Cost inflation as Africa's economic headache

Economic is far from a dead stable body of theory and knowledge. It is the research of today that will make the better text books and the better world of tomorrow. George Leland Bach, American economist

Irony of the debt burden
Socrates it is said once remarked that "If you want to argue with me, first define your terms" This statement is more valid in our present times than in the ancient days of the Athenian Philosopher. Inflation as an economic term is more intriguing in definition than literary assumed by many economic theoreticians today. Simply put, however our classical tutorials define the term as "A rise in the price level of currently produced goods and services in the gross national product". If this definition serves dialectical purpose as a basic hypothesis, then how can the phenomenon of inflation become the economic headache of Africa?

Africa economics in post-colonial times are invariably dependent on foreign loans, subventions, grants in aides and subsidies to enable African governments overcome the huge in-built deficits incurred from internal and external borrowed monies, which regularly feature in national budgets as formal income and expenditure balance sheets and potential development assets only to receive parliamentary approval under majority acclamations in order to buttress entrenched political hegemony and ensure the sustainability of political power.

This analysis is, therefore, development-focused and underlines the political economic factors and their social effects and associated problems related to speeding the rate of economic growth; especially their back-lash of depressions in the economy, through increases in taxes, the inability to stimulate investments and reduce the level of unemployment. Other side-effects are obvious, in terms of deficit financing, internal fiscal adjustments and deregulations to balance the national budget, while servicing huge accumulated debts incurred through internal and external borrowings. Indeed, there is a dilemma indeed for African governments as to what to do and not to do, in their peculiar under-development predicaments. What this analysis connotes is that, generally speaking, all development initiatives of African governments, without exception, manifest in accounting terms as cost centers which decreases the sum total of returns on the investible capital of the gross national product, expected to yield sufficient funds for an otherwise self-dependent development, without resort to internal or external borrowing. These as often occasioned and characterized by profligate spending in turn constitute a vicious circle of recurring inflation, unsustainable and astronomically alarming in proportion. These also, assume, levels of impossible management, beyond which it is just futile for successive governments to resolve under whatsoever economic agenda is formulated to attract "bail outs" under the vigilant scrutiny and supervision of the World Band, the international Monetary Fund or to a lesser degree, the African Development Bank to put Africa economies back on their feet. Conversely however, as currently evident, all these measures turn out to be failed alternatives in borrowing experience, only perpetuating the dependency debt burden with severe social consequences.

Here again, the critical irony of this analysis points to the fact that the situation presupposes a resort to high-handed measures by African governments to introduce Bonds and impose heavy taxes and levies on the consuming public, including occasional fiscal manipulations of the banking systems, especially the major fiduciary authorities of the Central Banks.

In effect, these panicky efforts by African governments to their huge deficits in their development expenditures results in face valued exchange levels of the currencies already on the downwards trend of depreciation with consequent unbearable cost effects on the average wage-earners and consumers.

The cumulative effects
As a sequel, the external debts incurred through balance of payment deficits of imports and export continue to build up cumulatively to exacerbate an already huge domestic debts, which engender depressions in the economy with resultant currency fluctuation which affect the micro-economic dynamics of the buying and selling commodity market, as seen having their telling effects, that even set me Stock Exchange system in plummeting disarray.

Nothing whatsoever in these economic graft analysis down-curve can escape the symptomatic equation of the criterion set for cost inflation as defined by classical economists to mean the rise in price levels with consequent harsh effects on consumers, which also substantially, unsettle the wage mechanisms and undermine, the fair and equitable distribution of the national income.

What at all then is the embattled term 'development' in Africa, if this is merely aimed at receiving the accolades of achievement by leaders of state and government, only to ensure they stay in power? The tendency is to accelerate development at redoubled pace, while sources of income get thinner and thinner than cobwebs. The conventional development norm demands that development must be allowed its normal phases of realisation, within its practical and realistic time-frame under short and long-term planning.

Africa, on the contrary, forces its development stallion to gallop far beyond its possible capacity. This haste-impelled development agenda, in turn, rebounds as an inflation albatross in depressive economic term, on the consuming population without foreseeable end.

In this context, however, and as an irony, the developed economies of Europe and America can easily contain or manage and sustain elements of cost inflation during incidents of high employment and continue to maintain reasonable price levels. This probability is just impossible in the developing economies of Africa where development is an apology for mounting unemployment and its consequent austerity measures untaken by African governments to salvage a plummeting economy.

But in spite of all these Euro-American phenomena, these countries are frequently confronted by the dilemma of increasing aggregate demand for employment, which in turn generates inflationary propensities as unemployment decreases. In this context, European and American economies are volatile as inflationary tendencies become the regular co-efficient of economic growth.

Obviously, this could be also symptomatic of the industrial efficiency and customer opulence of these developed economies, supported by advanced technology and scientific innovations. But the proverbial copy-cats of Africa have shut down their state-owned industries and sold them for private profits, having been warned by the captains of industries in Europe and America that they must do so otherwise they would cause fatal unemployment epidemic in their countries, as happened in Ghana after the 1966 coup d'état.

Comparative inflationary characteristics of European economies

In debatable terms, however, the high incidence of inflation in the development economics rather serves as economic downward trends, attendant by labour unrests, which are normally products of the free market systems. These could also be inter-linked with fluctuations in the prices of the major world commodities, like those from the Middle East oil magnates which alternately serve as economic barometers for the exchange values of the major currencies of the world.

As it is, we cannot apply all the inflationary factors of Europe and America to Africa, especially the incomparable incidentals peculiar to African states, still struggling under the throes of under-development, which deficiencies continue to be blamed on former colonial powers.

What then should be done to reverse these adverse trends which continue to characterize the development agendas of African governments? The soluble alternatives are diverse, sophisticated and compelling in their differing exigencies and at times appear so intriguing because of the nature of political interference and their corruptible vested interests in the development phenomenon. These factors also exploit the vulnerable fiscal policy determinants of governments to manage their lean economic resources which positive sides are rather compromised by internal vested interests to negative dimensions which make the application of state resources to the planned development agenda impossible if not a deceptive and wasteful appropriation of the gross national income.

Given this intractable context, therefore, just and equitable distribution of the national income is impossible in terms of the invisible leakages in the pipe-lines of the national cash-flow of African economies and their inability to determine the actual national imputes against outputs of the gross national product. Thus in this situation real equity in the share of the national income cannot be possible to match the lean, if not, in diminishing equation with national capital investments. These factors also seriously affect the pre-requisites for sustainable demand and supply cycles of economic activity at its functional level of the ordinary consumer whose market surveys and price-index analysis are so often distorted and manipulated that they fail to portray the actual states of the micro-economic phenomena. In other words, they conceal through official data the real poverty level of unemployment and in particular those of both urban and rural wage earners, including the teeming numbers of cash-crop farmers; while the lot of the urban middle classes cannot be any better equated in sustainable economic terms.

The industrialization dilemma
By taking due cognizance of the foregoing analysis, one key factor again rears its hydra-headed soluble alternative by pointing firmly to the urgent need for the industrialization of Africa; but seems to ignore the attendant odds which are predictably many, and which recall once again the solid foundations laid in industrialization by a nation like Ghana in the sixties as the prerequisite for economic growth; and, which were phased out through outright sales for the profits of private pockets. How can African government dare the odds of industrialization again before the iron-fists of the Euro-American captains of industries and their financial giants of governments and private lending partners?

Can it work?
The African Development Bank (ADB) President Akinwumi Adesina, while addressing the NEPAD Heads of State and Government Orientation Committee at the January, 2016 African Union (AU) Summit in Addis Ababa proposed a solution to the vexed question of the industrialization of Africa.

"There is an urgent need for Africa to rapidly diversity its economies - and add value to everything it produces. Exporting raw materials only lead to vulnerabilities - and no nation or region has succeeded by simply exporting primary commodities. Africa must create industrial growth engines that will propel it to become competitive in manufacturing. I am pleased to note that several countries are moving in this direction-a good example is right here in Ethiopia. The bank will support private sector financial market development, rapid industrialization of Africa and help Africa move to the top of global value chains," Adesina pledged.

The industrialization dream is now again being fostered in hopeful dimensions by the ADB. But can the deleterious realities of the Euro-American dominated global monetary and economic system that is opposed to the rapid industrialization of Africa allow present audacious initiatives of the ADB to survive or succeed?

The premium placed by the African Development Bank on rapid industrialization in Africa only underscores the old rationale for economic self-dependency and growth by African nationalism of the immediate past as pre-eminently propagated by leaders like Dr. Kwame Nkrumah. If the African Development Bank and other political and economic grouping such as the ECOWAS and the NEPAD are now prepared under new urgings and predilections to rejuvenate the old dreams of African nationalism, then they must be ready to face the realities of contemporary global market polarization in terms of monetary and financial instability as cost burdens in the exigencies that will condition their various economic efforts to debt scenarios and impel all initiatives to achieve self-dependency and economic growth.

African governments must therefore look before they leap and be aware that the entrenched hegemonies of the old world of colonialism are still in control of the economic destiny of the world and more forcefully determined than before to dominate global production and hold trade, marketing and tariff determinants at ransom as monopolies, including the fixing of price and currency levels of the capital market and even their fiscal and monetary exchange relations. Above all these African governments must find new ways of foreign political or economic unions free from the trammels and concepts of the European Union and prevent or end the dependency factors as raw materials producers for the substance of European economies.

All said and done, however, the frightening ogre of cost inflation remains the dark shadow which trails behind all African development initiatives without exception even in whatever way African governments reconstruct their economies under rapid industrialization, free from external borrowings and exploitation by capital investments. Beside other factors however, African governments should not be impervious to the causes that generate industrial conflicts related to the cost inflation phenomenon in which African organized labor is regularly flexing its muscles under threats of strikes as the result of lean and unsustainable income levels against the inability of employers, both in the public and private sectors to meet cost levels of low productivity or dwindling margins on investments.

Inflation and corruption
Inflation is hydra-headed and other factors like corruption are deeply embedded in its African economies. Inflation actually serves as the brewing pot of corruption in Africa. It produces the nourishing elements and ingredients through the micro-economic system as the main supply source for the most essential commodities, whose supply networks are so manipulated that they first create scarcity in the market; and, thereafter release these to consumers in piece-meal uncompetitive manner in which price levels are only determined through and by monopolies covertly operating is both public and private sectors of the economy. On the other hand, where national governments on their own set price levels through tax increases as incident upon debts incurred from external borrowing which are passed on to consumers, a state of panic is caused at the micro-economic level, where cost inflation assumes speculative dimensions and sets the free-market system not only in disarray but create devious avenue for indiscriminate price-setting in which the highest bidders are normally the hoarding syndicates who assume monopoly over the most essential commodities necessary for day-to-day survival. In this way, all official regulatory measures are virtually unenforceable and impossible to stabilise the volatile market; and only strengthens the speculative power of racketeers to exploit the vulnerability of the markets to weaken further the chain of supply so that demand cannot only be satisfied if not channeled through corruptible hands at exorbitant profits which escalates the cost inflation phenomenon of the national economy itself. Without exception African cost inflations are generally induced top-bottom by African governments, and characterized by corruption associated with economic unsustainability and devious negative social effects that undermine economic growth.

The global conformity syndrome
In spite of all these divergences in Africa's social and economic systems the global economies and their investible contents in capital and labor mutually coincide at levels which not only instruct but influence all nations whether capitalist, liberal, socialist or communist; or even as reflected in the African inflationary economies, but not lacking in efforts to achieve high profile in democratic values. And these are recognized in concert with the advanced economies of the world by the importance placed on their human factors as essential beneficiaries of their gross national products.

Communist China in this context, like Russia in post-revolutionary times, as consistent with and measured by application to communist values, commit considerable resources to its human welfare system. As an irony, however, and seeming ideological contradiction, communist China, like its Russian counterpart, is surprisingly showing pragmatic shifts from orthodox concepts to accommodate billionaires as harbingers of state-controlled capitalism which now incorporates individual affluence as far as its capitalist entrepreneurship serves the national economic interest in their gross national products.

On the other hand, capitalist America is also showing pragmatic shifts from individual and corporate capitalism to adopt some aspects of the social welfare-state concepts, which were viewed anachronistic socialist propaganda in the past.

Comparably, perceived in this sense, the assimilation norm is virtually catching on as the order of the day as world economies tend to show an integrative and collaborative desire despite their different social values to assimilate each other by acknowledging the indispensability of globally shared experience as underscored and mutually cherished through co-operation and not necessarily conditioned or influenced by ideology. In this manner, hand-line ideologies or concepts previously based on super-power assumptions and global rivalry are subsiding and giving way to mutual co-existence as pre-requisites for global security and peace for the survival of the human family.

These shifting sands in erstwhile global ideological contentions have today shown America selectively and pragmatically reconstructing some essential aspects of its value system under common or global expediencies and shared experiences in human welfare systems that are similar to those of its prime competitors like Russia, China, Britain, Germany and the Scandinavian countries who have long fostered their different economic systems, social security benefits and other welfare incentives, on their gross national products.

The African predicament and future hopes
On the contrary, Africa evidently is the cause of its own predicaments, despite the evil legacies of colonialism. This is because, as already emphasized, Africa's so-called post-colonial development initiatives are overwhelmingly and actually veneers for political power at the expense of the state which subsequently impoverishes the urban and rural majority of the low-income population, who constitutes the productive as well as consuming elements at the micro-economic level. These are the very determinants and the dynamic social forces of the economy at the primary base whose sustenance is severely threatened by the cost inflation syndrome. These are also the same factors that underscore the cost of living dilemma, between income and expenditure because of their marginalized income levels; which become unsustainable as the national debt increases beyond bounds, and thereby passed on to the consumer through taxes, levies and invisible extractions from wages and salaries, including added values (VAT) placed on commodities which inevitably engender circles of currency fluctuations and their depreciation. Or, in inconceivable terms, provide the excuse to print and infuse into the economy more paper money which become the agonizing exigencies of the national banks, irrespective of the real sustainable growth of the gross national production as asset, relative in ratio to the stock of extra paper money released for circulation, a factor definitely and consequently a recipe for exacerbated inflation.

To sum up, it is necessary to underscore the fact that Africa's challenges today cannot be successfully encountered and resolved through functional or bureaucratic or polarized vested interests within the state machineries or the net-work trappings of the private sectors of the African economies; especially if these are motivated by the desire to perpetuate political power or satiate high-falutin ambitions for affluence and social eminence.

The future therefore demands an informed emergence of social forces at all levels of the social strata, vigilant, critically questioning and sensitive to ideas, concepts, and slogans which serve as front banners of political aspirants scrambling for power. This national concourse must be identified beyond the narrow cleavages that adversely influence and inform the politics of Africa today. This must be forged under a leadership borne by inspiring vision, which embodies modesty, confidence, integrity and diligence; and, capable of trailing behind it, all political and socio-cultural tendencies, beyond linguistic concentricity, ethnic pride and self-centered conservatism, including clan and tribal loyalties and above all disentangled from all backward legacies of feudal hegemonies which are backlogs of the African past.

A new leadership is indeed required; and, must be impeccably committed to Africa as limited to the country of service, motivated by the spirit of self-less duty to state and nation; a leadership that is bold, broadly knowledgeable in the sciences and the humanities. It is one that must be of unsullied integrity and determined to lead each African nation free from economic servitude and shackles which compel indefinite subservience to the debt burden of economic dependency. Such leadership qualities must therefore be able to usher in a new era of economic and political self-dependency which can ensure high values of democratic culture and inspire that concord of social conformity determined as a national commitment to industry for sustainable economic growth and prosperity for all.

. Heymann is a former trade unionist, diplomat, corporate executive, author and former student in labor studies of the London School of Economics and Political Science