October 14, 2006 – When you look at satellite images of Africa at night, it is truly amazing. It’s beautiful yet eerie at the same time. The entire continent, with the exception of the coasts of Algeria, Tunisia, and Morocco, and the nations of Egypt and South Africa, is just about dark. Especially in contrast to the coalition of neighboring European countries to their immediate north. In fact, due to the absence of city lights, Africa must be one of the best places in the world to stargaze. It is an indictment of how much the rest of the world has ignored Africa’s developmental needs for….well, forever. That is until now.
To continue the topic of a prior blog, U.S. Secretary of Treasury Henry Paulson has been making waves by criticizing Africa for in his words “irresponsible borrowing” from India and China while various African nations have countered Paulson by stating that China’s and India’s investments in their countries is vital to eradicating poverty and improving standards of living. In an article in the September 16th Economist, the following statement appeared: “In the cold war, Western strategists probably spent too much time worrying about the Soviet Union’s military clout, and not enough analysing its commercial frailties”. These oversights often happen not only in politics but in economics as well.
Paulson further suggested that the World Bank “implement effective incentives or penalties to deter irresponsible borrowing or lending,” implying that in addition to certain African nations that India and China should be punished as well for their recent multi-million and billion dollar investments in Africa. Apparently, these criticisms struck a deep nerve with many African nations. Again, they countered by claiming that past World Bank and IMF loans were so restrictive that they contributed to the difficult time they had rising out of poverty.
They claimed that the numerous lending conditions that have accompanied such loans, including privatization clauses that make it easier for outside corporations to enter their economies, and fiscal reforms that require them to slash programs that help the poor under repayment conditions. And these claims are not without merit. According to Oxfam International, 75% of World Bank loans that they studied in 20 developing countries required privatization contracts as conditions of these loans.
To the finance ministers of many of such emerging countries, such conditions are viewed with great wariness and suspicion as just another way for outside countries to exploit their economies under the guise of assistance. Apparently China and India’s loans do not come with such capitalistic lending conditions, and it is for these very reason that Africa is turning away from Europe and the U.S. for assistance and towards Asia instead.
Whereas Paulson criticizes the ongoing Chinese and Indian investment in Africa as dangerous and irresponsible, Kenya’s Finance Minister Amos Kimunya, hails the Chinese and Indian involvement in Africa, stating , “Ours is an equal partnership. The trade is two-way. It wasn’t like this” with other countries, he said, making a thinly veiled reference to the United States. And Kimunya is not alone in his sentiments. Nigeria’s Finance Minister Nenadi Usman supported Kimunya by stating, “We should look toward the East instead of looking toward the West because we believe we will benefit more from the relationship with countries like China and India. India and China will be more sympathetic to what we are going through now because they have been down that road themselves.” Actually these words are more true than Usman probably realizes. On sheer volume, China and India actually have more people living in poverty than Africa.
Despite these favorable comments by various African Finance Ministers, I am not without skepticism. If there is one constant in history, it is that of more powerful nations exploiting the resources of less powerful nations, and I am certain that India and China’s interest in Africa runs much deeper than the establishment of a “two-way” street. Perhaps’ Paulson’s ire stems from the possibility that India and China are replacing the U.S. and Europe as the colonialist plunderers of Africa in the new global economy. And if the U.S. and Europe are replaced in Africa, where next? And most likely, the business many Chinese and Indian firms are conducting in Africa is not on the straight and narrow path. In a recent BBC article, the anti-corruption group Transparency Intenational mentioned firms from China and India as being the most willing to pay bribes to do business overseas.
Although people may think I’m crazy for suggesting to start looking in Africa for investment opportunities, there is a reason that Africa is receiving an investment infusion of billions of dollars from China and India. Many countries in Africa have not seen the socio-political and economic stability that they are experiencing today in several decades. India’s and China’s loan’s and Paulson’s protests are as much an indication of the shifting of economic power from west to east as much as anything else.
Instead of trying to pull in the World Bank to police the economies of Africa, China and India, just as Western Strategists worried far too much about the Soviet Union’s faults versus correcting our own frailties during the Cold War, Paulson should do the same today. The U.S. economy is running on a currency, the U.S. dollar, that no one in the world desires any more, and whose debt is financed simply by printing more money because there are not enough tax dollars to support it. These are two serious problems that Paulson would better be served paying closer attention to rather than focusing on the investment strategies of China and India, no matter even if corruption exists. Corruption and bribery is so widespread as another form of business currency that it will never be stamped out.
For the sake of the global economy, the rest of the world would better be served as well if Paulson concentrated his efforts on fixing the domestic front in the U.S. before worrying about trying to fix the economies of the rest of the world. Earlier this year, Russian Finance Minister , Alexei Kudrin, openly questioned the ongoing viability of the U.S. dollar’s status as a reserve currency at a meeting of the World Bank and IMF. In fact, if U.S. Secretary of Treasury Hank Paulson does not focus on correcting economic problems at home first, his dismissal of these problems will only expedite the Peak Investment Crisis that is nearing the tipping point.
I’m going to pursue a slightly different tangent today and revisit your blog post entitled “Investment Lessons You Can Learn From Bin Laden.” Recently, a friend sent me an article to just the water crisis that you addressed in that blog entry. As you mentioned in your blog, this article also states that the crisis is beginning to affect not only the poor, but the middle-class as well. In certain regions in India, many of the middle-class must forage for clean water. It’s an interesting read, so I’m going to post the link here to the water crisis that is plaguing certain sections of India today.
Maholo, KAEHO.
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J.S. Kim is the Managing Director of maalamalama, an online investment education course that utilizes groundbreaking investment strategies to uncover ignored stocks, asset classes, and global markets to identify the best low-risk, high-reward investment opportunities with the best chance of returning high double-digit and triple-digit gains.
