In the following post on LinkedIn, a contributor discussed how African governments are running a “short” on their own currency. He used Ghana as an example and cited how a couple years ago they experienced 52% inflation, and the main contributors were the imports of certain agricultural products since they were brought in dollars. He then urged that Ghana can produce these goods locally to break the cycle.
And the cycle as enumerated by Isaac Marshall in the post was as follows:
→ Sell local currency to import staples in dollars
→ Local currency depreciates
→ Imported goods get more expensive
→ Inflation spikes
→ Banks raise interest rates to combat inflation
→ Local borrowing cost hits 30-40%
→ Domestic companies can’t compete due to high interest rates
→ More imports fill the gap
I reflected on the post above, then drafted the following:
I appreciate the speaker discussing the topic of “African governments…running a constant short on their own currency.” However, he starts this horror movie in the middle and not the beginning! What do I mean? Let’s go to work!
First we must research the loan conditions associated with the World Bank and IMF, which often involve removal of subsidies in key productive sectors of the economy required for self-sufficiency. In agriculture it causes domestic produce to be more expensive than foreign ones (which ironically receive subsidies), thus incentivizing imports. It is only FROM HERE that the horror movie the speaker mentions follows of “selling local currency to import staples in dollars”.
The main issue is not just domestic agricultural production, but especially freeing oneself from the nefarious financial conditions of these institutions who incentivize the vicious cycle. As long as you need money from them, your fate is likely this vicious cycle. We must understand the objective of these institutions is to keep your economy in this vicious cycle!
I recently wrote about these institutions in relation to the praise the World Bank gave the Tinubu Administration in Nigeria for their “reforms”, which will soon be experienced as “deforms”.
https://lnkd.in/gC64cgxc
As revenues from productive sectors decrease, reliance on imports increase. More currencies must be sold, further depreciating its value. Less revenue is less funding for the national budget, so as loans keep increasing as a percentage of GDP, like a cancer the interest keeps metastasizing. If you struggle to pay the loans, you will be compelled to privatize and sell critical national assets and resources for foreign capital ownership. And a weaker currency means more local assets for fewer foreign currencies in a shrewd form of economic colonization. Here we enter stage 2 of this vicious cycle!
We must be perfectly clear: African countries cannot reach their developmental potential by following the policies of these institutions!
You see, us African nation-builders are like a constellation of eyes…we stay watchful!👀
Osagyego Dr. Kwame Nkrumah already saw this decades ago. Ghana was on the path of self-sufficiency. Then some fools overthrew him in a coup, reversed his initiatives, and plunged Ghana into the abyss of economy infamy from which they are today still trying to resurrect. Today some African
governments are taking commendable steps toward sovereignty and self-sufficiency. By the nation-building powers vested in me, I hereby bestow a laurel wreath upon them!
African nation-builders today—those active and in quiet preparation soon to emerge—already understand the assignment! The call is to carefully survey the governance landscape, implement strategy to gain office, and thereafter we know what to do for African nation-building!
Onward & Upward!
~Dr. Ikenna A. Ezealah
JD, PhD, MBA
Builder of the African Future
Nation Upbuilding 