The Horn Of Africa States: Regional Financial Crises And Potential Alternative – OpEd
“God helps those who help themselves” is a common human wisdom. It emphasizes the importance of self-initiative and self help. One should, basically, work to improve oneself to the best of one’s ability before seeking others’ help. Any crisis of whatever sort starts with a mismanagement of resources, and the Horn of Africa region is not, indeed, short of crises and hence mismanagement of its resources. Plentiful of crises pile upon each other in the region from conflicts to climate change to food shortage, terrorism, political violence and instabilities, impunities and misgovernance, and poverty, financial crises, and economic declines.
We address in this article the issue of financial crises, of which the region suffers much, which brings forth what the region does about it. Every coin has two sides and the issue of financial crises in the region does, indeed have two sides. One is definitely regional and endemic, and the other side is related to those that foreign actors create and perpetuate.
The local issues
The financial crises of the region and hence its economic crises affect its performance as a region. Its exports are limited and are, in the main, related to agricultural exports, and little of anything else. Despite a large marine base, the region does not have a developed marine economy. Despite a large livestock population, it does not have an equally large product transformation processing. The animals are mostly exported on the hoof. Its large agricultural lands are not fully exploited and produces little to export. This all piles down to the region earning less than it should and hence little of capital inflows.
And the region, despite supposedly owning a large subsoil resource base, consisting of high value minerals such as copper, cobalt, gold, lithium, nickel, iron ore, oil and gas, exports little of these. It actually does not work to collectively put together the resources to exploit these potential reserves and it cannot even borrow from international financial markets, as it remains too conflicted, which threatens investors away.
The financial systems of the region are, indeed, isolated of each other and are, in the main, simply deposit collection institutions, which siphon off these deposits to other financial institutions across the globe, to act as collateral for the financing of its large imports. The financial systems of the region are, indeed, dominated by banks with little or none of financial markets. Banks borrow little from the outside and any borrowings of the region are mostly related to government borrowings from international multilateral financial institutions such as the IMF and the World Bank Group. It explains the limited impact of banking and finance in the economies of the region.
Other than government borrowings from the IMF and the World Bank group and from other multilateral institutions or on bilateral basis from other governments, the region receives remittances from its large migrant population but this only helps keep families afloat. The diaspora hardly invests in hard currency generating projects in the region, which again limits the region’s export earning capacity. Most investments of the diaspora in the region are related to building rest homes for themselves if and when they retire and return back home. These do not add much to the growth of the economies of the region.
Some of the countries of the region like Ethiopia claim high economic growth levels annually (above 5 percent) but this is not evidenced by the extreme poverty levels in the country. The region does not, indeed, keep any records or little of records to be able to actually correctly measure the economic growth levels of the region. Its financial performance and hence its economic performance cannot be fathomed with great in-depth.
It is clear, though, that the region remains poor, conflicted and badly in need of reforms both in governance and in self-management. It could have had better mining, tourism, textile and manufacturing sectors and even agricultural production. But entrepreneurship in the region is constrained by its political crises and instabilities and hence continuing conflicts, which continue to create more unemployment and hence more migration out of the region. It is how the region is losing more of its productive youth continually. This negatively impacts on household’s standards of living in the region.
The external Issues
International banks do not venture into the region. Money is too cowardly, so they say, to come to a conflicted region such as the region represents. It is only, therefore, multilateral institutions that do come in and they are, themselves, motivated to serve their principals, whether such funds come from the IMF and the World Bank which serve Western corporations or from the Chinese or others which also benefit only their own Chinese corporations or others.
Loans from these multilateral institutions may help develop mineral and other exports of the region as raw materials but they also assist their own corporations export more manufactured goods to the region. The region exports , say coffee beans, and may import instant coffee, which is much more expensive than the original coffee beans. The region will, therefore, remain on the losing side despite the loans it received to develop the more coffee bean exports. Note it is also paying interest on the loans it borrowed, which is another cost to the region.
And the hard currency it will be paying for the imports will be more expensive yet again losing in the exchange rate between the local currency and the hard currency.
The Alternative
The region needs to redirect itself financially. The banking and financial systems of the region should be seen as the ultimate sources of financial resources and, therefore, be deployed as a major factor in economic development. The early stages will probably not be easy but people learn and as an industry, it will grow into a viable economic developmental factor in the long run. Of course, corruption and misgovernance are local issues which the region has to grapple with and fight off.
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