Essay Sample on The African Continent, The IMF, And the World Bank

Introduction

The African continent has gone through many upheavals over the centuries. From being the cradle of civilization to the most indebted continent, and from being revered as a resource-rich region to rendered impoverish by trying circumstances, it has experienced more than its share of ups and downs. It is the world's second largest continent in size and is formed by 54 countries. Almost 16 percent of the world's population resides here. Half of the population is under 25 years of age. It has a wealth of raw materials and has the highest reserve of precious metals in the world. Also, 40 percent of the world's gold reserves and 90 percent of the world's platinum reserves are in Africa too. It has plenty of oil reserves and almost one-third of earth's mineral reserves. A large wildlife presence is comprising of a greater number of animal and bird species than any other planet on earth. It boasts of many wildlife sanctuaries and parks. With so many positive attributes, Africa has been on the cusp of attaining economic success. However, there have been several impediments, both from within and outside the continent, that has constantly undermined the economic success of Africa.

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Historical Background

A majority of the African nations were colonized, by several Europeans countries, such as France, Britain, Germany, Portugal, Italy, Spain and Belgium, post the Berlin Conference of 1884-85. These African countries were not developed much by their imperial rulers. They were occupied mainly for their wealth of raw materials and cheap labor. Arbitrary borders were created by the European nations, and this led to the division by ethnicity, language, location and political rule in the African continent (Office of the Historian N.d.). There was great emphasis on the mass cultivation of cash crops and mining activities. Both these produced huge amounts of raw materials for fueling the industries of Europe. These raw materials were converted to finished goods by the industrialized nations, thereby increasing the value of these commodities manifold. Development of the African countries was only to the extent of facilitating trade and commerce for the benefit of the Western powers. Therefore, the potential of the African continent, for centuries, was explored for the benefit of other nations.

A Closer Look at the African Continent

The African continent is made up of 54 nations and can be broadly classified into North Africa and Sub-Saharan Africa. The North African region consists of Arab speaking counties, i.e. Egypt, Morocco, Tunisia, Sudan, Algeria, Libya, and Mauritania. This region has had close trading ties with Western Asia and the Mediterranean countries. The region south of the Sahara Desert is known as Sub-Saharan Africa region. It consists of 46 countries which can further be divided into Eastern, Central, Western and Southern Africa. The total population of Africa, as of 2014, was 1.13 billion, with the lowest average life expectancy of 58 years. "The future of humanity is increasingly African." Between 2015 and 2050, a total of 2.2 billion people is expected to be added to the world population, and half of this number will be in Africa. Therefore, Africa will have 25 percent of the world population by 2050, as against the present figure of 16 percent.

The Evolving Role of the International Monetary Fund (IMF) And the World Bank

The IMF and the World Bank came into being in 1944 at Bretton Woods. The objectives of these organizations were to foster world trade and reconstruct infrastructure. They were formed at a time when nations were trying to bring about stability in their systems. Free market economy was thought to be the solution to the economic woes that nations were facing. These were based on the Keynesian theory which emphasizes increasing global demand as a means to foster economic development. In keeping with this, the IMF's initial mandate was to enhance the free movement of goods and services across borders. To this end, member nations were provided with a loan facility to correct the balance of payments deficit which may hamper trade between nations. On the other hand, the World Bank was tasked with assisting with infrastructural development. However, the functions of both the IMF and the World Bank have been tweaked to meet the changing needs of the world.

Role of IMF and World Bank Vis-A-Vis the African Continent

The involvement of the IMF in the African countries has been increasing consistently. Only three countries were the initiating members of the IMF. By 1994, all 54 African nations were on the IMF's roster. The level of commitment of the IMF and the World Bank in Africa increased, with the two successive financial crises, the, i.e. surge in oil prices in the 1970s and the debt crisis in the 1980s. This is mirrored by the dramatic increase in the IMF lending to African countries between 1975 and 1982. The total loan outstanding was $9 billion, taken by 38 African countries which were 28.6 percent of the total money lent by the IMF. At first, the IMF had generic loan instruments for its member nations; gradually it recognized a need for specialized loans to meet specific needs. This led to the creation of Oil Facility in 1974, Extended Fund Facility in 1975 and Compensatory Financing Facility in 1963. The debt taken by Africa reached dangerous levels. As a result, the IMF decided to play a more general role. This manifested in the introduction of loan instruments, with a lower rate of interest, long-term tenure and structural change conditionality. These came to be known as Structural Adjustment Facility (SAF) and Extended Structural Adjustment Facility (ESAF). Many African countries utilized the facility provided by these loans. However, there were several drawbacks that the IMF faced with these loans. It was not geared to provide structural support to member nations, and there was no defined threshold level to ascertain the eligibility of a country for this facility.

Influence of the IMF and the World Bank on the African Continent

With a detailed introduction of the African continent, the IMF and World Bank, and the relationship between the entities, it is now imperative to analyze the socio-economic challenges faced by the African continent. This will give insights into plausible solutions to the challenges faced by Africa.

Critical Review of the IMF and the World Bank in Africa

The IMF and the World Bank have had a fairly significant relationship with several African nations, over the last four decades. There have been a few ups and several downs. The IMF and the World Bank have rescued Africa from economic collapse at many critical junctures, such as the oil crisis and the debt crisis. However, the measures implemented by these organizations have had a degrading impact on the economic and social environment of Africa. The various manifestations of the impact are discussed in detail.

Low Representation at Both Organizations

The voice that economically weaker nations have within the IMF is much weaker than that of the developed nations. This is mainly due to the existence of a quota system within the IMF and the World Bank. This means that the economic weight of a country concerning the world economy decides the weight of its vote within these organizations. To put this into perspective, the developed nations of the world which have only 15 percent of the world population and constitute a fifth of the total membership of the IMF, control over 60 percent of the total votes While all the Sub-Saharan countries together with other developing countries including India and South Africa, collectively have 8.3 percent of IMF's votes, not good enough to veto or block any motion deemed to be at odds with these nations. This is unfortunate as 40 percent of the world's population lives in these countries. Therefore, these countries have little say, in the conditions imposed on them, for availing credit facility. Also, they are marginalized when it comes to framing global policies and frameworks on trade and commerce.

Structural Adjustment Programs (SAPs) fail to show significant results

SAPs were initiated primarily for the redistribution of wealth using equitable development in the African continent. Africa as a continent is facing a myriad of challenges such as widespread poverty, underdeveloped infrastructure, low life expectancy, low human development index, dependency on exports of a few commodities, etc. However, the 54 nations that make up Africa have their unique circumstances too. For providing effective solutions to their quandaries, it is imperative to delve deeper into the very fabric of these nations. However, SAPs implemented by the IMF and the World Bank are known to have a 'one size fits all' approach, where a readymade template is applied from one country to another. Development, a precondition for removing poverty, has not been fostered by the SAPs. Between 1982 and 1998, the IMF and the World Bank gave 10 or more structural adjustment loans to 36 nations, however, the growth rate of the median income level across these countries was zero.

Debt Dependency

"Africa, the world's poorest region, pays the richest countries $15 billion every year in debt servicing. This is more than the continent gets in aid, new loans or investment" states under the IMF led Highly Indebted Countries Initiative (HICI), a total loan amount of $100 billion accumulated by 35 African countries was written off, to reduce the debt burden on these countries. This was in response to the great difficulties many African countries were facing in repayment of outstanding debt. They were in a vicious debt trap which was making them debt dependent with serious socio-economic consequences. The debt of the African continent after the implementation of IMF's SAPs increased by 500 percent to $333 billion in 2014. Debt dependency is a system of integration of developing countries to the world economy which is decided and controlled by wealthy nations; any attempt to escape this control is thwarted using economic sanctions or military intervention. Developing countries, initially seek funds to bolster their developmental needs which they are unable to fulfill on their own. Subsequently, they may encounter difficult times such as a financial crisis or natural calamity, requiring them to resort to external help again.

Lack of Industrialization

The African continent has not undergone industrialization as much as other parts of the world. This is despite the continued economic support of the IMF and the World Bank. "In 2010 sub-Saharan Africa's average share of manufacturing value added in GDP was 10 percent, unchanged from the 1970s." Initially, import substitution was discouraged as a free trade economy was considered to be the best way to generate wealth for the world. Protection, in the form of tax breaks and subsidies, was taken away from local industries. These industries were ill-suited to compete with other international organizations due to endemic inefficiencies. Further, imports needed by these industries to undertake operations became prohibitive due to local currency devaluation, also insisted by the IMF.

Dependence on Natural Resources

African nations have been dependent on their natural resources, with 80 percent of exports in most African countries coming from only 2 to 3 commodities. The IMF and the World Bank, through the SAPs, have pressed African nations to export their natural resources to earn foreign exchange. Exports originating from Africa increased four times from $100 billion in 2000 to $420 billion in 2011, with 75 percent coming from commodities. This i...