tummr*
IUNITEfr NATIONS ECONOMIC
SOCIAL COUNCIL AND
Distr.
LIMITED
e/CN,14/AMA/10 /4//
16 December 19 65
Original: ENGLISH
ECONOMIC COMMISSION PCH AFRICA Conference of Governors of African Central Banks
Addis Ababa, 15-22 February 1966
LiLAKCE 0? PAYMENTS PROBLEMS OF AFRICAN COUNTRIES
-584
B/CN.14/WP.2/3 e/cn.h/ama/io
TABLE OP CONTENTS
Paragraphs
FOREWORD
I. INTRODUCTION - THE NATURE OF THE PROBLEM 1-15 II. RECENT TRENDS IN TEE CURRENT EXTERNAL TRANSACTIONS
OF AFRICAN COUNTRIES - THE CURRENT ACCOUNT 16 - 70
Visible trade 18 - 36
Invisible trade 37 — 67
Transfer payments 68 — 70
III. REDUCING THE DEFICIT - COMMERCIAL, MONETARY AND
FISCAL POLICIES 71 -102
Quantitative restrictions 72 - 75
Sxchange control 76 — 7^
Import duties 79 - 81
Currency devaluation 82 - 87
Deflationary and counter-inflationary policies 88 - 91
Export expansion 92 - 93
Production policies 94 - 95
Income policies - 96
Price policies 97 - 98
Marketing policies 99 —102
IV. FINANCING THE DEFICIT - THE CAPITAL ACCOUNT 103 -121
Foreign financial resources 104 -111
Drawing on reserves of external currencies 112 -114
Other measures 115 -121
CONCLUSION 122 -125
APPMDIX TABLES
E/CN.14/WP.2/3 ///
. , . FOKLitfGRD . .
This study is carried out in prosecution of item IV.A.ii.75 ° Commission's Programme of Work and Priorities 'for 1965-67, A study of balance of payments problems of African countries was called for by
several resolutions adopted by the Commission over the last five years -
resolutions 30(lIl)\ 87(v), 95(VI) and .128(vil)4 Resolution 95(Vl) called on the secretariat inter alia ''to prepare, on the basis of the information
collected from member States, a complete and accurate survey showing their monetary institutions, the difficulties experienced in effecting their
financial settlements, both between each' other and with outside countries
and the means of remedying the situation" <. - - ....
The "Survey of Monetary Institutions", document' E/CN.l4/STC/AMA/2 was
prepared and submitted to the meeting of African Monetary Authorities held in Tokyo in September 1964. The document has been brought up-to-date and ..is being submitted to the Conference of Governors of African Central Banks.
A "Progress Report on a Survey of Intra-African Payments Difficulties" has also been prepared, the main upshot of which is to draw attention to the need for more co-operation from member countries in providing the secretariat with the needed information*
An introductiory paper on balance of payments problems, "Progress Report on Balance of Payments Problems of African Countries",
E/CN.14/lu/eC0P/3, was prepared and; submitted to the Sub-regional Meeting
on Economic Co-operation in 3ast Africa, held in Lusaka in October I965.The intention there was to put the problem in its proper perspective, and also to induce all member countries to supply the secretariat with informa tion on their payments difficulties.
The present paper attempts to bring into clear focus the predicament of African countries faced with balance of payments problems and to throw into relief the necessity of devoting deserved thought and effort towards the alleviation and eventual solution of these problems. The study is based on an analysis of trends in the various components of the balance of payments of African countries, an examination of the various measures that
- 1 -
&
•
E/CN.14/WP.2/3
have been tal:en to eliminate or reduce deficits) including import
restrictions, exchange control operations, currency devaluation and other measures of income, -price, production and marketing policies, and on an assessment- of the inflow of foreign financial"resources 'and!"the terms on which these have been'made: available. - 'It is hoped that 1;he appraisal made will facilitate formulation of policies to achieve more"stable long-term equilibrium of-payments without depressing'the rate' of'growth of African economies* ■'■•■' '■ '-..'.;-_■.-'" - - ■'■ - '■"• "-' "'""• ''"■■-■ ""■"'
^ In working out and surveying recent trends in balance of payments difficulties great resort has been made to the' IMF Balance of Payments Yearbook, mainly because the information'is classified' in'"a"standard manner
making possible inter-country comparison. The IMF Yearbook, however, does ..ndi.. cover all countries?-1 National publications-"have, therefore, been
resorted tov But -for someJcountries, particularly French Franc Zone members, there 'are no national publications yet on the subject. One available source
"for the latter countries/ La-Zone Franc-'-'a publication "of the Franc Zone 'Honetary Committee1 - Ogives only net -balances, and also, as far as their
transactions with other Franc Zone "countries' are concerned, it combines the countries in groups belonging to the same ""monetary union, thus BCSA.0 and BC3AIJC countries. Only transactions with non-Franc Zone countries are shown by individual countries. These countries have become members of the International Monetary-Fund^ .and some have,, with the help of the latter, made .the-..endeavour. of presenting balance of payments .data on a global basis.. This, however, .was initiated.-...only in I963 or 'after. ■
11 —
V
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E/CNV14/AMA/10
I. INTRODUCTION - THE NATURE OF TBI; PROBLEM
1. It is sometimes asserted that African countries need not have
"balance of payments problems, that they (African countries) may have
balance of payments deficits and that these deficits are innocuous .when they are covered ahead o'f time by foreign loan-s'1 "anu-d_..If it-is at all meaningful -4to make a distinction-between balance of payments problems and balancevof .payments innocuous def-ibits, it .should :be-at once made clea^^.thai;-most Afri-Can ■■Countries have balance
of payments problems, more ■technically known--as structural disequilibra.
True the consequence of the -disequilibrium, is,a deficit. . However, the deficit in most cases in Africa is not ..an innocuous one, if by innocuous is meant the absence of any ..such repercussions ..as. may be .considered injurious to the maintenance of the v,a.lueA of:currency, the, proper functioning of the. monetary .mechanism, and above, all t,o .the continuity of the process uf ..economic de,ye.lQp.ment,.. ; ;. . .. .- .. .,
2. .-. A fundamental Qontentiort'Of'^his paper is that it, indeed, is not meaningful to ^dwell qn cLis.tingu.ishing between harmful and innocuous;
balance of payments problems ,wlien discussing situations ..of, ..developing countries in the course of implementing comprehensive development program mes. It may however, be useful to differentiate certain types, of.balance of payments defioits. Apar.t from the ..purely academic interest in an exercise at definition, such^ differ..entiatipn: helps t.p bring, :t.o. light, the exact predicament;, of African countries, in .balance of .payments, deficit.
Here, the question, at hand is not that of whether, .the. ..deficit is due to an excess in autonomous outpayments over autonomous inpayments in which case, according to Meade, it would'be'a true deficit, or to an excess in
.-t. ■ ■ - ; ■.■:-■:■;;,- ■ r ■■•- ■■ ■ • " .. .h*i,":< -L
accommodating pp.yncr.ts o;..c:? c ic-oT^odating receipts in vhich case the deficit
■.■■>■: ■ j. -■.■■■:- ■■ ■ ■■-, ■ 0/
is not only untrue, but by Meade's token is in fact a true surplus.—' It need not be laboured that it is in their autonomous transactions that the
. .-0_: ■ ■ - - ■ ■ ■■ ■ :- •■•v'^.j-o . ■ ■ ■ '-si™ .70:.-*-i
source of balance of payments deficits of African countries is to be found.
Tliree types of the "true" deficit can be distinguished:
1/ Erin E. Jucker - Fleetwood, Money and Finance in Africa, George Allen
and Unwin Ltd., (London) I964 Ch.XXY.
2/ J.B. Meade3 The Balance of Parents, Oxford University Press, 1955.
E/CN.H/WP.2/3 E/OTe1/
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(a) Planned deficits this occurs when a country deliberately
allows its autonomous outpayment&..-to exceed- autonomous . : , .inpayments, and finances: the gap-out of accumulated reserves . and/or. ascertained foreign :spur^es:. ■■ ■• :<-. -■-...■;
Acc-omrtfoaated- unplanned deficitr'this occurs when tie excess of auton-dMouS-outpaymentS over autonomous inpayments "arising out of ho! deliberate lacfion by the'country is readily 'financed by an^infloir*)f foreign' Capital whether:it be' grants^ or loans,
kard'or T^ : R"'1 ^!v^v
...; __,...,.: ' °J Bxigent uJipj-anned,de^icit; this is a_deficit, arising ou± of
■ ... n° delibe5at^.actio?,Ori,..tlie,,Part f?f- the, country, which cannot
be readily eliminated^through accommodatingfinances., and;hence
^ ■ calls for emergency measures. The.latter .include: the.repressive
measures such as all types of controls over imports and exchange, and the equilibrating ones such as the manipulation of the
exchange rate and thV level of internal pricest costs and incomes.
3. It can be seen from the above that the unplanned deficits (b.) ,and (c) ,- lCdn be, eitHer temporary or chronic, depending on whether they, are., the result
" of transitional imbaiances such ^s mayf.Jfc>e due. to crop,(failure^, floods,
droughts and'similar other seasonal irregularities -or whether the ©ause is
,, a, real 5iS6(luilibrium: in ^he.s'tru°ture-anti growth of -.imp.ori;s ;and,,e^cpprts
a situation where the actual import propensity is, higher ,than,-.ih^..,feasible export propensity;" Both (b)andjo)^ can be. either innpouous, or harmful depending'on whether the deficit^ is_temporary or ohronic. ■
;/ A*-- :,Mo?'<eo^I'^ifc^?pJ-d be mentioned that due: •caution should^ be exercised .,., in.examining, the. consequences,of. what may be labelled" 'planned deficit'.
■ It is obvious..,that, there: is- a <limj.tr pastnwhich:; the ■ defidifbaSi K&no- longer :;!■ f?.^idered.a^Pi:annedro|or-instanee..,when the. foreign exchange1 reserves fall
o, below, the opnvenjipnallyoonsideped, minimum safe level,--1 Regardless of
whether or not it continues.■■tpc;b6lj^o»Sidered-a.^lanned defieit,1 oriee that
limit is passed it is inevitable the deficit loses its innoojiPttfiLJoharaoter.
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Several African countries especially those which had accumulated sizable foreign exchange reserves prior to independence have since deliberately run down their reserves in what appeared to be a planned deficit intended to finance development plans. The point has been reached, however, when the profound concern of these countries over the state of their external ,_, finances;' has .leftino/ doubt, as to whether any further deterioration can be ,-,: considered; planned ;action,v r i . -
5- Balance of payments deficits of the majority of African countries are -the result of structural disequilibrium and hence they are persistent or
chronio deficits. The shortfall in the external sector's current receipts
■ is a phenomenon which is neither temporary nor sporadic As recent trends amply indioate, the deficiency in meeting current external payments in Africa is oeteris paribus of a more permanent nature* Furthermore, this gap is generally widening,. It is pertinent" to consider the potential defioit since the actual deficits sustained by most of the African
countries, are repressed to somey usually1 considerable, extent,-' Presence .... of repression is manifest in the application of foreign exchange and import
controls which are not only widespread' but are increasing in intensity, 11 6. What is more serious is that the means of covering this ohronio and
growing deficiency are not always forthcoming. Contrary to the view held
2/ ■ - - ---■- ■ ■'■■■■ ^■-- •->,&■■-:■■ " '. ■ ■ ■■
by some-1', obtaining foreign Id&ns and grants is not one of the easiest
endeavours, least of all for the"African countries with balance of payments
deficits. Nor what has become available to Africa in foreign resources has always been adequate for the purpose of covering payments deficits.
Moreover, the cost of such foreign resources has imposed an additional burden on the already strained current earnings. The burden, consisting of debt service oharges and direct investmentr;transfers, has been growing,
l/ This is a case where the potential or. ..possible deficit is larger than
the actual deficit. See Meade',' op. cit.
2/ Jucker - Fleetwood, O£. cit. p. 292,
1
Page 4
and at an accelerated rate. ^ The1 effect of'al^'these fa6to^-ha-S contributed to or was ^exclusively^espon^^e^or the depletion of 'foreign :ex"cKaii£e
reserves5,---i&ich in-certain instances-hais assumeralarmingly'great proportions.
7. In the face^ of dwindling External reser^s'there ;are only ^few alterna-
tiw^nj coping with thVsit^i^ consequen
ces. If nothing is done, not only will the fall.jin' reserves"soon reflect
itself in a depreciation in the real external °("and probably also the Internal) Vaitt^of the- currency^^tiij^it -will ■aiW%cme^Ven^ally ^possible'cto pay
for SmportB %'f goods Ind'serviced to^lfe^isired 'ierVel^ 'liefauif iif ";r
also
renegotiation/ "or' r'escheduling
,isi; .2r®so^e4 .to, the quantity of exports may as it of imports be decreased,, But. given the
for typical African export commodities and their A^fCan. demand for imports, .-given E". these demands and. supplies'
elasticities, it is highly likely that the effect of devaluation will'be to
iihV fetaT import" bill." The a15 n'6t""'oniy- represent"1 a" iK^thter "strain
'Inflationary pt'e^sur^s which iVls 'ilke^ to" s& in mbVioFare not
^effectaVelrcheckeii thrOugh°Wpropriate mOn^l^rfin^^isckl policies. If delationary meaWure^s arV t&& they might rWsuiV in'^pafalyslng0 economic activity/ hebae "arrestirig the pr^bces^^of' development7;''j:" ' '"■
-.?."■- ■ °ne °Sei> ,al.tierriatjlv.e widely adopted!;i;s to reduce the. total cost of
imports of goods and services through direct quantitative restrictions - by means of quotas and licensing, often combined with inoreasecToustois""
duties, and, £$>*©iga, exchange controls..- Thi&.poii^r,;usuadly -suoceeds in
1/ Even if it has been possible to reduce total import payments and to
increase total export proceeds.
S/GH.14/WP.2/3
Page 5
achieving its primary purpb'se, i.e. cuttingdown -of -aggregate, imports.
However, it usually makes it impossible t& maihtain--^--high and: rising level of imports of capital goods and other'-intermediate production
goods (energy, raw materials and semi-finished gciods} required for the '"fulfilment of development programmes. For effe-ctive iresults, the policy
of direct import restrictions has in practice had to go beyond the
category of consumer 'goods; . . - .: .
10, Several observations are called for. In the first place, even though imports of consumer goods, despite a considerable fall in their relative share in total imports in recent years, still represent the major Category of imports of many countries, they cannot, however, be cut indiscrimina- tingly, for there is a minimum level of imported consumer goods which has
to be tolerated as major incentives to human efforts.11, Secondly, even if substantial cuts in imports of finished and semi
finished consumer goods are feasible, it is possible and likely that such a measure will affect the availability of capital and intermediate produc tion goods, and might thus frustrate investment plans. This can happen either direotly through shortage of supplies imported as consumer goods which are also of industrial use, or, indirectly, through the impact of
■:■■■-■■ •- 1/ .
a defioient total effective demand on investment decisions,-'
12, Finally, it should be remembered that although imports of capital and
intermediate production goods do not account in all cases for the greater portion of total imports, they have, nonetheless, accounted, with' only fewexceptions,, for the major part of recent import expansions. It is,
therefore, probable that restrictive import measures -will apply to them as well, especially when restrictions are applied to imports according to
source. In fact this has been frequently true of recent African experiences.
1/ In the relatively more industrialised developing oountries,- the direct
impact may also occur through diversion of home production from capital
to consumer goods, while the availability of capital and intermediate production goods may be reduced indirectly through increased money demand for more expansion ir domestic consumer goods at the expense of effective demand for investment goods.Page 6
fundamental shortcoming of the foregoing set of measures, aimed at preventing Or alleviating drastic depletion of external reserves, is that if they-lead to a reduction in imports of capital and intermediate production goboLs and consequently to a contraction in investment activities and
industrial-production, ;they will, only have begged the question, indeed, they will have defeated the purpose. The rate, of. eponomic growth will have been slowed down. In addition, several other concomitant complications. - in the price system, monetary mechanism, fiscal programmes and in the allocation of resources including human - will have developed. The initial deficit ,; :.(Will have thus resulted in a situation which is far from "being innocuous.
"3#v It should be remembered that balance of payments deficits of most, if not all,"African countries .have been .caused by the attempt to speed up the pace of economic ^progress through the implementation of comprehensive development.plans, with the result that imports of capital and intermediate production goods have experienced a phenomenal expansion far exceeding the
>/ export-.capacity to pay for.^ However, it should be 'borne in mind--too that o.:had it been always easy.to secure the other means of meeting the rising
cost of:importsj,namely, foreign financial resources, itrwould have been - possib-le to avoid those harmful consequences'- certainly to minimize them
considerably;. . r4s. will soon be evident, African countries have not been able to obtain such foreign financial resources with the ease and on the
scale they had hoped for. ■->■-. ■-.■.-, ■
,.,15,.< There should be no doubt that recent and current developments in the balance of" payments,of many African countries should be appropriately ..■■■ referred to as 'problems', and in several cases as genuinely serious
problems.. These are examined in the remaining part of this paper.
E/CN.14/WP.2/3 .E/CN. 14/AMA/lO
Page 7
TT RECENT TRIADS IN THE CURRENT EXTERNAL TRANSACTIONS OF AFRICAN COUNTRIES - THE CURRENT ACCOUNT "
16. The African economies ait?@-; characterized foy. a high degree of dependence on the outside world. This is-manifest in the relatively large share of
"both exports and . imports in gross..national product. In l?6l, Africa's*
total exports and,,total imports amounted, respectively to about 21 and 26 per cent of the continents gross domestic product.- These preparations naturally vary considerably among the..individual countries, with•- some under -10 per cent and others well over one.^thlrd. Still, however the continental proportions, are representative of: the. .majority ..of countries. The correspon ding ratios^for Asia, are-in. the. tune-u£ 12 and-.:14 -pearcen'i, -and for Europe they aro,about 22 and^.23 per eent.-r(.- --.-;..■;■ -:,■ ■< . <iv. ..-,,:-.■..
17- The Implications of this 'dependence are 'manifold. Of utmost signifi- cance.is the direct ..impact,of, developments'in theis-external transactions- (current and capital) pur the growth.: rate ;of.the Africans ebonomiee. It may be pointed out .that the.; degree, of Africa's-.over-all.-dependence' on foreign trade as generally..msasure^d.-^y-jthe ratios of.exports and-.-.imports to GDP is itself, not substantially -higher.-.than,.that:;of.Europe*-and."is .even less than the United Kingdom's whose respective.trade ratios are 27 and 26 per cent.
Africa's dependence is; nevertheless, more acute, as it is not as yet possible to obtain capital goods .locally and hence investment depends on imported equipment, the financing of which depends in turn.on the proceeds of exports. It is thus the basic structure both of production and of foreign trade that renders the growth of the African economies highly sensitive to developments, in the external sector. This dependence on foreign trade, is, therefore, .to be expected to perpetuate .itself until such time when the production patterns in these economies have been radically altered through industrialization,-^
* South Africa excluded.
1/ For America the ratio is 6 per cent for ..either exports and imports.
2/ For more detailed discussion of the importance of foreign trade to
Africa sees Balance of Payments Problems in Developing Africa, in the United Africa Co. "Statistical and Economic Review" No.29, April 1964
Ch.I.
E/CN.14/WP,2/3
Page 8
Visible trade
■:-lo. Africa's imports have continued to outrun her exports. Over the last decade,, total imports registered an increase of 64 per cent while the increase in exports amounted to a little over 58 per cent. The deficit grew from 230 million dollars in 1953 to 581 million dollars in 1963. The phenomenon is common to the majority of individual countries. Ae is
demonstrated by Table 1, exports have in general only partially covered imports. Notable exceptions in this regard include Angola, Cameroon,
Congo (Leo), Gabon, Ivory Coast, oountries.of the.former Federation of
- _ Rhodesia and JFyasaland, Tanzania, Uganda and as of 1963 Libya, In three countries the export value covered only-one-third or less of the value of imports, while in over one-half of the cases the percentage ooverage oscillated between 50 and 75;per cent.
. ■. .19* Table 2 confirms the evidence afforded by Table 1 and- furthermore, it
■: . .■ ,.. .. ,shows that the phenomenon of trade deficits is a persistent one. The :v .deficits in several cases have been growing and have accounted for an increasing proportion of export earnings. Several factors are at work giving rise to the structural disequilibrium of Africa1s i;rade balance,
Ls to be found in the movement of the terms of trade. As is.pbserved from Table 3, while the quantity of exports may ha:^e expanded, i;he.value of exports has seldom increased oommensurately>"&uei:-to a downward trend.in. the prioes of several major export commodities "of African countries,
as: .revealed by Appendix Table 1, Copper prices have tended to Tnove upward,
while the prices of most oil seeds and vegetable oils have either held their .own,.or increased. On the other hand, Table 3 also shows that in the case
of imports both the quantity and prices have increased, hence the value.
* "Excluding South Africa,
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E/CN.14/WP.2/3 E/CN.14/AMA/10
Page10TABLE1Foreign Trade of'*African Countries 1962 - 1964 (dont'd.)
Sources:UnitedNationssMonthlyBulletinofStatistics*August1964.
Office Statistique des Communautes europe"ennes; Assooies d'Outre Mer Janvier-Decftmbrp 1963.
Countries"TanzaniaUgandaKenyaSomaliaEthiopia Exports1932 3(f.o.b.)
1963
ValueinmillionUSdollars158.7114-0124*4'-■25*5-.80.3 193.2151.6142.731.8
89-9
h■:■1964
■208.2186.0149.936.1'105.0 1962126.73.194.37.103.Imports (d.i.f.
1963
ValueinmillionUSdollars
44-685 128.3
"86,6
206.344.7111.0) ■
,1964
133.691.9;214.5.=,.54.7127.8 Exportsaspercentageof"■imports1962.
■ .. 1°
.125.6..■r157.5.64.6.65.8■77.7
: 1963
7>150.6176.269.271.181.019.64 :¥'
155.8202:9■ 69.7
66.085.O\
Page 11
TABLE 2
Trade Balances of African Countries
in millions of L)S dollars and. (
- Sudan ■-- • ■ - -:-
UAR
Libya
Tunisia
Algeria
Morocoo
■ ,-
BCEAO countries Gambia ■:
-Sierra- Leone-- ■
Liberia
Ghana :
Nigeria .;..
Congo (Leo.)
■ EGEABC countries3^ -
exqe.pt Cameroon
19^8 -26il
-(20.2)
-151.2
-(32.3) -84.4 -< 625-2)
-1,2
-(0.8)
-549.8-11-. 5
-(4.0)
-93.0
■ ■ —-.
—
-
-94.9 -(25.2) +171.5 +(34.1)
-32.1
+ 12-4 Zambia,Rhodesia,Malawi -34•7
Tanzania A"" -"
Ke'nya
Uganda ' . Sote-alia ■----!■—■-
Ethiopia
Madagascar
-(8-4)
"+1.5
+(0.4)
- ' i_
-18.2
in parenthesis) as ;
+ 54.6
+(27-9)
-210.4 -110.2
■- -(
-16.9 -(11.8)
-740.5-(201.2)
+27.7 +(9..6)
-103.8"■ -0.5
■- ■—11; 4- —
+ 22.0
+16.5 +(5.2)
-50.7-(11.2)
+271.4+ (47-7)
-24.6- ■ +30-7
+128.3 +(23.0)
+I6.5
+(4.6)
■■- — ■
-(7.6)
-5.1 -43-0I960 + 6.0
+(3.2) -187.4 -(33.0)
-I66.51,473.4)-'
-68.6
-(53.2)
-706.1-(125.6)
-6.3"
. -(1.6) '■
" -48.6 - -l»2r-"
-(15.4)'-"
-0.8-
-(1.0)
+10.3 ' -19.6 *■■-■-(6.0)-
-I41.4-
-(30.2)
—
-
-49,5—
+15-5 +(16.0)
. +171..-..1+(27-7) +(1-5)
+5.9■■■_ ■
+1.0
+(1.3) . -37-. 1
-(49.5)
sl Dahomey, Ivory, .Coast, Mauritania, Niger, Seneg?
at* Central African"Kepublic, Chad, Congo . Sources: Mainly- I-MF4
Statistics, franc zone- de la Zone
" -Balance
percentage of exports
1961 -47-4
-(26.9)
-250.8
-(51.7)
-130.9
(1,681.8)
-100.8
-(88.0)
-310.7-(45.7) -89.7
■-(24.7)
■ -83.I
- -3.4-(35.8)
-20.6
;-(25.D
•■=+43-7 +(13.1) -149-8 -(31.3)
+110.3
+(31-5)
-41.4 ■ +6.1
+(6.2)
+175.8+(28.5)
+ 2.7 •
+(0.7)
-9V1 '
-(34.6)
-(4.7)
-3.7 -23.-4-(30.2)
1962
■ -20.1-■
-(8.9)
-427.6
-(102.6)
-65.5 -(46.4)
-85-3 -(73.0)
+54.7
■+(7.1)
-5OV6
-(14.3)
-78.8 -2.6
-(26.0)
-38.6- -
-(68.2)
-(3.0) -9-5
-94.1-(20.3)
+124.8
+(38.7)
-30.6'
+(7.2) +7.5
+20.7.4+(33.8)
+13.2
+(3.4) -16.5 -(65.5)
-(6-7)
-5-5 -2-3% 0-(■24.4)
il, Togo' and Upper
(Brazzaville) and
Gabon.1963 -35-6
-(14.5)
-39,9.7
-(76)
+96.8
+(28.7) -96-9 -(79-4) -(125.6
-888' -67-8
-(17-7)
" ■ -12.4
-(15.3)
-30.0
-(9.8)
-35.0
-(6.7)
—
+267.9
+73.0
+(15.3) -15.5 -(48,7)
-(8.3)
-7.4 -45-4-(^.3)
V6l+.a —
of Payments yearbook, Iriternational Financial supplemented by, national, publications.
■e bun tries Franc, La
except Morocco andfTUnisia is Zone Franc
The source for 3 Comite Honetaire
E/CH.I4/WP.273 E/CH14/AMA/10
-
BAR '!~
■ . '" .5 ;.. ■ -— '■ .'
• ... L —
. .'V_-
Nigeria
Zambia )
RZtodesia^
Malawi ) Tanzania) Kenya )
Ethiopia
Sourcess
;e 12
■ . Trade Ind
•--:-- --■-.■ ' -■■■- ■■ ■"■■■
Volume/of Exports Price of Exports Volume of Imports price of Imports
.Volume of Exports .Trice of Exports
Volume of Impprts -Price of Impprts
Volume .of Exportsj Price of Imports ..
.Volume of Imports . 'Price of;. Imports
,V.oXume of Exports-.
Price of Exports' Volume of Imports price of Imports
'Volume of Exports
Price of. ExportsVolume of imports Price of., imports
Volume of Exports Price of Exports Volume of Imports Price of Imports Volume of-Experts
■Price of Exports .Volume of-Imporfcs
Price of Imports (
"Volume of Exports Price of. Sxp'orts Volume of Imports Price of.Imports ( ..Volume of .Reports.- Price of Exports. . Volume of Imports.
TABLE 3
ices of Selected A
"1958
'.-'-.■: VLOO
,aoo . loo;
,1.00
'(.Cotton - . J.00 "
menafi)^ : ( "100 . ..
. S. ] - '■'.■- ■
•'«■ v ■■.'-" 100
'.-'.. ■ 1D0 100 . . ■ .. 100 100
■ loo 100 . - ,.ioo .100 100 100 . .100 /
■ -100 100
. . 100
100
1954=100)
148 81 , 103 1954=100) ■ 101
■ . 95;
116 . ■ 113
Price of Imports Tl95'2/53==1OO) 120
Mainly -IMF. International '-Financial'1
-fijJi1 J-OgLH
"1959
.131 ' . 89.
'108...
113- 110 106 106 -94
85
102
120- 91- 133.,,:-
■1G.0 120 105..
109 .98..
■135a
■§3.7 113.3 105.4
157
79
102 101 _
98. .- 113 . 3,1-9 • 5 126
Countrie
■"I960"
133 110 102 104 162 92
94 110 "
136 111
112 111 102 114 141
78
153 100118 106 123 103
145-5
115.895-2
107.8 17378
108 105 122- 110.5 127 121s ■ ,
1961
137
105 14496
128 . 92
85 151
110103 114 . 108 119
176 . 62
164- -
102
140 99 -■
129 103:-.. ■
151.5
91-4 110.5 111.6 I6577
117
9912}
: . 99,5-
■128'. 5-
129 Statistic's supplemented1962
172 105,:.;
156 . 97. -
■1.14 85
87
::&&$ ■111
:106
M13 106 117 M85 58
137
102, 149--;-
-■94.121 105
156.3
89.6 102.1 -.111.4170
■76 117
■ - 9:7 118 100 . 140 /.
133
\Y
1963 183
16199 104 158 97—
119
118 119
175
59 156 99 15496 121 109—^
national ■m'blications
S/CN.14/WP.2/3r e/cn . 14/ama/ 10 ■'"■
Page 13
21. In addition to deterioration .in their terras of trade, several African countries have experienced ..severe fluctuations in their.,..export earnings.
The source of .both problems: is .the high dependence in practically all African countries on one. primary commodity or;,one group of such products
with shrinking or unstable demand (Appendix Table 2) o ,, llorld..demand for
most of these commodities has not been expandit:g? the market showing signs of saturation as in the cases of cocoa sad coffee. Production of the latter commodities has continued to increase rapidly both in Africa and elsewhere, but the rate of absorption by the consuming countries, despite their steadily rising affluence, has been less than the growth rate of their economies. The demand for these and other tropical commodities by centrally planned economies has lagged'considerably benind their rates of
growth and of total consumption, in spiWbf these countries' declaration of intention to step up their demand for J;hssG commodities. A popul&r'
explanation of the centrally" planned 'e'ttonomieE'' low intake of tropic-al commodities is that their consum'ere h-av&' hot yet -developed a taste for these -unfamiliar goods.22, World demand for other African export commodities, uotably cotton,
has not only failed id expand, but has actually fallen, due to changes in
tastes and to"the development of synthetic substitutes in industrialized countries. Add to this that most of the'cotton producing countries have expanded 'their output. The consequence of all those developments is the marked downward trend in the prices of this commodity, which like cocoa
and'Wffee is the mainstay of several African economies. Thus, one of the
principal reasons for recent trade imbalances has been the depressed prices ofs cocoa for Ghana and Mgeria, coffee for Ethiopia and of cotton for Sudan and UAR.
23- Cocoa, coffee and cotton are also the major export commodities, and constitute the backbone of the economies, of several Franc Zone African Countries, some of which have suffered the sar..3 problem., for instance,
Cameroon with cocoa, ivory Coast and "Madagascar with ooffee and Chad and
Central African Republic with cotton. .Qenerall2r? however, the decline in export prices has been less steep for these countries, owing to price
/4//3
e/cn.h/ama/io
Page 14
stabilization and subsidization measures which these countries have'enjoyed within the framework of Franc Zone managed trading arrangementsi As
provided in the Convention of Association with the European Economic Community (EEC), France has, however, undertaken to liquidate the 'system
of preferential commodity contracts. ..*■■■■■■ • ij
24. Inflation - induced increases in costs of production have hindered the marketing of some African export commodities, especially manufactured and semi-finished goods. The labour force employed in.the; production of the latter1 commodities is generally far more .well organized than the labour force engaged in primary production, and union pressures have,kept the wage level in close pursuit of the rising cost of living. General inflation and an over-valued currency in Franc Zone countries have rendered incompetitive even their primary agricultural products in markets outside.the Franc 2one.^
25. Apart from inflationary pressures, -the--prices of Africa's manufactures and semi-finished goods have not been competitive, owing to the low level of productivity. Failure to realize economies of scale, poorly trained manpower, inability to apply modern techniques due to either or both of the
last two problems or to lack of capital, and the general waste of productive
resources, including repeated loss of man-hours aa.a result of political and social unrest, are some of the important, factors responsible for the low level of physical productivity. In monetary terms this has amounted to higher costs of production compared with other, especially extra-continental producers. The cost-price disadvantage has contributed a significant faotor hindering the development of intra-African trade in manufacture. ,and has, in fact, been responsible to a considerable extent for the development of.
chronic imbalances in some intra-African trade relationships, further ag
gravating payments difficulties.-^
1/ Bilateral Trade an_d Payments Agreements in Africa, .S/CU.I4/ST.C/2A/ltev. 1.
Paras.27-42. -i
2/ E/CN.l4/STC/24/Rev.l, op. oit., "Ch.II. "
s/cn.m/am/io
Page 15
26. Export earnings of many African countries have fluctuated both with world demand as a result of fluctuations .in business activities in
industrialized countries, and with supply conditions dictated by nature.
Sizable trade deficits have been incurred during the downswing of these fluctuations,*.' Deficits resulting from fluctuations are generally considered as temporary,.phenomena, and hence of no ■ serious consequences... Nevertheless, considerable; complications may build up and have in fact done so, in* the wake of this type of imbalance. In .the case of demand, the real.-cause' has been in, certain instances an actual shift rather than what apparently seemed to be reversible fluctuations. Supply failures, in additipH.v.i;6
reducing current export earnings, have resulted in heavy drawing on reserves, impairing, future financing of imports and threatening general financial;
stability, When supply failures extended beyond export commodities tq other food crops the problem was further complicated, as in such 'event imports..
:, ,r would rise rather than fall as a result of increased importation of goods hitherto produced locally,
27* Imports of the overwhelming majority of African countries have registered substantial increases over the last decade both in value and volume,. In
exception to this, Algeria's imports dropped from US$ 1.2^5'million in i960 to US$L 809 in 1962 and again to 780 million dollars in 1964, imports of Congo (Leopoldville) stood at 284 and 347 million dollars in 1962 and 1964
respectively against 363 and 436 million dollars in 1953 and 1957 respectively and Madagascar's imports in the early 196O's have been.more or less of the same value, as they were in 1953. Liberation war in Algeria and the political orisis attending and consequent to Congo's independence; as well as the post- independence exodus of some one million French settlers from the' former and of several hundred thousands of European settlers from the latter are the main reasons foi? the import contraction in1 these two countries.28. The rising level of consumption throughout the continent, in fulfilment
of the desire for better living and consequent on the rising level of money incomes of a growing proportion of Africa's population,, has been met in part through increased importation of goods. Imports -of:consumer goods have increased in most countries, and at a high rate5 in fact, the rate of growthE/CN.14/UP.2/3 E/CK.14/AMA/10
Page 16 ' .
of consumer eoods imports in several countries has been higher than the growth rate of their national income, signifying .that demand for imported
consumer goods is elastic^ with respect to income. Notable exceptions
xn this regard include DM, the former Federation of Bhodesia and tfyasaland
• and to some extent Senegal where import substituting industries have already , had effective results. For other countries such as- Morocco, Tunisia, Qhana
and tfxgerxa, whose imports of consumer gcods have declined over the las*
three or so years, import substitution played a fess significant part compared to. the effect of direct restrictions necessitated by balance of payments problems. In Algeria, Gongo (Leopoldville) and Madagascar, imports of consumer goods have followed, the sa^e, trend as that of total imports.
29. ^Increased government consumption is another factor behind the rising trend of cottier goods imports. The expanded programmes of social services and amities, particularly in the post-independence period have Called for
an ever growing expenditure 5n hospital furnishings, school supplies, office
e^uxpment etc., most of which have so far to be imported. " ^
30. institutional inducement to increased importation of consumer goods,
especally the durable ones, has been provided by the widely spreading
Purchase and instalment payments facilities, which^ have made it possie
to acquire, against future^ income, goods yielding i^^ satisfaotion.
31 In most countries, however, the growth of consumer^ooda imports has
* ess proportionate to that of tota, imports. ,hi, is, expUined ty,he
" IT3"" ^ imP°rtS " itl increased by 90 per. cent between 195O and 196O, while ever ^^f P-duction gol. l
he s iffiports Qf 0Qnsuffier goodg incread -.
E/CK.14/AI-1A/10
Page/ "17was 200. As a result of these variant rates of growth? the latter two categories of imports have accounted ,for. a rapidly growing■share in Africa's -total-imports. The.ix-; ..share increased, from 30 percent in 1950 to. about 49 per.cent1 in 1.960^ w,itlvcapital goods' share rising from 13
to 21 per cent and that of intermediate goods growing- ^ffcoffi-1 17 to 28 per
p cent.—'. Although data is not available on changes since 1.960 in the f structure of imports of the totality of .African countries, yet ..it, %&clear that the 1950/60 trend has .continued in the. same direction .as. ,
indicated by developments in many individual countries.
32V •.^ith]inflth"e.qap^-ta£- goods category, .imports- of machinery, increased
much. ■fas,-be£--;( about;. 6D0 per cent increase} than- imports of trati&p'ort : :- equipment:X 76 per .cent increase)r - signifying the grea"ter^-;emph"asis'':;"laid
on inyestment in, production' compared--to' investment; in infrastructure.-- .Imports,,pf chemicals, and of metals-/.have increased much faster1'tn'an"Kiffiports pf ;the;,;Other; two .categories- of intermediate: production- goods, name'1-y-fuel
L, basic materials^-.-. The percentage increases- over the period 1950'^°
,- for ciiemicals, 261 .for metals?- 147" for fu&l and 79'for'-basic .mater.i.als>;0 An-^creasing amount of Africa'.s needs of fuel and basl^G'-"
materials; is--being metj by local., p-roductipn'-whiie1" chemicals'- and metals' continue to^be obt.ai^p-"- ma-inly .froni roToi.3-.1-sourcesj1 partly "because "of Africa's low level of industrial dcvolop-i_:it c::A its poor scientific" and teohnical know-ho:r which. ha-v2 barr&d tiip procosG^.ng of available ores^.—'2/
"'There-is no'-information1 on"import prices by categories, i.e. according
^tp end,-r-use,:_:The ,index of total ■ import prices has risen over the period
(paras 34)- It is probable, therefore, that there has been a price-
;'effedt'-i-in tlie growth Of capital and intermediate goods' imports, but
. this is. als^ ;true. of QO.nsunler. goodsr imparts. Consequently, most;ofthe growth in capital and intermediate goods' imports ;is. to be explained Tjy a real' increase in volume. The percentage increase in import prices
(^10 points) /was muc^j.smaller- than, the percentage increase inthe'value
of imports - total as well as each and every category - strongly .
reinforces this ■view'. '"" ""
2/ Source of statistics 1 ECA3 Industrial' Growth in Africa,
E/C///l- Table 8. ~ .■■.■.■■■.-. -\
Page 18
33. . Country-wise the same general trends of changes in the .structure.of imports have prevailed and are more pronounced in those countries where industrial development has made gree/ter strides than.others, such as UAE, Ghana and Tunisia.
34* The main reason for the phenomenal rise in imports of capita-! goods and other intermediate production goods is the deliberate, and in some cases ambitious, effort to speed up industrial growth in most African countries. Industrialization is generally accepted "by these countries to
"be the.key-to the self-sustained growth; of.their economies, the only situation in which fulfilment of their great aspirations, for an ever rising standard of living can "be attained. . The various development plans inv.rfche course of implementation in Africa "bears evidence to this. The execution of industrial projects involves the urilization of resources
which, are. .for the ;most part unavailable locally and have thus, to be imported, such as machinery, machine tools, fuel, chemical ingredients, essential raw materials and transport and other equipment. Hot only have the-,imports of these categories of goods increased over the last decade, but, a% the de velopment plans and other projections indicate they will continue to expand
^as rapidly and perhaps even more rapidly than they have .drone, over recent years. .■:.:.■.■.■ -.■■.■• " ■ ■ / -■■■■.. . ,. ,» . ■
3$. th contrast to export-prices the-index of import prices-(unit "values)
has maintained .its level over the last decade. Import prices have actually tended to rise. For all developing countries as a whole, available informa tion indicates-.that the. index has fallen by 3 percentage points between 195^
;arid I962, and ^by the foui-th quarter of 1964 and the first quarter of 1965,
the index has climbed back to the. 195.& level, the. latter being 10 points higher than the 1950 level. The index for the developing countries does not seem to reflect the. trend in Africa.,; : for as Table 3 inti-icat.es, theindex of import prices for many countries has risen by ^'ixr more percentage
points between 195^ and 1964- By I964 the rise in the price of imports into
Morocco and Tunisia was 33 a-nd 32 per cent respectiyelyj and ift'vfche latter the index stood at I55 per cent in June of I965.Page 19
36. Although no systematic information on import prices into Francophone ...tropioaCL.^fi^io^^s.'-availabls'j'.^it- can".:fej;9'sta'biished.;,.:-_..by' compar-ing_.unit
value of imports of more or less^similar goods, that on the whole imports costs have been"-higher±rr-these CQuntries~~compared to other African
^countries. In "'addition _ to/c.omparatlve'l^ higher import, prices,., the., com mitment^ of these,, countries to import rsizable, quotas on exclusively, from
France,. is not conducive .-to. minimizing the over-all cost of their imports.-^
It -has neutralized- the favourable export prices they have managed, to obtain under Franc Zone preferential commodity contracts. .., ,-.
Invisible' Trade' ' "
37*. Kith very few exceptions (UAR? -Libya and-Tunisia) African . countries
have sustained sizable and often growing deficits in their invisibletransactions (Table 4). - Deficits :are incurred; on practically. aXX of the
principal classes, of services (comprising the .major components pf,-.-theinvisibles account) i.e.. freight, merchandise insurance, investment, income
and foxeign travel, . _ ■ -
E/CN.14/STC/24/Rev.l Loc_. cit.
Page 20
,E 4
■' balance- of. Invisible. Transactions (.services) .of Selected African Countries
'j ■-.■■■■. ,,i- .. ■ .:■ :.- .. ■- pillion IJa,doUar^).. ... " ,"..
I960" " 19'6l- ' ■'i^62-""- ■ 1963
.^14.4 -13.2^ ;..-,^17.5 ..; .■—4©>&o-:.., -39.9 +75-. 2 :...' ..: +8&,1 - \ \-. :.h-.63.-1 ..-■... :.-*r90-*-l '■ +119-.4
"■' L£bya;::: :^ ■ ■■■■"■■ ■--■■'-ii75«1O-' -"- -;+&7.5 .■■+■13^0; --;:+112*,3..i.:V!:;.!.-:+58-.:3 y +103.8 Tunisia +69*5 •:■ ' ' - +33-4 -.+7,2---.-:-■. ■jh21-i;6--. ■./:.; ^14>,7..,. . -9-9 Algeria -129-9 -145-8 -381.6 -953>-3 -1,557-. 5
Morocco +89.4 +79.2 +41,2 -1. &■- -££^ J:^^^il. _16-. 2
B . .;,:;el49-.91-i- ■ r-127-.O.vv «- a-; -.;^88v5 .-. ; ;. -72.5-.- ■ --78^6 Kig^ria:^-'--^"■ -^'-" -^21;'8^.^..r ^42.6 .^; ■■^■-50,7 .(.- -^40^.9 ..;.• ^4Z^Q-;-...: -57>4
Cameroon -30,8 +22.9 -48.7 -t-36-.-Gx^ a-,;;-38*4
Zambia )
Rhodesia \ -139.4 -170,5 -188.5 -206.9 -220,9
Malawi ) Tanzania )
Kenya 3 -47-5 -38,0 -33*5 -28.0 -35-1 -38-.O
Uganda )
Somalia —
Ethiopia
Madagascar —34*5
Source: Same as Table 2,
—
-18.
-15.
6 9
—
-11.
-22, 8
5
-4*
-16.
-22.
6 2 1
-12, -21-.
-21, 3 1 1
—7»
-20.
3 5
E/CN.I4/AMA/IO ///
Page 21
38. Africa's invisible ..trade lias accounted in recent years for between one- fourth to one-third of tb.e continent's toijal'visible trade5 according to
Appendix Table 3,; the proportion^ was-34; per cent. Receipts from transactionsin services were a little: less than^ one-fifth of merchandise exports while
payments for invisibles amounted to" overtme-third of merchandise imports.These proportions vary considerably among1-the : individual countries.
39* On a world basis, there has'been a tendency for invisibles to grow
l/~ ■ '-■■■ .=*■■■■ ■ ■ ""relative to visible'trade;-7 ! Although present evidence (Appendix Table 4) does not substantiate this7'as regards Afrioa, there are, .however, some
other-.©qually importarit tendencies that can be clearly observed. First, as:4u$:tTu® ;w&th':«tlie r-e's't1 of the developing countries, the invisibles -account
of most African countries shows a sizable deficit, for example, the total deficit,, of eight countries amounted to over US$ 50 million in 1963
(Append^ Table 3). Secondly, there has been a marked tendency for this
deficit tp grow. According to Appendix Table 4, the total'deficit of the
.'-Tif-*J--^' :-u- '■ ■ ' .11.:
. seven countries increased from US$ 48 million in 1958 to TJ5$ 449 million
ifc ^963. Furthermore, it has absorbed a growing proportion of export '' earnings, 24 per cent %n I963 compaxed with 3 percent in 1958.
40*, ::.:A continuing deficit in their invisible trade, regardless of its ;
absolute magnitude, represents undoubtedly a constant drain on the exportproceeds of the African countries, which means, in turn, a lower real income and a reduced capacity to import. Hence, a growing deficit is
tantamount to a progressive reduction in the potentially attainable level of both real income and importing capacity."®'£^ "the deficit on invisibles account should be viewed in -the, -context -of the balance of payments as a whole, for as far as the
developing countries ai% Concerned, it only reflects the weak structure -■■
and. tiie: limited growth of their economies, and stems from traditional:
dependence of these countries on the international finance and service
1/ Ely Devons, World Trade in Invisibles, in "Lloyd Bank Review" ,
April 1961.
E/CK.HAP.2/3 B/Ctt,u/
Page 22
institutions^ of the'highly developed countries; ^is-is: particularly^"
evident in the■ structure of the investment income component?indeed the latter is-a good. index-6f the structure of the whole invisiteesaccount.
But to follow the roots of theprofeleias1 as Reflected in tfie investment income component, it is inevitable tb:go beyond the invisibles account.
An examination of the magnitude and implications of income transfers, even in the balance of payments pontext, .would be,incomplete without,a>
search into the wider field of., capital formation -including both the, flow of foreign financial,resourc§s.,and. the development-,of dpmestip sayings* It is,in essence a.stu4y-pf bpth.^he capital, requirements of deyelppment
programmes, and. the cost of financing these retirements .from, the .various
.sourpes,. , . _
■ ■ ■ ' • - - v.i j \i ti i> -(■■■■ ■- ■■■■■._.:'..■■■...' ;,■._■ . ■ ..■-..■ ;
42. Interest -aiad-dividend payments on foreign private inve^tmen^re^esent the largest 'component of the deficit in the itiVisibles^ aodount 'of^frican -oouatfies, 'Investment Income' being the larg^t component"of iihe Account,
iilce-the xest ofHhe developing areas where-the^ rate of domestic'savings is low, African ceiihtries have sought-inv^^tment funds in forei'gn hignwSa.Ving countries.1 The^re^rse flow df^h^res^'an^^divide'rid payments 'hav^ accounted for;aliaQst::9neT:^alf of ;the total^s^rvic-e;s deficit;sustained; ^y African
T9Qruntries.;4.n Recent year,s.,(Appen^x;-Table :;3).^..,.. -. .■...;■
43-- For several-African countries, the net balance on acc6unt of rt Other Investment Inco&e'^ ■- which-covers mainly 'the various earnings on and payments
*r portfolio, investments including exchange reserves ^and iiiternational loans - has been positive over the lasf ^fiVe ;years, ^fhis baianbe^iis, however,'
tended.to,diminish and in some. c^eg it l^^^u^ned passive.. Shis deteriora tion reflects two developments; one, the steady .-fall in earnings on investment 0S-;^ir international reserves,as the latter tended to decrease, and two, the growing size of interest payments .in ponne^ipn;:fwi*h the servicing of
external debt. . .
E/CN-14/WP.2/3 e/cn.h//io Page" 23
44.-. External deM. has teen rising rapidly, and will continue.. to..rise ias rapidly...or even more if. the..growth target as set out in the various development plane air. adj ^texvptf-Av. -^ continent ars to bo reached.
The raise- of increase of seryic..e,paymonJ,e ha? be.on.much higher,(twice -as much - Appendix:.Table 5.) than that of the growth of debt, - implying dete rioration in the terms of "borrowing which can be traced to two- factors, the increase in the average level of the interest rates charged on loans and the tendency towards more"'"shorter maturit5.es.
4§y. -.■ According;, to. calculations by IBRD; -the cause .of deterioration -would be the ■ growing proportion of medium-and short-maturities, while interest ..pafofes- moved in the. opposite, direction,: ,!&& average maturity is found, to ,&ave been Slightly,more,than .Shears while, the,.average weighted rate.of
interest amounted, tp,:abput 4 per center On the,other hand, studies by
OECD indicate that the cause of deterioration is high invest rates- rather than short maturitiesc. Interest rates of 5 per cent and^more have been changed on 71 .^er" cenl of offIcia^ loans extended by OECD while the propor tion of loans with a'repayment period of 10 years and more has been in the
. ■ ■- '•".-- ■ - ■ " ■ ■■'■■ -2/
neighbourhood of 7Q per cent of total loans,-^ _ .
■:.46. -.-Both :IBR3)-and OECH .calcuTatlons refer to .all .developing countries and the finding-3.-ar.e-consequently inf,Men.oed by trends in, other ajreas. The interest component of. debt, service in all developing areas except Africa represented 'initially"(195'6) a smaller proportion'of the total than that accounted for by o^.:.-:.^cn - the proportion'ranged from 15 "per cent
(Southern Europe) to 25 per cont (South Asia and the Middle East).- For
1/ Interriatiohai Bank for Reconstruction and Development, -Economic Growth , anA.fetemal .Debt - A Statistical. Presentation, E/CGNF.-46/40* P-15- -%l: .Organisation for Economic Co-operation -atid. Development, (OSCI>),? fS2£.
Flow of Financial Resources to Developing Countries in 1961, Table 0
in the main text and Table 6 in the Statistical Annex* - -3/ OSCD The Flow of Financial Resources to Developing Countries in 1961.
/4//3 s/cn.h/ama/io
Page 24
Africa this was as high as 74 per cent. Although the share of interest grew gradually in all other developing areas, still it accounted in 1963 for no more than 30 per cent for South Asia and the 'Middle Bast and barely 20 per cent for Southern Europe 5in Africa interest charges accounted for 54 per cent of the total in 1963 and 61 per cent in the preceding year
(Appendix Table 6), ■ .-.
47. With the share of amortization' growing from 26 per cent in 1956. to 46 per cent in 1963, it can "be concluded that deterioration in the terms of borrowing by African countries is due to the tendency towards more short maturities. Interest charges, though considerably diminished in proportion to total service, have nevertheless grown at a higher rate than outstanding debt» ai}d it mav thus ^ concluded that interest rates charged on loans to ff:r^?ar wkich were probably on the high side initially, have'not'been ef
fectively reduced. : '"'
48. Another piece of evidence on the increase in the relative share of short-term credit in total indebtedness is provided by the .steady growth, over the last decade, of the immediate repayments requirements relative to total outstanding debt. The pattern of development of the annual service charges on medium - and long-term external debt, contracted by"seven African countries, as percentage of outstanding debts is as follows-^'
19^6 1252. i25§. i252 ISM 1961 1962 1963 .,1964 , 4.23 4-75 4.95 5.10 •' 5-14 5-79 7.24 7.95^ 5?,99 '
49. It is the inability to obtain the needed long-term credit...that has induced resort to short - and medium-term borrowing to finance development programmes. This was either because the funds were not available on terms and conditions acceptable to both"contracting parties or because the pre- investment studies and surveys, such as project formulation and feasibility
1/ International Monetary Fund, Annual Report - 1965. p. 25,
Page 25
studies.were not adequately .carried ;out.r However,' foreign investbrs
cannot ;v;e.ry ..well continue to- .advance thelatte^ factor as an excuse for
withholding-long-term; financing, as .current development -plans -of "many African countries give sufficient elaboration of the programmes and projects envisaged, VJhatever the. reason may, h,ave have. J)een, foreign sup pliers have continued to make the needed equipment available on .short-term'"credit's, which are partly guaranteed by their., own. governments.—'
50, It is easy to ..cLr-aw an approximate line of demarcation between what is short-and medium-maturity and what is genuinely long-maturity - thus 15 years may fe t^en as.an average for long-term borrowing," Where the line
should be drawn between high and low interest rates,is a.diffuclt matter?
" irt particular, is there any unique average minimum rate. Recording to IBRD
'"stadies, 6 'per cent is a fairly representative rate of qonyen^ional ,pending.-'
li^'the conventional rate high or low? Or indeed, is there,.ja. unique ..low rate Ji-1 other than Verb1?" It is obviously a relative matter., ¥h$-.point■ ^-t-which
- ' in^tere'st rates1 begin to represent a high charge on t&e re.sour^ce^ of. ^ country ' would naturally depend on several factors, most important of which is the
1 level bf productivity in general, and in particular -the marginal returns to
- capital in the industries in which loan funds are invested, . -However^ an
"indication tnat the rate of conventional lending of 6 per:.cent is> a high
■ one has been given'by the United Nations Conference on Trade and Pevelopment
(tWdrAi)^11which &as recommended that "The interest rate on State; loans should i not Lh6rmally exceed 3 per cent annually, and steps should, ^e taken: tfo ensure
■• that' Ib'ans to'developing countries ^by. international organiz
■-■:io^°fdv6&4-18ie'terms'r; "(Recommendation . I, . g/CQNF.,46./l41i ; Vol.1, , (jAnnex A.IV.3))
51. Credit entries under. the..item "Direct Inye^taneht Income" cover all earnings accruing to African residents from direct.private investment abroad, '''■"•while? debi'lf"entries cover all earnings accruing to non-residents from their
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