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The Horn of Africa States New Financial Perspectives

By Dr. Suleiman Walhad
February 15th, 2023

Now that the African authorities are meeting again in Addis Ababa for the Annual recontre of the continent’s leaders, it would, perhaps, be opportune for the heads of governments of the Horn of Africa States to have sideline meetings to discuss the peculiar characteristics of the region and its particularities. Even if they are frightened off from meeting each other, sideline encounters would not affect them, negatively or even politically but would be good for them. The Addis Ababa encounter during the coming few days (18th to 19th of this month) would be crucial for the region, as the continent, once again, tries to find its way, in this harsh world, where the strong trample on the weak.

Existing global arrangements are not in favor of the weak and are organized in such a way to serve the more powerful countries, because they won the Second European War, duped as the Second World war. The systems they laid down was generally unfair to many newly independent and developing countries and this has been generally maintained over the past eight decades.

The continent, in general, is charged higher for borrowing funds from the outside and its own resources and funds are channeled outside to serve other nations and not those who own it. Every bank in Africa, commercial or otherwise, has to deposit its hard earned hard currencies in some country somewhere but mostly in New York, the United States or in Paris, France or London, United Kingdom and in Geneva, Switzerland, and other capitals of Europe. Few take their monies to the newly found countries of the oil belt in West Asia and mostly in Bahrain and Dubai.

Lendings to Africa usually attract higher charges despite the fact that they are mostly cash collateralized compared to other similar higher risk countries elsewhere and their creditworthiness are mostly carried by opaque foreign owned credit rating agencies who have no clue on what ticks the African or the African environment.

A perfect example was the denial of international finance for the Grand Ethiopian Renaissance Dam (the GERD), which forced Ethiopia to seek resources for funding the dam from internal sources and this is where the region and the rest of the continent should be following and emulating. There are plenty of funds in the continent and they are scattered but could be gathered and collected to fund and finance important projects in the continent. It is only then that international financiers would seek the Horn of Africa region and the rest of the continent to share in the wealth to be generated from the HAS regional financial business or the African one per se.

Africa should create regional financial institutions that collect the surplus funds in the continent and maintain such funds within the continent at least in some of the major continental currencies and buy sell to each other in these continental currencies. It could be the Nigerian Naira or the Ethiopian Birr or the South Africa Rand. In the Horn of Africa States, funds circulating in the region could be used to finance vital projects such as ports and rail and other infrastructures. They do not need the Chinese or any other party to over charge them and take their wealth at generally below international prices, because they financed a mine and took the minerals.

There is no element or mineral which is found alone and single in large quantities anywhere. Every mineral usually is in a rock or sand or some other compound and when smelting, breaks down into its various components. A quartz found in a particular place may include gold, chrome, iron ore, sand or silicon and so on. A dark stone of coltan may include chrome, gold, iron ore, magnesium or other minerals, in addition tantalite and columbite. The mineral may be bought simply as coltan or chrome and not its component parts. It is where Africa loses and loses heavy.

It is perhaps time the Africans and the Horn Africans in particular, carried  the smelting processes before exporting minerals to the outside world. It is how more wealth would be built, instead of exporting just raw materials over long distances to buy it back from the same parties, the finished products at much higher prices. In the Horn of Africa States raw iron ore may be exported and finished steel products may be imported at exorbitant prices. Why should they be doing this again and again?

The Horn of Africa States and for that matter the African continent, can make its own financial instruments, where countries that need funding for a project can draw on these instruments just as they do with international instruments such as the special drawing rights of the IMF. Africa should fund itself. There are those who have funds in the continent and there are those who need funds, and they should work with each other and lend to each other. Certain matrixes with respect to African credit ratings should be developed within the continent. Africa is still a moral continent and is not based on credit matters only. Many times only a word counts more than any paperwork. One can go to Hargeisa or Mogadishu and one would note that funds and large amounts being transferred only on trust or would also find many bureau de changes on the streets with large outlays of funds in the open with no protection.

In Africa, there are thieves as there are thieves in the rest of the world, but the continent has not reached the levels of thievery in the rest of the world. It is far behind, as it is far behind in many other things, and it should take advantage of its moral assets, instead of begging international institutions and foreign banks that have no inkling of the continent and the wealth they could make, if only they were more reasonable.

There is no need to call for change in international institutions. They all need Africa, which must put its act and house in order. It is why we call on the Horn of Africa leaders in the African Summit this year to work on regional mechanisms to employ funds scattered in the region for regional development. There is no need for international finance for funds and wealth is already available and wealth creates wealth and so the region can develop more, creating more wealth. It would only be then that international finance would come chasing Africa and the Horn of Africa States to share in the wealth instead of the reverse.

They usually throw up numbers on how much Africa needs for its infrastructures or development. No one knows what Africa actually needs. It may be more than the numbers they throw up or much less. It is only when the African works on measuring its resources locally, and diligently not using the false indicators usually put by non-African parties who say an African can live on US$ 200 – US$400 per year, a range as false and unincorporated as it can be.

Each region or province within a country can actually measure its resources by collecting the funds scattered in the region or province, setting up its own local bank, which only finances its region and not elsewhere. These local regional or provincial banks can then work together within a country to finance together the larger projects within a country and the larger financial institutions in a country can work together with financial institutions with neighboring countries such as the Horn of Africa States region and there they would be able to finance a large part of all the developmental and business projects, both public and private, in the region of the Horn of Africa States and for that matter the continent.

Life is not complicated but people make it complicated. It is simple to live with your neighbor and seek shelter from each other instead of appealing to parties that are not known to you. Why should not the Horn of Africa States work together instead of each country seeking assistance from distant countries that have their own interests perhaps not good for the region at all?

I sometimes wonder what the ministers of finance do. They would generally be economists, financiers or just politicians trained in the ways of Sartre, Machiavelli, Adam Smith and Keynes and…. And……  and maybe none. But they do not look into their local set ups and their village gatherings and how their parents and grandparents and the leaders of their communities handled their basic needs. It was just being human. Why do they need to copy someone talking from a completely different perspective?

The Horn of Africa States as the continent would also do, should be able to provide electricity, education, health services, to its citizens,  and to its farmers, fertilizers and agricultural implements and raw materials to its industrialists. The Horn of Africa States can pay off all its foreign debt if they use wisely its local resources and convert it to local finance and it would not be begging for finance for its developmental projects.

Complaints and appeals would not solve the Horn of Africa States matters. It is the Horn of Africa States that has to solve its problems and they can do it. They have to have the will to do it. Old prejudices and keeping grudges would not work and should be discarded. The region and the continent must live in the world of today and not in the past of “They did this to us!!!!” The blame game does not work.

The UN Economic Commission for Africa (ECA) liquidity and Sustainability Fund would not work, but they would still be talking about it when the Ministers of Finance of the Horn of Africa and the African continent should have been busy raising funds from local sources. The World Bank Group and its sister institution, the IMF would definitely lower charges, when they notice that Africans are no longer reliant on them. Pay reasonable prices to local lenders or regional lenders from the continent to pay off international debt and use local resources. This is the solution for the Horn of Africa States and the continent.

The large outlay of funds that leave the continent in the form commercial, investment bank and personal deposits with non-African countries hurts the continent as much as the high charges of international finance. They say some US$ 100 billion live the continent every year and may be larger.  This would be curtailed to a significant extent, if local resources are used to fund local developmental and commercial needs.