Africa: Capital Outflows, Crisis & Confidence
There were only a handful of people wise enough to understand the challenge 1973 was to the American regime. Nixon’s Treasury Secretary was quoted as saying “yeah, its our currency, but its you problem.” Reagan, Milton Friedman, Shultz and Robert Bartley knew that the source of the OPEC oil crisis was the Bretton-Woods framework linking the dollar to specie. This coupled with Arthur Burn’s willingness to blow-up the federal fisc brought Reagan and Morning in America. The move toward floating exchange rates would consume every American President from Nixon until Reagan.
The impact of monetary policy under Obama is evidenced in massive capital outflows that sought a home in regions abroad. B.R.I.C.S. and other commodity based export regimes were the lifeblood for investment banks in need of rent-seeking opportunity. They found it in Africa.
Z.I.R.P. wasn’t a policy it was an attempt to forestall a frightening deflationary tail spin. It was a failure to conjure revenue growth through velocity. It brought untold billions to emerging (read unreformed, political economies). The African growth model has come to a crashing halt in 2014. The hardest hit were oil exporters like Nigeria and Angola where oil remained nearly 95% of government revenue. Commodity exporters like Zambia (copper), Ghana (cocoa, gold), have plunged. Instead of demonstrating leadership in the reform of their domestic political regime, they simply enjoyed the onrush of F.D.I. Currently the plunge in sub-Sahara GDP is nearly 20% with no end in sight. Some nations like Zambia, South Africa and Botswana denominated their debt in U.S. Treasury. Others weren’t so smart.
For the African pessimists, this only validates their claim that the continent remains stuck in a vicious resource filled rollercoaster of unreformed economies and rapidly escalating credit cycles. The boom and bust of Keynesian kraft.
Yet their is plenty of confidence that Africa can emerge stronger from his cycle. Capital outflows/inflows were never monolithic and haven’t hurt each nation state in identical ways. Kenya, Uganda and others continue to see enormous gains in telecommunications and its attendant growth in dependent industries. Nigeria alone, which historically imported everything staple related, is currently witnessing massive growth in indigenous farming. Nigeria’s case is hard to reconcile with other African nation states because of its unusually high exchange rate which has fallen to accommodate sound money and flexible currency regime. Currently, Nigeria’s food imports are halved with millions of subsistence farmers going commercial.
The dark continent continues to rise, albeit unevenly.
Originally published on William Holland’s website.