By Demba Moussa Dembélé
Researcher, president of the African Research and Cooperation to Support Endogenous Development (ARCADE), economist Demba Moussa Dembélé puts his expert eye on what constituted the economic facts of the past week. In full.
On Saturday October 5, this news was on the front page of most daily newspapers. And some of the media and commentators hostile to the new authorities even seemed to welcome it. For the survivors of the Mexican army in complete disarray and their mercenaries still in service, this “degradation” would be the “fault” of Prime Minister Mr. Ousmane Sonko, for having exposed the lies and the makeup of the figures of the outgoing regime.
When Macky Sall castigated the role of rating agencies!
However, these irrational and hysterical opponents of the new regime have short memories. They seem to have forgotten former President Macky Sall’s harsh criticism of rating agencies and the rules of global economic governance. It was during the opening in Diamniadio of the ministerial meeting of the 54th Conference of the United Nations Economic Commission for Africa, on May 14, 2022. He said “ Everyone agrees that the current conditions governing economic governance are outdated and unsuitable for reality. So what is the point of continuing to require Africa to respect deficit figures of 5% or 6% in this double crisis? It doesn’t make any sense. » Macky Sall had in particular expressed severe criticism of Western rating agencies for their biased attitude towards Africa, which contributes to increasing the cost of borrowing for African countries on the financial markets. Faced with this situation, Macky Sall went so far as to suggest the possibility for Africa to create its own rating agency! As if that could change anything! Indeed, it is not nationality or skin color that counts, it is rather ideology. Therefore, creating a rating agency specific to Africa would be of no use if it is guided by neoliberal ideology in its ratings.
It should be remembered that Moody’s and other Western rating agencies are one of the essential cogs in neoliberal capitalism. Their mission is to strengthen the domination of the main centers of the system, the United States, Europe, among others, over the world economy and the international financial system. But these agencies are not the only ones to play this role. The World Bank and the International Monetary Fund (IMF) are also part of it. It has escaped no one’s notice that since their creation 80 years ago, these two institutions have been led respectively by an American citizen and a European citizen, despite the enormous transformations that have taken place in the world economy since 1944. !
Senegal and Africa cannot expect anything from this system
Macky Sall’s criticisms of the rules of global governance are all the more justified as it seems to pay little attention to the problems of Africa, as can be illustrated with the three examples below. . During the coronavirus pandemic, Senegal was the first country to call for the cancellation of the African continent’s debt to save resources which would be put to the fight against Covid-19 and its economic and social. We know the response given to such an appeal by the G20 countries, mainly Western countries. A paltry moratorium was proposed to African countries, accompanied by conditionalities which ended up making it a fiasco. For Senegal, here is the press release published on June 11, 2020 by the Ministry of Finance and Budget:
« Senegal’s participation in the Debt Service Suspension Initiative [ISSD] will materialize by the suspension of the payment of principal and interest due to all creditors of the official bilateral sector until December 31, 2020 for an amount of 90.5 billion CFA francs (137 million euros) between 1 June 2020 and the end of the year, i.e. 13.51% of the external debt service due in 2020 ».
So, Senegal, which requested the cancellation of its debt, finds itself with only 13.51% of debt service suspended, not canceled! Other African countries were in the same situation
The second illustration of the system’s treatment of Africa is that of the IMF’s Special Drawing Rights (SDR) allocations. In August 2020, it made SDR allocations with the aim of helping member countries cope with the consequences of the pandemic. Africa had only collected 33 billion dollars out of the 650 billion dollars allocated, or 5% of these allocations! During a meeting organized in Paris on May 18, 2021, supposedly for “the revival of African economies”, several promises were made aimed at reallocating SDRs from rich countries to Africa. More than a year later, President Macky Sall still noted with bitterness that none of the reallocation promises had been kept!
The third illustration is “development aid”. In 2022, public aid granted by rich countries increased by 13.6% – “among the most important in history” – it was said, to reach 204 billion dollars. But curiously, the envelope allocated to African countries had been reduced by almost 8%, or around $30 billion, a level comparable to that of 2017! Therefore, “historic increase” in the overall envelope devoted to “development aid” but “historic decrease” in the share devoted to Africa. While it had the greatest need for resources to deal with the consequences of Covid-19. Look for the error!
These examples should be enough for those who still have illusions about the West’s “aid” to Africa. In reality, these examples confirm the argument that Africa cannot expect anything from the neoliberal capitalist system to initiate its development. It was this observation that pushed the late Professor Samir Amin to call for the disconnection of the system, almost 40 years ago!
The dangers of commercial debt
The decline in “aid” has pushed Senegal and other African countries to turn more and more to the financial markets. This led to an uncontrollable debt spiral for many countries, which found themselves in a situation of “financial stress”. Africa’s commercial debt today represents 40% of the continent’s total debt. Africa’s private creditors include banks, of the asset managers, pension funds or insurers. To this must be added the loans contracted directly by governments from international groups, such as Glencore and Trafigura.
Most countries in “financial stress” are those with fairly high commercial debt. Moreover, the same Moody’s agency reported in a report published on November 21, 2021, the cases of countries in a situation of “financial stress” because of their commercial debt. Among these countries, she cited in particular Gabon, Ghana and Zambia and to a lesser extent Kenya and Angola. To avoid defaulting, some of these countries turned to the IMF. Senegal was forced to sign an agreement with the IMF in May 2023, an agreement which the new authorities inherited.
The use of financial markets by African countries was described as “madness” by Mr. Tidjane Thiam of the Ivory Coast, who then headed Credit Suisse. Mr. Thiam did not think he was saying that well in light of what is happening to many countries today, especially when they are “less developed” countries, like Senegal.
Conclusion
In fact, African countries need long-term and low-cost resources to invest in their development. What the financial markets will never be able to offer. What is necessary is first of all to count on the mobilization of internal resources. Therefore, the government of Senegal must remain calm in the face of Moody’s rating. It must reassess the strategy for mobilizing resources for the development of the country and change the paradigm. Unlike previous regimes, the main concern of the new regime should be to reassure the Senegalese people and work for their well-being rather than “reassuring” the financial markets.
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