Global Paradoxes, a trap for developing countries

Developing countries’ finances, energy and food are trapped in paradoxes that hinder their sustainable development concluded the first plenary of the Civil Society Forum in Doha, March 2023, part of the Fifth UN Summit on Least Developed Countries (LDC5).

By Roberto Bissio^*

“The crises of COVID, Ukrainian war, debt distress, bankrupt treasuries, they are telling us in a very painful way that we have not built resilience. There are root causes before these crises, so let's not be distracted by them. Otherwise, if we start to focus on the crises and their impact, we might be pushed to short term solutions” said Cristina Isabel Lopes da Silva Monteiro Duarte, UN Special Envoy to Africa, as her key message to civil Society. The multiple global crises should not be blamed for all the negative impacts that the LDCs, of which a majority are in Africa, are suffering.

Duarte identified three paradoxes: the financial, the energy and the food system. “The financial paradox is obvious. Africa is rich in financial resources, but is begging for debt relief and debt suspension. The second one is energy. Africa has any source of energy that you can imagine, but the continent is in the dark. The third is food systems. We are rich in agricultural resources, land, even markets. A growing middle class. But we have had food insecurity for about 50 years.”

She added: “I'm not saying rich in natural resources, because this everybody knows, I mean financial resources. Africa loses annually US$8 billion in illicit financial flows; US$70 billion in inefficient public spending, US$ 46 billion in tax exemptions, and we have US$1.3 trillion in pension funds outside Africa. On top of that, the debt crisis is taking huge amounts of resources outside Africa. The cost of borrowing in Africa is rocketing. Yields in secondary markets have increased by 600 basis points, in some cases 1,800 basis points. Africa has outstanding US$140 billion in Eurobonds with 10-year maturity. If you add 6 percent more in interest rates, the impact is US$8.4 billion annually, over the life of the bond, US$84 billion. It's amazing.”

She continued: “This paradox signals that Africa does not control its economic growth. Africa does not control its financial flows. Of course, when you do not control your economic and financial flows, any external shock pushes you for liquidity, and you face a liquidity crisis.”

Duarte calls for a change in mindset, “because we need to shift from managing poverty to managing development. They are different animals.  From a policymaker standpoint, the design of public policies is completely different if you start managing development and not poverty.”

“To deliver sustainable development in Africa,” she added, “we need to tackle, first, sustainable financing. Sustainable financing is a pre-requirement to sustainable development, and the only way to tackle it is by understanding that sustainable development is only possible if there is internally driven sustainable finance. If we want to address this when discussing, designing, conceiving, financing for development in Africa, we need to put domestic resource mobilization in the driver's seat.” To that effect, she recommended building a system where “countries control better their budgets, tackle US$ 70 billion of inefficient public spending and build strong country systems to cut the US$ 880 billion in illicit financial flows. The domestic resource mobilization (DRM) system is not only about tax revenue, but it goes to tackle illicit financial flows.”

On the second paradox, energy, Duarte remembered that while Africa is home to 17 percent of the world population. The continent represents only 3.3 percent of global primary energy consumption, 1.1 percent of electricity generation, and 3 percent of global energy use in industry.

“We are, indeed, a dark continent,” she stated, but “we have no intention to continue to be a dark continent. There must be some fairness.” While the world embarks on a global narrative about carbon reduction and energy transition, she warned that “we have 600 million people without energy and Africa needs to create 80 million jobs annually”. Africa contributed only 3.8 percent to global CO2, which means that “our challenge cannot be transitioned, because we are already there. Instead, we need to address energy access.”

Africa's population is growing at a rate of 2.5 percent per annum, 35 million more Africans per year, which means that “energy access is our number one challenge. How to address this? First, all heads of States and policymakers must recognize that there is mutual accountability to build a green world, meaning that we all have the same destination, a green world, but that there are different starting points. Africa's starting point, from an energy and climate standpoint, is different from that of developed countries. If you have different starting points, recognizing the same destination, we cannot take the same path. So each African country is entitled to undertake its own energy planning, to define its own energy mix to address energy access.”

Paul Akiwumi, emphasized that “the least developed countries cannot keep relying on a commodity driven development model, where they provide the resources to others to add value and then to sell them back to them”. He observed that “the crisis has set back LDCs considerably in health, in education and in trade. And this has had an impact on their ability for fiscal space, to be able to design new policies, to be able to deal with the problems. Domestic resource mobilization is very critical for the LDCs, but in order to mobilize resources in order for governments to tax and have a tax base, they have to grow their tax base. And the ability for them to mobilize resources is very constrained.”

As an example, he cited the African pension funds. “Africa has a lot of pension funds and pension money. But where are these pension funds invested? Less than 5 percent is invested in Africa. The rest is in Europe and the United States. From our research, we have seen that pension funds are not allowed by government policies to invest in the things that LDCs need today. We have to recognize that FDI coming into LDCs today is primarily in the extractive sectors and those are the sectors, the commodities which the other countries need. So it's very difficult to put the investment into the sectors that the country needs to build its economy. But having said that, and talked about ODA, and talked about illicit financial flows, which are leaving the continent of Africa, one has to recognize also that there is no country in this world who's developed on ODA.”

So “to build their capacity in order to produce goods and services, now that we have the African Continental Free Trade Agreement, it's very critical for them to trade amongst themselves.”

Akiwumi noted that the price of commodities, copper in particular, has increased, but “we are not taking advantage of this, because the agreements that Africa signed with all these extractive industries, keep the price flat over a 20 years period or 30 years period So it's critical that we, ourselves and Africans, ourselves and LDCs ourselves, start looking inward at what is possible.”

The LDC category has been in existence for the last 50 years, and only six LDCs have graduated. ”Why is this is the case?” he asked. “UNCTAD looks at the international support measures that exist for LDCs, like preferential access to markets and trade, and we believe there has to be a new generation of these support measures, because the old generation, granting market access for LDCs to European markets, have not exactly served the LDCs. When you go to their economic zones, you find all foreign companies are sitting in those economic zones, and they're utilizing that preferential access to the market, but there's no backward linkages into the economy. There's no forward linkages either. There's only minimum wage for the people in those countries, and they can leave tomorrow without even taking the equipment with them, and they'll leave behind tens of thousands of people unemployed and destitute.”

“So a trade perspective is critical, but the trade must involve producing goods and services. There's no point trading if you have nothing to trade.  In order to have value to that trade, you have to build productive capacities, so that you can produce goods and services to be traded.”

Cheikh Tidiane Dieye added, ”ACFTA, the African Continental Free Trade Area, is a very important agreement, which has been negotiated and concluded in a very short term, thanks to African political will. Building the African market for African companies is something that is seen as a first step to industrialization through trade. Africa has problems integrating global value chains because countries are integrated through the provision of raw materials, commodities and most of the production sector is controlled by global corporations that have captured most of the value. To change that, it is important to build regional value chains as a starting point.”

Dieye cited the example of Liberia, “one of the biggest producer of rubber, but it can't produce a single tire from the rubber that it produced” and of Guinea-Bissau, where “raw cashew nuts are 80 percent of their exports to the global market, but it can't process more than 5 percent”.

The African Continental Free Trade Area “is to help those countries reinforce their domestic capacities in order to be able to process, to industrialize, to create for a market of more than 1.2 billion African consumers.”

Tetteh Hormeku explained that “the primary commodity export dependent economic structure was inherited from colonialism, and has been reinforced ever since then”. Nowadays, the recognition of the multiple crises “offers one of the most rare opportunities to urgently take collective action to confront and seek to dismantle these structures”.

“Wealth generated in Africa leaves Africa in forms of finance, whether licit or illicit, and returns in terms of profit seeking capital that, again, transfers revenue out of the continent. Africans are aware of this. On the very moment of independence, every African country, whether small or big, from Zambia to Egypt, from Tanzania to Ghana, to Senegal, all of them recognize that they have to transform this legacy of colonialism and every government, whether they are capitalist or socialist or humanist, from Kenneth Kaunda to Jomo Kenyatta and Julius Nyerere set about the very process of transforming the structure that they inherited. Tragically, from the 1980s to the mid 1990s, the World Bank and the IMF intervened. And what African leaders saw as a problem to be solved, they said “no; it's an opportunity”. We accepted this idea that what was identified as a limitation was seen as “comparative advantage”. The World Bank and IMF advised all of us to continue producing our cocoa so that Switzerland can make more chocolate for us.  Or produce more coffee, so that some other country can make use of it. This idea that started from the 1980s, this universal orgy of market liberalization without any responsibility, no respect to structure, no respect to your initial conditions, no respect of where you're coming from.”

Hormeku explained that “the failures of this model would have led us to rethink, but actually, they became international norm with the WTO. Then, 20 years ago, we sat in Doha and the WTO adopted the so-called Doha development programme. And now the supposed developmental aspects of the Doha Round, that was never concluded, are being just thrown away. And what we have now is a naked grab by the USA, EU, Japan or the so-called advanced countries to impose rules that serve the needs of their companies. The powerful players take away even the small, small rules that give LDCs and other developing countries some chance to be able to control their development. Special and differential treatment, rules on technology and investment are now taken away. And this is not simply in the area of trade. It also happens in finances.”

“In Ghana, we were advised to deregulate and reorganize finances to build private capital markets. So stock exchanges are being forced, creating a lot of complications. In order to build private capital markets and stock exchanges, governments have to privatize state owned insurance companies just so that the private sector can buy them. Pensions that have been built on workers salaries for the past 50 years have been partly privatized, so that the private sector can get into pensions. These private insurance companies and pension companies, where are they going to invest? Ghana is a primary commodity exporting country, but investing in cocoa and coffee financing does not give many lucrative opportunities, so they go into real estate. We have tall buildings being built in Ghana, one flat is going for US$ 400,000. Nobody can buy it because they're hoping that people will come and buy from the outside. They couldn't buy it, and we have empty houses with a housing crisis for poor people. They turn around these private insurance companies because you don't have any avenue for lucrative investment. So they again lend the money to the government. So you have this paradox that the government of Ghana privatized its insurance firms and then borrows money from them at a very high interest rate.”

Hormeku commented that “the very reasons why in Ghana, our debt crisis is difficult to even talk about, is that its origin is with the people's pensions and peoples insurance companies that have been privatized. So in a certain sense, it is not only the structures that we've inherited, but also the policies that over the past 40 years we have been forced to implement.”

“The way out, he concluded, is a deliberate systematic effort to try and reorient and take the economy away from this primary commodities' dependence. African countries adopted in 2014 the African Mining Vision, which is trying to use our minerals and our natural resource as a base for industrialization. Together with ACFTA, this feeds into the African Agenda 2063.”

“Unfortunately, it is not simply domestic action which is important, but the international regime, which is supposed to support all this, is going the opposite direction. After the Africans adopted the African Mining Vision, the European Union promptly adopted an energy charter which insisted that AMV is a trade distorting mechanism and the EU has been campaigning to get African countries to sign away from the African Mining Vision that was our own initiative.”

“Our capacity to implement our own initiatives is always undermined by the European Union, the Americans, who want to give us aid, and by the financial institutions. African countries and their people, with all their limitations, are already doing something on their continent. It is not adequate. There's a lot of work that they have to do. A real focus for action is the international system of economic and trade governance and the international financial institutions. All these need to be reorganized so that they can be supplementary, at the very least, if not supportive,  the internal efforts that African countries are making.”

“In Doha, we are talking now about another plan of action for the least developed countries. In Istanbul, ten years ago, we adopted much more flowery commitments. I participated in 2017 in a meeting at UNCTAD to review progress, which concluded that whereas LDCs were doing all they can to increase their exports, they are being held back by the WTO, the World Bank and the IMF. So if we don't pay attention to the international governance mechanism of financing, and trade, it is possible that ten years from now we come back again and all these actions will just be stalled.”

Lidy Nacpil stated that “the underlying cause and driver of the multiple crises that we are facing is the fundamentally unjust, unequal and flawed nature of the global economic and financial system. Multiple crises can lead to a change in the system. And changes can be immediate, medium term as well as strategic, but this system has been perpetrated and strengthened by governments and international financial institution policies and actions. And many of these international institutions, many governments throughout the world, are actually captured by private big capital and the elite interests, so the forces we are facing are quite challenging.”

“The debt crisis being faced by LDCs and the global South at large has been rapidly accumulating, even before the COVID crisis. For LDCs, debt service has tripled from 2011 to 2019, according to UNCTAD figures, so many of us have been shouting from various forums, from the streets, in the hallways of the UN, in engagements with international financial institutions and other types of lenders to call for immediate, full and unconditional cancellation of debt.”

Nacpil added that “we need to challenge the mainstream notion that countries are only in debt distress when they are not able to pay on time and in full. …We are challenging this, because from our point of view, there is a debt crisis when debt payments are seriously undermining our countries' ability to provide essential services and undertake urgent actions, like climate actions, and to ensure our human rights as citizens of those countries. From that definition, most of the global South and all the LDC countries are in debt distress, not just four or five.”

“We also need to challenge the insufficient debt relief measures that have been provided by lenders in the last three years and before that, starting with HIPC (Heavily Indebted Poor Countries Initiative, launched by the IMF and World Bank in 1996). During the period of HIPC the lenders, the international financial institutions, were quite kind of frank about the real intent of the debt relief measures, which basically was to clean up the books of countries so that they could borrow again. And this we've seen again in the last few years when the debt profile of many countries, including LDCs, has been moving from concessional and highly concessional lending from multilateral institutions to borrow more and more from the financial markets, at interest rates that are based on market rates. Part of the challenge of demanding debt cancellation is also compelling private lenders to be part of the debt cancellation responses.”

“Part of the work we need to do for demanding debt cancellation is to ensure that it's not just about debt sustainability, it's also about illegitimate debts. Beyond the issue of capacity to pay, we need to raise fundamental justice questions about whether we should actually be paying for debts that have been financing projects that harm the people. While the world is already recognizing the harm that fossil fuel projects have been doing to our peoples and planet, and while there has been a shift in financial policies against investing in new coal plants, for instance, the ADB and many other financial institutions have pledged to stop financing new coal plants, nobody is talking about the huge debts that were incurred in financing these fossil fuel projects. Projects that have been established to have done harm. So we also raised the issue of illegitimate debts that have caused harm to people. Debts that violated our constitutional and democratic rules and procedures in our countries, debts that have been wasted on projects that were more in the interest of the lenders rather than on the interest of the borrowers, and so on.“

“On the second point, about immediate things that need to be done, we need to make sure that we put a stop to lending as the main international response to crisis. During the COVID period, the increase in lending was from 25 to 40%. This resulted in a huge increase in debt service payments among the LDCs from 2020 to 2022. Most of the responses to the crisis were: you're in trouble. You're in crisis. You're struggling to survive here, I will lend you money. Most of the fiscal response to COVID and I would say also to climate has been in the form of loans.”

“There are several package proposals for systemic reforms, and I want to reiterate the need to reorient our domestic economies in the South. And finally, to demand reparations. We want to shout reparations, not just from the streets or at the COP, where that was a very strong message and that's why we won the fight for a loss and damage fund, but also in various international arenas because reparations is what is owed to us.”

Emilia Reyes, also denounced “the betrayal of the global North to the rest of the world”. She detailed “three main global subsidies in the global economy. The first is the subsidy that the global South makes to the global North,  based on the extraction of energy, material resources, land, and labour and time. The second is the subsidy that women provide to the global economy by means of their unpaid domestic and care work. The third subsidy is provided to our environment and is produced by indigenous peoples: 80 percent of world biodiversity.. And they are 6 percent of the population. The current productive logic is destroying the planet and is taking us to the extinction of life.”

Thus, Reyes concluded, “gender equality is not a micro issue, it is a macroeconomic issue. We are living interlocked lives. The betrayal I was telling you about is because the global North is driving the world towards extinction, and it is the women in the global South, the women in the LDCs, the women in small island developing states (SIDS), the women in indigenous communities, those are the ones that are receiving the harshest impacts of all of these situations.”

“I'm a feminist and I come from the Latin American tradition of the feminists of rupture,” she explained. “We are not feminists of inclusion. We don't want to be included in a system that is destroying life, that is destroying the ecosystem, that is destroying the dignity of people. And it keeps on predating the styles of lives, for instance, of LDCs and SIDS. We don't want to be part of that system, so our efforts in imagining ways, new ways of relating to our fellow humans, but also our fellow animals and plants and fellow ecosystems.”

Bright Thamie Phiri ended the plenary saying: “Malawi has a population of 18.4 million and an agrarian economy. The livelihood of the people depends on farming. In Malawi, 90 percent of the budget of agriculture is dedicated to just one programme, called affordable input subsidy programme. So in Malawi, nobody can be voted into power without talking about how he's going to feed the people…. But regrettably, up to this day, even after being part of all the five summits of the LDCs, in Malawi, eating three meals a day is not something that you take for granted, because about 60 percent of the people only eat two meals a day.”

“Seventy per cent of the population in Malawi lives in small farms, and they depend on getting subsidy inputs from the government. A big chunk of people that are out there to compete for production resources, very marginal production resources. And so, because of the commodification of seeds and food, there has been always systematic poverty.”

“Because of these inequalities, we have a program where we are trying to interrogate the hostile provisions that are still making the people poor. And we call for the empowerment of communities to secure land, and seeds, and food, and also to facilitate duty bearers to hold or to grant rights to communities. In 2020 the government actually banned people from participating in fairs to exchange seeds and food, a hostile provision that was part of the so-called Green Revolution package. We went to court and at this point in time that ban has been set aside.”

“In Malawi, ownership of land is a problem. Not many people have full rights to land. And so we see systematic displacement and reallocation of people because of mining activities. Most of the populations that are staying close to the lake shore areas were actually given notices to vacate the land so that corporations can move in for commercial scale farming. We have also challenged that and that has been set aside, and all the land has been given back to the communities.”

“There is also systematic persecution of communities that are advocating for their rights over water. In the northern part of Malawi recently, farmers were arrested because they detected uranium in their water systems, coming from uranium mines. And they were arrested and taken as spies for trying to find the source of the radiation and pollution. We take it as a duty to fight and provide services for such communities to make sure that we secure their environmental rights. The other part is that both through our organization and also through AFSA, which is a continental platform, we always interrogate and contest intellectual property regimes that are so hostile to community rights to land and food. The African Regional Intellectual Property Organization keeps proposing hostile provisions that basically take away communities rights to continue exchanging seeds and also food. In short, that's what I can say about our work.”

Plenary 1, Taking stock: Multiple Crises and Challenges for LDCs
Doha, 5 March 2023

Moderator: Gita Sen (DAWN)

Speakers: H.E. Cristina Isabel Lopes da Silva Monteiro Duarte (UN Special Adviser on Africa), Paul Akiwumi, Director for Africa and LDCs (UNCTAD), Cheikh Tidiane Dieye (ENDA-CACID, Senegal), Tetteh Hormeku (African Trade Network, Ghana), Lidy Nacpil (Asian People’s Movement on Debt and Development, Philippines), Emilia Reyes, Equidad de Género, Ciudadania, Trabajo y Familia, México), Bright Thamie Phiri (Commons for Ecojustice and Alliance for Food Sovereignty in Africa, Malawi).

See more about the LDC5 Civil Society Forum (Doha, Qatar, from 4 to 9 March 2023) here.

Note:

Cristina Isabel Lopes da Silva Monteiro Duarte