Inflation;
http://www.investopedia.com/articles/economics/08/monetarism.asp

•   Williamson, John. 2004. A Short History of the Washington Consensus,’ paper commissioned by Foundation CIDOB for the conference ‘From the Washington Consensus towards a new Global Governance,’ Barcelona, September 24-25.

——————————————————————————————————————————-

——————————————————————————————————————————-

————————————————–
By Sam Vaknin
Author of “Malignant Self Love – Narcissism Revisited.”
————————————————–

The Obama stimulus package, worth some 800 billion USD, the 1.9 trillion USD in TARP funds and the endless Fed injections and auctions are bound to revive the moribund American economy by the third and fourth quarter of 2009. The Dow-Jones is likely to touch 10900, consumption will recover, as will housing starts and, in some markets, housing prices.

But this “recovery” will prove to be a false dawn. It will last 2 quarters at most and will be followed by a recession so deep and dangerous that it would truly qualify as a Depression. The current recession is merely a prelude to the depression of 2010-5.

Here are the reasons:

(i) The stimulus should have been more sizable, taking into account the dimensions of the crisis.

The fate of modern economies is determined by four types of demand: the demand for consumer goods; the demand for investment goods; the demand for money; and the demand for assets, which represent the expected utility of money (deferred money).

Periods of economic boom are characterized by a heightened demand for goods, both consumer and investment; a rising demand for assets; and low demand for actual money (low savings, low capitalization, high leverage).

Investment booms foster excesses (for instance: excess capacity) that, invariably lead to investment busts. But, economy-wide recessions are not triggered exclusively and merely by investment busts. They are the outcomes of a shift in sentiment: a rising demand for money at the expense of the demand for goods and assets.

In other words, a recession is brought about when people start to rid themselves of assets (and, in the process, deleverage); when they consume and lend less and save more; and when they invest less and hire fewer workers. A newfound predilection for cash and cash-equivalents is a surefire sign of impending and imminent economic collapse.

This etiology indicates the cure: reflation. Printing money and increasing the money supply are bound to have inflationary effects. Inflation ought to reduce the public’s appetite for a depreciating currency and push individuals, firms, and banks to invest in goods and assets and reboot the economy. Government funds can also be used directly to consume and invest, although the impact of such interventions is far from certain.

(ii) The US government should have nationalized the big banks, let other financial institutions that are not too big to fail do so, and force mergers and acquisitions on the rest. Half-hearted measures intended to provide balance-sheet relief are unlikely to restore trust in financial intermediaries. In the absence of such trust, banks will not resume their traditional roles of capital allocation and interbank lending. As it is, we are likely to see a run on some of the banks, including at least one major (probably Wells Fargo).

(iii) Europe’s real economy as well as its financial sector are a mess. France, in sliding officially into a recession, has joined Spain, Ireland, and, now, the United Kingdom and Germany. Battered by a strong euro, expensive energy, and mighty competition from China, the US, and India, European exports have stagnated. As opposed to the USA (where exports constitute 18% of GDP), Europe is dependent on foreign carbon fuels and foreign markets for its goods and services. Exports constitute more than 40% of Eurozone GDP.

Moreover, Europe’s commercial banks are in horrible shape – far worse than America’s. This year alone, European banks must pay 1.41 trillion US dollars in principal and interest, mainly to bondholders. They don’t have the money and they cannot borrow it from other banks because interbank lending has all but dried up. Many of them are already technically insolvent. They are also over-exposed to emerging markets in Eastern Europe, Latin America, Africa, and Asia.

Car repossessions are up 25% in Romania, as the members of a newly-minted class of consumers are unable to meet their obligations. Austrian, Greek, Swedish, and German banks are exposed to default risks throughout Central and Eastern Europe. Consumers and businesses in Serbia, Ukraine, Hungary, and other teetering economies owe Austrian financial institutions $290 billion – almost the entire GDP of this country!

As local currencies depreciate, debts, denominated in foreign exchange, grow more expensive to service. As the real economy contracts, in the first phase of what appears to be a prolonged recession, bad loans mushroom and reserves are exhausted. This requires cash-strapped governments to recapitalize major banks. Faced with current account and budget deficits, some of these sovereigns are scrambling for outside infusions from the likes of the IMF.

Europe’s recession will be profound and protracted. Asia is likely to follow suit: Singapore, Japan, South Korea, and Taiwan are already technically in recession and China’s growth rate is abating. A contraction of GDP in both India and China is no longer inconceivable. It seems that yet again, the USA will be faced with the daunting task of dragging the rest of the world back to growth and profitability.

(iv) To finance enormous bailout packages for the financial sector (and potentially the auto and mining industries) as well as fiscal stimulus plans, governments will have to issue trillions of US dollars in new bonds. Consequently, the prices of bonds are bound to come under pressure from the supply side.

But the demand side is likely to drive the next global financial crisis: the crash of the bond markets.

As the Fed takes US dollar interest rates below 1% (and with similar moves by the ECB, the Bank of England, and other central banks), buyers are likely to lose interest in government bonds and move to other high-quality, safe haven assets. Risk-aversion, mitigated by the evident thawing of the credit markets will cause investors to switch their portfolios from cash and cash-equivalents to more hazardous assets.

Moreover, as countries that hold trillions in government bonds (mainly US treasuries) begin to feel the pinch of the global crisis, they will be forced to liquidate their bondholdings in order to finance their needs.

In other words, bond prices are poised to crash precipitously. In the last 50 years, bond prices have collapsed by more than 35% at least on three occasions. This time around, though, such a turn of events will be nothing short of cataclysmic: more than ever, governments are relying on functional primary and secondary bond markets for their financing needs. There is no other way to raise the massive amounts of capital needed to salvage the global economy.

————————————————————————————————————————————–

————————————————————————————————————————————–

 Author: Tongkeh Joseph Fowale
Introduction

Africa entered the 21st century with immeasurable optimism, hope and the promise of a bright future after decades of chaos. This new-found optimism in the hitherto “forgotten continent” was rooted on developments unfolding within Africa and on the international scene. “African renaissance” as this resurgence came to be called, was inspired by the birth of the African Union (AU) and the New Partnership for African development (NEPAD). These new instruments of African power ushered the continent into a new century, and also signalled a new dawn in Africa’ relations with the outside world. This internal revolution coincided with the renewal of interest in Africa by great powers.

The prospects and challenges of African development in the 21st century have been (and continue to be) shaped by two conflicting forces. The first pressure emanates from outside players wrestling for Africa’s strategic and natural resources. This external pressure largely defines the pattern of trade, aid, investment and development in Africa. The second push comes from within Africa as the continent struggles to mobilise its resources in pursuit of development. “African solutions to African problems” as this new drive is called, attempts to give an African orientation to Africa’s developmental challenges which revolve around political instability, conflicts, poverty, disease, economic stagnation and lack of infrastructure.

Another significant cause for optimism in Africa in the Third Millennium was the coming of the Millennium Development Goals (MDGs) in September 2000. This ambitious scheme which has been adopted by 190 nations outlined eight critical goals which fundamentally touched on the roots of Africa’s developmental challenges. These goals include; the eradication of poverty and hunger, the achievement of universal primary education, the promotion of gender equality and the empowerment of women, the reduction of child mortality, the improvement of material health, combating HIV/AIDS, malaria and other diseases, ensuring environmental sustainability and the development of a global partnership for development.

The MDGs highlighted the need to co-ordinate global efforts in lending a hand to Africa and to bring the continent into the orbit of what French President Nicolas Sarkozy called a “globalized world” at the September 2008 UN Meeting on African development. “The globalized world needs Africa,” he said. “It would be a delusion to envision Europe’s prosperity without working for the emergence of a major economic partner.” Sarkozy’s hope-laden message is quite similar to those echoed repeatedly by many world leaders aimed either at placating or comforting Africa. President George Bush earlier in February 2008 inspired hope in the continent when he declared “Africa in the 21st century is a continent of potential.” Behind these loud promises of hope, there is also a large vacuum of undelivered promises to Africa.

A decade of undelivered promises

For all its efforts at development, for all its pleas for assistance, and in its struggle to escape from plaguing poverty, Africa has received several responses, among them undelivered promises This “… rhetoric or fancy accounting” as Takumo Yamada, spokesman for Oxfam International described it, has left serious repercussions on Africa’s way out of poverty. Though the balance sheet of African development shows positive improvements, these gains cannot be consolidated with Africa’s efforts alone. Commending Africa’s struggle for development, UN General Assembly President Miguel d’Escoto observed, “Brave as its nations may be — and we know that they are brave indeed, — Africa cannot move ahead on its own.”

From the MDGs of 2000, through the aid promises of the G8 at Gleneagles in 2005, to promises made at bilateral and multilateral levels, Africa has been fed to the full with rhetoric. While traditional problems of political instability, violent conflicts, economic stagnation, poverty, disease and malnutrition continue to baffle the continent, Africa still has to make room for words. With the emergence of new global challenges such as the world food and fuel crises, the world financial crisis, and climate change, there are looming fears all around the developing world that the developed countries will hide behind such excuses to renege on pledges made to Africa.

UN Secretary General Ban Ki Moon raised such concerns when he called on the developed countries to come to Africa’s rescue. “No one is more alarmed than you at the current trends which indicate that no African country will achieve the Millennium development Goals by 2015.” Ban cited the colossal $267 billion spent by OECD countries last year alone on agricultural subsidies to highlight his call for increased attention to Africa. It becomes even more pathetic to realise that these subsidies are part of Africa’s development frustration.

This same EU which invests considerable energy and resources on subsidies to farmers, made a pledge of $15 billion to ACP countries under the Cotonou Agreement in 2000. Eight years on little is yet to be realised. President Abdoulaye Wade of Senegal sounded his frustration with Europe, the West and the G8 over undelivered promises to Africa in very harsh terms. “I achieved more in my one hour meeting with President Hu Jintao — during the G8 meeting in Heiligendamm than I did during the entire orchestrated meeting of world leaders at the summit — where African leaders were told little more than that the G8 nations would respect existing agreements.” Continued he, “It is time for the west to practise what it preaches.”

When former British Prime Minister Tony Blair diagnosed Africa’s problem as “a scar on the conscience of the world” in 2005, expectations ran high that under his stewardship of the G8 Africa’s salvation was in sight. Under Blair’s leadership, the G8 vowed to “more than double aid to Africa,” backing this up with a promise of $25 billion worth of aid to the continent by 2010. Three years on, only $4billion of this money has materialised. “Does any body seriously think the 21 billion-dollar gap will be met in two years?” asked Glennys Kinnock, Chair of the ACP-EU Parliamentary Assembly. Citing the current financial crisis as a possible excuse for developed countries to renege on their promises to Africa, she insisted “If the strongest economise need stability, the weakest economies need dependability.”

As African leaders continue to make their pendulum swings east and west in search of develop assistance, they always return with briefcase-loads of promises. President George Bush promised a “Lazarus effect” on the continent when he came visiting in February 2008. China had promised salvation to Africa in the form of a “win-win” relationship. The EU with a waning influence on Africa, continues to make overtures in the form of Economic Partnership Agreements (EPAs). Japan promised to make the 21st century “a century of Africa” through an agricultural revolution. India promised to transform the 21st century into a “Century of Asia and Africa.” President Sarkozy offered to be more transparent to Africa and cried out loud that “the suffering of the black man is the suffering of all men.”

It would, however, be grossly misleading o underestimate the role of external assistance in Africa’s development efforts. Africa’s current 6% growth rate, the reduction of conflicts, new democratic strides, the growth of trade, investment and infrastructure all owe significantly to new opportunities provided by outside players. Europe despite its declining trade with Africa, still remains a significant development partner. America’s Agricultural Growth and Opportunities Act (AGOA) and the Millennium Challenge Corporation (MCC) have opened up vast trade and investment opportunities for Africa. Her role in advancing democracy, checking terrorism and contributing towards fighting AIDS and malaria are highly commendable efforts. China and India, the new “Southern drivers” of the global economy are the new forces behind Africa’s new growth patterns. These Asian powers have also made invaluable contributions in the area of infrastructural development in Africa.

These contributions notwithstanding, as long as the outside players continue to attach strings to their assistance to Africa, as long as the continent continues to be viewed as a place to be robbed in the name of aid or trade, as long as Africa is seen as a charity case, as long as their economic relations with Africa are shaped by ulterior motives, the MDGs will have little meaning. When trade with Africa becomes trade in arms, when the continent is militarised for any reason whatsoever, when promises of aid become practises of plunder, every effort will boil down to conflict and misery, the same ills the MDGs have vowed to check. Observed Ban Ki Moon, “The recent spate of conflicts over food and natural resources show that our security depends on building prosperity in the developing world.”

Africa’s fragile trade regime and the challenges of development

Among Africa’s countless economic problems, its fragile trade regime stands out distinct. According to a report published in September 2008 by the United Nations Conference on Trade and Development (UNCTAD), the continent has not only lost its share of global trade in the last twenty five years, but the level and composition of its exports have not changed significantly.

The UNCTAD report which examined the effects of recent trade liberalization policies on African observed that these policies have not had any impact on intra-African trade. According to the report, intra-African trade accounted for only eight percent of total African trade in 2006, a figure much lower than in other regions.

The causes (and consequences) of Africa’s poor trade performance are many. Heavy dependence on primary products makes the continent very vulnerable to fluctuating commodity prices. Poor infrastructure leads to heavy transportation costs. Bad weather conditions result in crop failure hampering food production and trade. Low levels of technology and mechanization lead directly to very low productivity. Diseases such as HIV/AIDS and malaria and typhoid take a heavy toll on Africa’s youthful population leading to a shortage of manpower in production. Conflicts in the continent seriously hamper. Western agricultural subsidies send a direct and dangerous ripple effect on African farmers. This is further worsened by the erection of tariff barriers against African products in the markets of developed countries.

This unfavourable trade structure was highlighted earlier by South African President Thabo Mbeki who frowned at the nature of Sino-African trade. “The challenge is that you could — develop a relationship between China and the African continent which in reality isn’t different from that developed between Africa and the former colonial powers.” He made the same call at the Japan-Africa Summit in Yokohama in May 2008 when he insisted that Africa’s future economic development should be based on trade not aid. “Without discounting the importance of trade” Mbeki said, “improved terms of trade are critical to ensure [Africa's] full integration into the global economy.”

Among the many changes in Africa’s trade structure advocated by Mbeki was the call for greater access to new technologies at affordable prices and investment in research and development, technology and innovation as key instruments in enhancing African trade and ensuring economic growth. Tanzanian President Jakaya Kikwete spoke the same language at the Fourth Tokyo International Conference on African Development (TICAD 1V) calling on Japan to increase its trade with Africa. “What remains to be seen” he said, “is increased trade and investment between Africa and Japan ….”

What prospects for the MDGs

2015 is the target year of the Millennium Development Goals. Halfway in 2008, Ban Ki Moon has made it clear that the goals cannot be realised with the current trends. What makes this prospect bleaker is the number of new challenges facing the developed countries especially the current global financial crisis. Africa as usual stands at the receiving end of these odds.

The current trend also shows that without any major changes in its relations with its “development partners,” Africa has to pay the price not only for their economic problems, but for their further development as well. For example, the EU, caught up in the middle of its integration and economic crisis is trying to force a bitter pill down the throats of Africa in the form of Economic Partnership Agreements. Fearful of loosing Africa to its perceived rival – China, the U.S. is embracing a military approach towards Africa in the name of an Africa Command (AFRICOM). China on its part has embarked on a wanton exploitation of Africa’s raw materials backed by a counter-productive arms trade and also raising environmental concerns in the continent.

Though the MDGs touched on pertinent issues affecting the continent, they significantly avoided the perennial problems of migration, brain drain, capital flight and ethnicity which threaten the growth, peace and stability of Africa. No discussion about African development can be complete without paying regard to Africa’s youths, a large proportion of whom are, or will become migrants in search for decent lives. This youthful population also constitutes the cream of Africa’s intellectual wealth and therefore the engine of its future development.

Conclusion

Development is a process rooted in time and space. Every development process requires resources (human and natural). The external factor is also significant. Among these however, the human resource is the most important. President Bush did not miss the point when he observed “Africa’s most valuable resource is not its oil; it’s not its diamonds, it’s the talent and creativity of its people.” It is only when Africa’s “development partners” realise the need to make Africa’s human wealth more productive that the MDGs would have scored a point. To think that promises and hypocrisy can bail Africa out of poverty would be wishful thinking and the consequences will be shared by all. Bush again, “We have seen that conditions on the other side of the world can have a direct impact on our security.”

Climate change for example is a vivid illustration of how Africa has had to pay for the crimes of others. Said Ban Ki Moon, “it is sadly ironic that the poor who contribute the least to global warming suffer most from its ill effects.” It was in this light that the UN boss reminded the world that investing $72 billion yearly to achieve the MDGs, to pull “millions out of extreme poverty in Africa looks like good value.” The promises, the prospects and the challenges of the Millennium Development Goals stare at Africa, they stare at the world. “Paternalism has got to be a thing of the past,” said President Bush. “Joint venturing with good, capable people is what the future is all about.”
Sources

Resources:

• Associated Press “Text of Bush on Africa,” Available at — http://ap.google.com/article/ALeqM5iBAo1yCOOLr02NJfYtgrYmyZQKxAD8UQESG00

• Executive Intelligence Review Japan Pledges To Eradicate — Hunger in Africa in 10 Years, June 6, 2008 Issue.

• FINANCIAL TIMES “Africa-China Trade” Thursday, January 24 2008, p.6

• Millennium Challenge Corporation Fact Sheet. “MCC and Africa: A Growing Partnership for Success.” September 3, 2008. Available at www.mc.gov

• Offah Obale, “Africa’s Export Performance still Dismal, Says UNCTAD, IPS. — Tuesday October 7, 2008.

• United Nations General Assembly, Sixty-third General Assembly High-Level Plenary on Africa, GA/10748, New York, September 22, 2008.