The End of an Era: How the Global Commodities Slump Left Africa Hanging
Nigeria needs money. Specifically, it needs $3.5 billion worth of cash flows for their $15 billion government driven deficit. The recent global oil glut has left Africa, and especially Nigeria, competing for oil contracts in Asian markets. Other countries, like Kenya, are facing similar untimely crises as the decade-long commodity boom is coming to an end. Before, growth in Africa relied upon the abundance of land, which left no necessity for advanced infrastructure or substantial growth in other sectors. Dependence on uncontrollable factors, it seems, has left Africa’s largest and most advanced economies in the early stages of economic stagnation.
Emergency financing is the way to go, at least when no one wants your oil and other commodities are no longer providing other means of explosive growth. For Kenya, turning to the International Monetary Fund seems to be the best option, seeing as they bailed out Ghana to the tune of $1 billion and did the same for Mozambique. The bailouts by the IMF in Africa began with smaller nations – the relatively unstable economies and governments. The progression lead to Zambia’s finalized arrangements of a bailout following summer elections, and now, Kenya has followed suit.
Nigeria, hoping to make steps in the right direction with a stimulus package, is asking for $9 billion, but turned to the World Bank for $2.5 billion in order to avoid stricter bailout guidelines from the IMF. But is the bailout even all it’s cracked up to be? Past experience with the European Union makes one wary, despite all the promise of economic stimulation, but the bailout in Zambia actually led to 20% of people becoming poorer than before.
However, Africa’s biggest and arguably most successful economy deserves the benefit of the doubt. Especially when it’s striving to build something of lasting value, not just looking for a temporary fix for the oil problem. Nigeria has long-term structural and development needs requiring investment. Income from oil has driven up the monetary exchange rate and hindered economic diversification. It has also tremendously hurt the quality of government, where politics has been an ongoing fight to control oil revenues instead of creating economic policies that transcend the state of present affairs.
Nigeria requires payments in the interim to support long-term development. The World Bank will continue to involve itself in Nigeria, but the IMF is what the nation needs in this fragile state of pre-crisis, especially if it seeks to avoid a full crisis. As Roger Nord from the IMF put it, “The top management of the IMF sees it as important to signal that, as the global situation becomes more challenging for Africa, we are there to support them whatever way they need.”