Thursday, August 06, 2015

Greece Downturn; What Lessons Can Africa Derive?

An unprecedented incidence hovers around Europe, almost all posters before 5th July 2015 predicted ‘YES’ would be a vote of the day, even the mighty Germany-the leading creditor to Greece alongside euro zone whose leader Chancellor Angela Markel role in pushing for bailout policy to the point of calling for referendum plus Britain opposition on what was seem to be unconceivable, and majority of the world community were no different, perplexed latter on to learn that there is a new story 

Athenians have decided to tell the world, putting a dent on normalcy at least for now, eyebrows have been raised by other cash stripped countries, the PI(G)S, 61.3% of the Greek people- the majority, went for ‘OXI’ ( a Greek word for NO). Demonstrations thereafter were not commotion but fuss.
While this day may remain to be a more flabbergasting one to reckon by many of the pundits in Europe,  to the ancient people, a pass over day, a beginning of a magnificent trek towards becoming masters of their own perils-to the promised land. Greek people are no fools; austerity measures imposed to them were
intolerable not even for a week.

Greek financial Armageddon had its genesis in 2008, but wasn’t conceived there, it was in the US, the Lehman Brothers a sprawling global bank’s technical mistakes plunged the world, lent to European borrowers who invested in ‘dodgy securities’, allowed ‘savings glut’ to emerging and fragile markets in Asia, authorized loans to ‘subprime borrowers’ who had poor track record of paying back, tendency of real estate institutions investing excessively with hope of finding customers to buy the houses didn’t materialize and so failed to pay back the loans, automobile sectors too were not far from contributing to the meltdown by. Cash plummeted to the extent that firms couldn’t produce enough to meet the market demand, and even the little produced couldn’t be successfully sold as consumers had little in their savings if any, to purchase beyond basics, and so capital shifting from to Asia from West (mainly China) began, the Dragons became beneficiaries of ‘selfishness’ borne by capitalism ideology at least for few years.

And so they turned to Troika (European Central Bank, European Union and IMF synergy), their long time allies especially in good times who relented not to table their conditions, in that; “ Slash salaries and pensions, drastically increase your Value Added Tax, dismantle state’s social responsibilities ( investment in hospitals, Universities, Schools, Public corporations and the likes).

Keeping in mind that they were passing through ‘murky water’, the ancient state decide to act as a sheep to his slaughter; salaries and pensions were slashed by 38% and 45% respectively, VAT increased by 25%, country’s budget was cut to the tune of € 30 billion- this implied laying off workers, which meant that workers had less to spend, so other businesses suffered and retrenched workers too. Ripple effects took the stage. The ancient people did all these to please their masters and pay allegiance to beggar-giver natural rule.

Retrospectively , as detractors alarmed earlier, four years later the truth did unfold and the following couldn’t hide anymore; 1,000,000 people lost their jobs, Gross Domestic Product of $242 billion (below one half GDP of African giants-Nigeria) went down by 25%, businesses were closed by 30% while household income dwindled by at the same rate 450,000families recorded no working members , worse enough 2 people commits suicide EVERY DAY, 43rd larger GDP ancient state in the world now live beyond her means, per capita income of $25,707 remains on paper. Needless to say about production of $70 billion which was projected during signing of Memorandum of Understanding for bailout program didn’t materialize, $3billion was the highest achievement. Troika made their job. Policies plunged all the hope of retaining the glory. Who was the first looser? The Greek people, with no doubt.

Conventional wisdom dictates us to create an economic system that will work for the people and never against. Since the fact that Troika policies failed the Athenians is undisputable anymore, an idea that another route is worth tried is incontrovertible. History is full of lessons when one takes heed to it, a thousand trials were attempted by the greatest inventor in history, Thomas Edison, despite the fact that they all aimed at lighting an electrical bulb, they were never identical, were pretty different, this underscores the need to take heed to Trials and Errors - a learning method perfectly asserted by educationists.

‘The Guardian’ newspaper of 5th June 2013 earlier reported that IMF has unreservedly admitted that,” (We) failed to realize the damage austerity would do to Greece”. The Britton Woods institution worth applause at least for being honest and flexible (rare but expedient traits), if at all they are not crocodile tears. They have given Jeroen Dijsselbloem (Eurogroup Chairman) a race for his money who stands stiff necked. In what can be seen as an endorsement to what IMF did, on 7th of July 2015, Japan Economics Minister, Akira Amari, again with remarks that deserves not to be ignored bluntly denoted, “Greece has already done a lot to restore fiscal discipline, like cutting pension and wages…… fiscal consolidation is not making progress, they are in deflation”, he says, “The world expects Greece and EU to cooperate on a final bailout plan”.

Some pundits have attributed this crisis (Greek) to lack of political will and economic disparities among the member states, but in a big picture, there is a need to give express authority to monetary planners rather than giving politicians powers to oversee monetary decisions as a way to mitigate from short sighted decisions which mainly thinks after the next election than long term effects which may affect the country. For an economy to thrive a great emphasis is of leaving economics rule over politics is of paramount importance. Politics can only be left to be a subset of economics and never the opposite, though this doesn’t mean that demand and supply market forces should reluctantly be left unregulated.  

What EU and her peers can’t get it right is that, governments can never abdicate their responsibilities and still hold a plethora of hopes from the people they lead. In 2003 to be precise, two years after Greece formally joined euro zone, at Brussels, a lynchpin of European Union, just about 2,823.2 kilometers from Athens , groups of farmers some with cows in the vehicles, annexed European parliament grounds with mesmerizing placards lifted up urging decision makers to observe their moral obligation by setting aside subsidies for their agriculture enterprises from which were anticipating to increase their exports to non- EU countries, burden of proof that couldn’t be taken by Coca Cola, Samsung, or Nokia companies no matter how much liquidity they enjoy. These people were not rent seekers nor clemency wishers whatsoever.            

The fundamental engines of capitalism are explicit; overconsumption and borrowing. Financial nightmare that kicked off in 2008-2009 is the one that coerced Greece to sign for bailout program worth €110 billion in May 2010 with strings attached to it, which ultimately rendered commercial banks ineffective, forced government control of capital by ordering all banks to allow individual withdraw of not more than €60 ($66) which if converted to Uganda shillings becomes 211,200. This motivated me to make a kind of research on economic effects by using Uganda environment and her everyday examples;
A business person who carries “matooke” (Ugandan word for banana) from Mbale to Kampala, a distance of 225.2 kilometers , by using 4 tones vehicle, consumes  450 liters of petrol (which is sold at Ushs 3500 per liter) assuming is using petrol engine truck. That will cost him approximately 1,576,400everyday. Now that withdrawal has been limited to 211,200 will take him 7 days to get his hard earned accumulated money for one trip. Putting into remembrance that “matooke” is to Ugandans as wheat to Westerners, a commercial product that employs a thousand food vendors who feeds a hundred thousand households behind them. Can it resuscitate economy? This leaves more questions than answers. The highest level of bewilderment. 

The aforementioned analogy explains the level at which Greece needs serious intervention from Troika and her allies at this point of time than any moment before but with some rectifications on the conditions attached to it. Argentina defaulted (which her President Christine Fernandez has been reported to have jubilated on Sunday’s ‘OXI’ vote triumph), Portugal underway, Spain waiting her December election and are poised to follow the suit. This underscore the urgency of now that EU have to have for the safety of her members and the world.

Greece have gotten nowhere to run for. China, a leading country on earth by hoarding a large amount of foreign currency reserve, is also passing through a difficult moment, the first quarter of this has observed the dragons wallowing in a shocking economic performance in a decade to the extent of shedding her state corporation hoping to increase her liquidity as well as productivity, something that America experienced a couple of years ago. Recently, this month to be exact, various international tabloids and media have divulged an unwelcoming China security markets performance, by the end of July 7th trading of over 90%of 2,774 shares listed on Chinese exchanges was suspended or halted. Shares have fallen by a third in less than a month, wiping out some 1.5 trillion in wealth more than total of India’s stock market.   However, things are now getting a little bit better, thanks to the government’s intervention who injected money by buying shares to the tune of $1.5 trillion US dollars.  United States of America can’t be counted to restore Marshal Plan for Greece, it has to be left as is now recovering from economic scars it created seven years ago. 

In light of what is unfolding, Greece have every reason to lean to the people who in 2000 exchanged vows of living together what come may, bad time, good time, so be it they  were are committed to live as one to the extent of ditching their long time currencies which some rule the world and adopted euro as their medium of exchange instead. And so Akira Amani’s plea holds water in this context, Greece and European community must cooperate.                       

It shouldn’t be forgotten howsoever that these strings are no new to Africa, when countries underwent the same kind of baptism of fire that Greece is experiencing now, IMF relented not to respond to their call, with promises of resurrection “on the third day” tabled austerity measures . Prior to giving- in latter on, Tanzania, in 1980s, it vehemently refused to dance their tune, to the point that the then president Julius Nyerere reminded IMF that it was not ‘International Ministry of Finance’. Rwanda’s call to be supported by World Bank on her convincing villagization project, ended up being thwarted, the Britton Woods institution dubbed it ‘Ujamaa project’ that failed the inventor. But Rwanda gave up not, found another financier who made the project actualized, a move that latter on attracted World Bank to come and see and out of excitement they baptized it as “Millennium villages”. At this juncture, the question of searching for benevolent dictators to lead over our countries have been raised so often, especially when Asian Tigers’ leaders like Lee Kuan Ying of Singapore who successfully built a mesmerizing example of superb economic management in a small country which is far from resources endowment just like Rwanda.

Evidences are enormous which attest the very fact that the people who tirelessly advocate for state obligations have been dismissed as populists. Nonetheless, the fact that as people are having their flaws, have been getting it right so often.
President Obama’s handling of US economy which in fact acted as the epicenter of 2008 global economic crisis needs special attention, and if keen enough a leaf can be taken from his administration strategies. Though special credits shouldn’t be forgotten to be sent to his predecessor George W. Bush, who in fact initiated the financial bailout programs, which observed revival of once struggling companies. 

Memories are still fresh when we saw the width at which economy was shedding, companies shifted capital to China enjoying 1.3 billion people market, cheap labour and her 1970’s reviewed economic policies from closed to liberalized economy thanks to the Mao Tse Tung’s successor, and of course many “Tiger” economy countries were no far beneficiaries. The story a little far different as of now, dollar is regaining her strength, commanding great demand from every corner of the globe, no currency hasn’t tested a bitter rise of it. Investors who used “ bankruptcy” loophole to outsource their companies to Asia are now bringing back their firms to New York, Detroit and Texas. It has been recently reported by China Radio International that one of the American States have launched a policy to offer “Green cards” to Chinese people who successfully formed their business there and managed to accumulate a projected amount of capital and employed a good number of Americans. And it seems to work so much as according to one of the Chinese interviewed by the radio hesitated not to express his exuberance on that. 

As, EU did to Greece, He bailed out firms while pushing for government expenditure especially on investing in health supported by Affordable Care Act, and Education from primary level’s program that ensured every student get meals at school through Tertiary level where a student who performs better is shortlisted to be among the beneficiaries of financial support from the federal government. Though as expected, some conservatives have been heard ridiculing those efforts as strategies to elevate America to socialism that according to them has recorded no success (though they have always defining success in materialistic point of view and never human wellbeing), they have never come into total truth that encouraging spending the only way to revive a dying economy (which is a capitalist approach), a supreme recipe to reducing gap between haves and have nots. China’s recent decision to lower interest rate after observing underperforming economy in the first quarter of the year explains a lot on this.

Recently, Oxfam international, Oxford academics brainchild, founded in1942 with an earlier mission to persuade the British government to allow food relief through the allied blockade for the starving citizens of occupied Greece, but currently looking forward to find solutions to poverty and what it conceives injustice in the world, came up with saddening results, it disclosed that 1% of the global population (approximately 70,000,000 people) controls 99% of the global wealth, leaving 99% of the people (close to 6,930,000,000 wallowing in poverty by struggling to own only 1% of the wealth. The precise approach to offset this problem, among many, is to make the government practice progressive taxation (an entrusted machinery of the people) by taxing more the rich people (the rich 1%) and heavily invest in social programs like schools and health shared by majority of the poor, which Troika, prohibited Greece from putting much effort of many, much to the surprise of many. It is easy to dismiss socialism but not to natural things like social responsibilities. Man eat man society can’t be a kind of society that we admire.

More diagnosis needs to be done on the ways to retrieve wealth accumulated by multinational companies and making them richly engaged in solving social ills than entertaining the dying world. Apart from paying taxes, they can do more to the very people who acts as their customers. Most of these companies have been injecting their money in luxurious sectors like football, art and performance than doing so in sustaining the livelihoods and change the world into a more livable place in the future. 

It is pity to find that a football player in Barclays Premier League in England who has a duty that takes him only 1 hour and 30 minutes per week, pockets up to £3 million, equivalent to UgX 120 billion-worth financing Ugandan ministry the whole year or enough to pay a doctor from Mulago hospital in Uganda for about 5,500 years who pockets 1.8 million per month. At the same point of time, a doctor in Liberia, who struggles to save lives of the people every time day and night or a teacher in Sierra Leone who struggles to build the next generation which is more informed and principled can’t amass such wealth even the whole year. Besides, all this happens because multinational companies like Samsung, which undoubtedly exists because of the farmer of cocoa in Ghana, a slum dweller in Kibera- Kenya, or a to be refugee in Goma-Congo DR, lion sharely invests in clubs like Chelsea, Real Madrid or rather AC Milan in Italy. The poor are continuing to be made poor by the people they indirectly helped to be rich. 

Unless we presume to put all these responsibilities on government shoulders, private entities can’t keep on being on the safe side if the “riches of Croesus” continue to overwhelm them. It is from the very same mentality that while others are scratching their heads and think on how to feed the world, some others are on the destruction side by enriching uranium to manufacture nukes. We have decided to allow wealth creation and ingenuity to feed on inequality and absolute poverty. Though some of these players' value emanate from their image and television rights, some form wealth redistribution system needs to be done through clear modus operandi.  Time has come when legislation on corporate social responsibilities needs to be put in place with fixed percentage out of net profit, it is not enough leaving it to corporations to decide how much to contribute to back to the community, laws must bluntly speak the figure.              

I can’t wait to express my free standing ovation to Joseph E. Stieglitz (The author, Ex-chief economic advisor to the then US President Bill Clinton, once a World Bank President, Nobel Peace Prize winner) who in his book entitled as, “Globalization and its discontents”, hesitated not to extol Ethiopian and Ugandan leaders who unflinchingly rejected “austerity measures” tabled by World Bank with more or less similar promises to the desperate Athenians. President Yoweri K. Museveni and his counterpart Meles Zenawi of Ethiopia unequivocally didn’t mint their words in trying to protect the underprivileged, what Alexis Tsipras and his SYRIZZA party, are doing as of now.  

Now that we have already diagnosed the Greece’s probably most challenging moment in her history, it will be expedient if we deduce some lessons that once taken into action will protect our beloved continent than not. Even as we try to expound on these happenings, Greek’s grip on Africa is no that substantial especially when one compares to her relatively neighbor Turkey who is now mouth to nose with giants like China and United States. As matter of fact, however, Greece is a member of European Union which is widely known for being knee-jerk with Africa developments, that ranges from political, social, economical and even cultural, reminds us that her influence, which is borne from her routinely trading with African countries ranging from coffee, tea, cotton, minerals through animal products can’t be afforded to be taken for granted as the same amount of money (about $80 billion) directed towards Greek’s current bailout program, comes from the EU member states’ national reserves that before such allocation could be used to strengthen these salient form of ties.

We can’t afford not draw Europe-Africa linking lines, taking into mind that globalization has always been taking a new shape. In the book “WHY NATIONS FAIL? THE ORIGINS OF POWER, PROSPERITY AND POVERTY” by Daron  Acemoglu & James A. Robinson reflected the way Spain used to conquer various states in Latin America states, Buenos Aires being among them, he unearthed how kings out of their primitive ways of hoarding wealth, stored their riches in form of gold and diamonds in a single room, much to the surprise of the enemy soldiers who simply robbed them before controlling the whole territories. They stored their wealth in King’s palaces, unlike what we are experiencing now when financial banks that operate internationally have taken their place.  

We are now living in the world in which underperformance in Beijing can in a blink of an eye cause contagion to the whole globe, just exact to what transpired in 2008 when Wall Street’s failures stifled economic atmosphere almost every corner. It was China who highly financed America’s bailout program in 2008, she didn’t do it out of generosity, her exports to U.S records great gains than African countries combined, this is borne out of America’s purchasing power which results from strong middle class income. But again, America’s reluctance in building strong ties with Beijing amid economic competition is malicious, aware that China provides a promising market of about 400 million people, middle income, who are the outcome of robust economic changes that China adopted since 1978, highly helped them lift a good number of citizens from poverty.          

And so the following are the few lessons we can have a look at; African countries, needs to define their philosophy which will in the future help to address the unique problems that haunts it. A one- size- fits –all school of thought that was assumed by troika, failed to deliver on Greek case, Alexis Tsipras’ predecessors failed to notice the signs of times, be them maliciously or accidentally, not a handful of people could be salvaged could their decisions come from vigilance and maturity insights. Now, for the African case, a continent with 30.22 million kilometer squares, 60% of the arable land is yet to be tilted, the same percentage is the population of the youth under the age of 24, unless we stop labeling them as the ‘time bomb’ nothing can be done to unleash this potential, our demographic structure gives as a green light to start exploiting the hidden treasure of this blessed land. If practical efforts can be appropriately taken, investing in agriculture will offer enough answers to unemployment question keeping in mind though is still local and far from being agro-mechanized kind of, is still the leading sector that employs many people than any, this explains as to why we need to put in a special prism. SADC have started it well a bit by instructing all the member states to set aside about 10% of her annual budget for agriculture. Is actualized howsoever? Sort of.

Besides, that practice to be materialized must go in tandem with industrialization process, that’s where the world is. Let’s have look on this analogy; in 1940s, three countries, Japan, USSR, and USA came into action with different if not contrasting schools of thought. And this is how it went, it was Japan who heavily invested in manufacturing industries which highly manufactured modern and sophisticated cars and industrial goods, thanks to unsupportive soil that discouraged agriculture; USSR with her extensive landmass invested in Agriculture, ,mainly producing and exporting agricultural products; and lastly there came United States of America  with different philosophy in which two former philosophies were combined, by using large plantations they produced enough food to feed the nation and export its surplus but at the same point of time they built heavy industries which not only processed its agro-products to its fullest, but also substantially manufactured industrial goods for use and export, which helped America earning leadership position by making US dollar a global legal tender, unseating UK sterling currency.

Again, economic independence is of paramount importance. As the old English adage goes, “He who pays a piper calls the tune”. Since time immemorial it has been established that, a borrower is a servant of a lender. Taking Greece’s case as a an example, all the strings attached to two phases of bailout plan (2010-2012, 2013-2015), largely contributed a great deal to what transpired in the Greek people’s lives. Economic bad times like the once in which Greece is in can hardly be predicted especially when you take into account that had its inception in New York, does not presage economic falling howsoever, but everything needs to be done to prevent unnecessary backsliding.

It is worth noting that approximately 80% of manufactured goods used in Africa, beginning from clothes, cars, cell phones, computers, software, building materials are coming from outside the continent. Even the few which are locally manufactured are in most cases the results of Western countries companies outsourcing programs on the verge of staying closer to the market and raw materials- we can’t profess to control our fate but at the same time letting continuance of colonial mentality that only left light industries to heavy ones. It is not intended to blame colonialism as reason as to why we are here as almost all countries have been colonized (with exception to Russia and Ethiopia). Our budgets are highly depending on external donors who recently have been euphemized as developmental partners, thanks to corruption and underutilization of resources available in their territories. On this spot, Botswana deserves special mentioning by standing out as a better example of how can an African country control her resources for the betterment of her people by decently investing in social services (education, health and the likes), paying good salaries and ultimately turning out to be a running point for most of African elites and health practioners who missed green pastures in their own territories. This couldn’t be materialized if no efforts were invested in converting free endowments like minerals and cattle to better products enough to lift people’s livelihood.

Nevertheless, careful structuring of Monetary African Union shouldn’t be neglected.  The wise wisely denoted that, “a wise man learns from other’s mistakes than his own's”. The report shows that in the year 2000, the very time when European countries were groping into forming euro zone that latter on came to be accepted by 17 countries out of 27 who forms EU. One of the conditions for EU member to be given an opportunity to join euro zone was that a member shouldn’t have a budget deficit to Gross Domestic Product ratio of not more than 3% , but the reports shows that Greece doctored her financial statements to meet the precondition while indeed it was having a ratio of about 8.3%. 

This culminated to a great disparity between member states, hence uncalculated risks. Good signs emerge from the Tripartite Free Trade Area that was launched in 2014, consisting three Regional Economic Communities, namely, SADC, EAC and COMESA member states, which is a home to $1.3 trillion, accounting for a half of (27) of the AU membership, a population of 565 million and combined landmass of 17 million square kilometers. Out of those three trading blocs, EAC seems to get it fast, especially after formalizing common market protocol, Monetary Union protocol is on the verge of being conceived. Euro zone experience can’t be dismissed in any way given the fact that we are to building a strong economic integration.
        
Lastly, Greek demise has taught us what it means by putting an economy into check, her capital control measures though damaging but a last resort they can adopt, controlling outflow of fund beyond the borders they ensure guaranteed circulation of money which is the perfect way of peeping up economy. Last year’s African Union’s summit has observed Thabo Mbeki’s special committee that was summoned by African Union’s Commission to investigate on the illicit flow funds that crossed our continent’s borders. In 1970 through 2009, a total of $1.8 trillion derived form of criminal activities, corruption, tax evasion, bribes, and smuggling, have already gone to Western banks. According to Somali president, this is the underestimated amount since does not constitute drug businesses. 

This figure ($1.8 trillion) is $800 billion more than the foreign aid to African countries over the very same period of time. This has derailed development projects in many ways, enough to be a good contributor of African poverty. There is no way out we can put a dent on poverty without curbing this habitual problem in most cases getting a ‘go ahead’ by African leaders who have been entrusted by their own people. 

Among the ways to end this nightmare, President Thabo Mbeki stressed the need to change global banks’ rules on clients’ privacy, providing an opportunity for governments to have a direct check on her citizens’ conduct. On 8th February 2015, according to France’s Le monde paper, on what was termed to Swiss Leaks, a team of journalists from 45 countries unearthed Swiss based HSBC bank’s secret bank accounts list which consisted names of the nationalities from various countries in the world and Africa in particular.  
That being said, this reminds us that Africa’s future rests on what we decide today.

The writer is the Undergraduate Student pursuing Bachelor of Economics at Kampala University, Uganda. 

Contact: +256758691404

E-mail: iamzirack@gmail.com/zirack.andrew@yahoo.com

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