Economic Strategy and the Financial State of Sub-Saharan Africa [Week 8]

Part 1

1. I chose to look over Senegal’s Poverty Reduction Strategy Paper and Kenya’s Economic Recovery Strategy for Wealth and Employment Creation. I noticed Senegal’s economic strategies are formatted into three different chapters. The first chapter points out the shortcomings and challenges, the second chapter the strategies to improve/change the factors, and the third, the way to finance these strategies. Something else important to note here is the chart at the end of the document, prioritizing the tasks that should be focused on first, and classifying the others as moderately important and of lesser importance.

Kenya’s strategies, however, are already divided into chosen areas to focus on, such as public sector reform and infrastructure. There is also a section that covers “cross cutting” issues, or elements that affect other parts of the economy and need to be taken into consideration. I think this section of issues is important because it focuses on improving the system as a whole, rather than funneling all efforts and funds into one area while leaving others broken.

2. In part 2 of Dead Aid, Dambisa Moyo talks about different options for raising developing African countries out of poverty, specifically by entering the international market via bonds, rather than leaning on the support of aid. Some countries have been able to enter the market successfully, while others have yet to convince investors to partner with them.

According to J.P Morgan’s Emerging Markets Bond Index (EMBI), only South Africa appears on their radar. There is no data available for any other African nation, including Burkina Faso.  The amount that Burkina Faso was loaned by the World Bank in the past five years has decreased after a spike in 2012, but has still remained higher than what was originally loaned in 2010.

As far as the European Investment Bank (EIB) is concerned, the focus of funding should be put on long-term, and more importantly, sustainable solutions for developing nations. In the most recent news, a loan was given in December to a biotechnological company to focus on finding a vaccine, a sustainable solution. This was unique to me because their contribution focused on finding a way to slow the progress of ebola, rather than on sending doctors and nurses who can’t give any answers and might only contribute to chaos. Loans were given to West African states, who were hardest hit by the wave. I also noticed that when EIB can’t give a sustainable solution, they try to support the sustainable solutions in affected areas.

As far as loans given by the World Bank, Sub-Saharan African countries are in various states of loans and repayments. I selected three countries at random–Benin, Tanzania, and Namibia–to try and get a feel for the loans that the World Bank distributes. The World Bank grants IDA credits, or loans that have long repayment terms, low interest, and plenty of opportunity to repay. Benin appears to have a pretty high rate of repayment of their credits. Tanzania received more IDA credits than Benin, and is currently repaying more of them as well. Namibia has repaid two credits, but isn’t currently maintaining any. This goes to show that African nations are in various states of repayment and economic conditions, and I can see how that those that do not have stability or a good credit rating struggle to find economic independence.

Part 2

Moyo recommends three major steps in order for Sub-Saharan African countries to receive foreign direct investment (FDI). Countries looking for opportunities must first:

Dambisa Moyo. Photo Credit: Fortune Live Media, used under Creative Commons.
Dambisa Moyo. Photo Credit: Fortune Live Media, used under Creative Commons.
  1. Receive a rating (This determines how likely it is that a country can repay money it’s given and how much it will cost for them to borrow in terms of interest rates.)
  2. Seek out potential investors (A country must pursue those that they seek investments from.)
  3. Receive the investment. (Once a length of time and rates are agreed upon.)
Photo Credit: LendingMemo.com, Simon Cunningham
Photo Credit: LendingMemo.com, Simon Cunningham, used under Creative Commons

Moyo’s Dead Aid was written in 2009, and Sachs’ The End of Poverty in 2005. Prior to Moyo’s book, the economic crisis of 2008 caused FDI to developing nations to take a serious hit. While it had taken some time for countries to recover, Africa’s rate of FDI has been increasing, jumping by 6.8%. Since that time, FDI has been holding much steadier.

According to a June 2014 United Nations Conference on Trade and Development, the Northern and Western countries of Africa saw a decrease in FDI this past year, but a rise was seen in East Africa. In Southern Africa, the rate of investment nearly doubled. Although the level of investment has decreased a bit in some areas and increased in others, the overall FDI rate as a whole for African rose by 4%. Something that I did notice in my sources, however, is that some of the largest portions of investment and return are seen in Southern Africa in particular.

Burkina Faso in particular has struggled with finding investors. When they do receive investments, they are generally small and meant for goods/services, rather than infrastructure, an area where Burkina Faso struggles. The country is also landlocked, which limits its resources, and is small, which narrow its market opportunities.

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