The establishment of an African monetary fund : structure and mechanism : a technical feasibility study

UNHEDLNAIIONS

THE ESTABLISHMENT OF

AN AFRICAN MONETARY FUND STRUCTURE AND MECHANISM

A Technical Feasibility Study

Addis Ababa 22 January 1985

THE ESTABLISHMENT OF AN AFRICAN MONETARY FUND

STRUCTURE iYUD MECHANISM

A Technical Feasibility Study

The Economic Coranission for Africa The Organization of African Unity The African Centre for Monetary Studies

The African Development Bank

The African Institute for Economic Development and Planning

Addis Ababa 18 February 1985

L.

CONTENTS

Paragraphs

■■,:>■ . t ■ ■'■■ '__

Table of contents . o • ■> * • List of abbreviations • » * Introductory note ..»•••• • • •

Chapter

I. BACKGROUND TO THE ESTABLISHMENT OF AN '■' * '

AFRICAN MONETARY FUNO • • • •

A. The basic issues of concern to Africa

B. The management of African monetary ^^

and financial policy •, • .».• • • / • . C. The impact of external factors on

money and finance in Africa . , • • • J' ->

D. African monetary and financial

integration

... iSm 60-62 E. Summary • '**"*"'!'

II. OBJECTIVES AND FUNCTIONS OF AN AFRICAN MONETARY FUND

A. Definition of objectives . ♦

. B. Functions of the African *fr>netary ^ ^ ^ ^^

Fund •••■••

' . 107-109

C. Summary

III. FINANCIAL RESOURCES OF THE AFRICAN

MONETARY FUND

A. Identification of resource 110-124

requirements ...••

B. Determination of the size of initial

authorized capital ....•••••

C. General principles governing the

allocation of capital subscriptions

i

v

vii

1 1

12

23

35 37

39 39

60 62

64

64

73

82

CONTENTS (continued)

Chapter ■-■.-.-:

tL^L

D

Paragraphs

. „

Page

D. Proposals on how the capital of

AMF could be allocated , 155-167 88

E. Other sources of funding for the AMF . 168-174 92

F. Summary o . # . 175-179 94

IV. LENDING CRITERIA, POLICIES AND PROCEDURES 180-226 " "97 A. General criteria for financing , . . 180-192 ^7

B. Forms of short-term financial

assistance . 193-202 103

C. Special facility funds ...,.,,„ 203-207 112

D. Medium- and long-terra financing

facilities . . e . . # . . 208-215 113

£• Other forms of assistance , 216-219 117

F. Interest rates, service charges,

and reserves ... o 220-225 118

G. Summary ..; 226 121

V. ORGANIZATIONAL STRICTURE OF THE AFRICAN

MONETARY FUND" . . . , 227-257 122

A. The Board of Governors . 231-233 123 B. Board of Executive Directors • o . . . 23i-237 12S C. The Managing Director , « „ 238-239 126

D. Specialized committees of the

African Monetary Fund «.-... 2^0 127

; E, Membership and control of the

African Monetary Fund •*••••«, 2A1-2A3 127

F. Voting cystem within the African

Monetary Fund , 24^-245 129

G. The Secretariat of the African

Monetary Fund . „ 2^6-255 130

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CONTENTS (continued)

Paragraphs Page Chapter

256-257 133

F, Summary

VI. THE FINANCIAL AND INSTITUTIONAL ,

VIABILITY OF THE AFRICAN MONETARY FUND . . 25tK>o7 AJ°

A. Financial viability 261-275

B. Institutional viability • • 276-283 150

284-287.. 153

C. Summary • • *x»

VII. CO-OPERATION WITH OTHER INSTITUTIONS . . S 288-298 155 VIII. SUMMARY OF CONCLUSIONS . . . • • • •"• - • 299-318

Annexes

I, Terms of reference for the feasibility

study on the establishment of an

African Monetary Fund

II. Member country subscriptions to the

authorized capital of the African Monetary Fund

Capital of US$3 billion without external

participation

III. Member country subscriptions to the

authorized capital of the African Monetary Fund

Capital of US$3 billion with 1/3

external participation

IV, Member country subscriptions to the

authorized capital of the African Monetary Fund

Capital of US$2 billion without external

participation

CONTENTS (continued)

Chapter Paragraphs Page

Annexes (cont'd) V, Member country subscriptions to the

authorised capital of the African

Monetary Fund

Capital of US$2 billion with 1/3 external

participation- .

VI, Current-IMF facilities and their

conditionalities: The African position as

of 30 November,1981

VII. African Development Bank* Procedures for the Election of. Executive Directors

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LIST OF .ABBREVIATIONS .USED IN THIS STUDY

AMF AGMS AJB Group

ACP

ARF

ASEAN

ArMF

AACB J !i .Jill '": '■: i /;■'

BADEA BCEAO BIS

CAMSF CEAO

CACH

CEPGL CFA -.■:,-'

MC-: -'-f

African Monetary Fund

African Centre for Monetary Studies

African Development Bank/African Development Fund African, Caribbean and Pacific group of countries associated with the European Economic Community

Andean Reserve Fund

Association of South last Asian Nations

Arab Monetary Fund

Association of African Central 3anks

Arab Bank for Economic Development in Africa Central Bank of West African States

Bank for International Settlement

Central'American MonetaryiStabilization Fund

West African ^Economic Community' Central African Clearing House

Economic Community of the Great Lakes Countries Communaute financiere africaine ■ ■■-; -1

Development Assistance Committee (of the OECD)

Economic Commission' for Africa

^Economic Community of West African States

European Monetary System

Economic Community of Central African States

European Economic Community

European Investment Bank

Food and Agriculture Organization of the United Nations

GATT

GDP IADB

IDA

IDEP

IMF LIBOR

OAU

ODA

OECD PADIS

PTA

SADCC

SDR UDEAC

UN UNCTAD

UNCTC WACH

IBRD

General Agreement on Tariffs and Trade Gross Domestic Product

Inter-American Development Bank

International Development Association (World Bank)

African Institute for Economic Development and

Planning (United Nations) .■.-.

International Monetary Fund

London Interbank Offered Rate Organization of African Unity

Official Development Assistance from the OECD

Organization for Economic Co-operation and Development Pan-African Documentation and Information Services Preferential Trade Area of Eastern and Southern

African States .-,-..,-■-.

Southern African Development Co-ordination Conference Special Drawing Right (IMF)

Customs and Economic Union for Central Africa

United Nations . .. . ?:?-;

United Nations Conference on Trade and Development United Nations Centre on Transnational Corporations

West African Clearing House

International Bank for Reconstruction and Development

(World Bank)

INTRODUCTORY NOTE

The need for an autonomous African monetary and financial institution was stressed in the Lagos Plan of Action for the Economic Development of African 1980-2000, which called for the establishment of mechanisms to ensure "the complete restructuring and reorientation of

the policies and programmes of monetary and financial institutions imported into Africa (central banks, commercial banks, etc.) in such a way as to integrate them better in the development objectives of each country"*. An African Monetary Fund is considered the most effective institution of this purpose. It is also considered that the encourage ment and promotion of monetary and financial co-operation at the sub- regional and regional levels would be greatly facilitated by the establishment of such an institution.

As a follow-up to the decision contained in the Lagos Plan of Action, this integrated technical feasibility study was recommended by the first meeting of the Intergovernmental Group of Experts from Central Banks and Ministries of Finance of the African region which met in Addis Ababa from 4 to 7 October 1982. It decided that studies should be under taken on the various issues relevant to the establishment of an African Monetary Fund by the secretariats of the United Nations Economic Commi

ssion for Africa (EGA), the Organization of African Unity (OAU), the African Development Bank (ADB), the African Centre for Monetary Studies

(ACMS) and the African Institute for Economic Development and Planning

(IDEP). The exercise was co-ordinated by the secretariat of ECA.

The.terms of reference of the feasibility study are reproduced in Annex I. The study represents a consolidated perspective of the issues, concepts and mechanisms for the establishment of the African Monetary Fund, and is the result of fruitful and close collaboration among the participating secretariats.

* Organization of African Unity, Lagos Plan of Action for the

Economic Development of Africa, 1980-2000, (International Institute

of Labour Studies, Geneva, 1981), Chapter VII on Trade and Finance, pp. 88-89.

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The study brings together, in ssomev&at sirolified for™, the

very complex arid sometimes controversial issues relating to money

and finance as a critical aspect of socio-econonic development in Africa. It demonstrates that the establishment of an African

Monetary Fund, while not a panacea for Africa's monetary and financial ills, will undoubtedly promote tie creation of a sound monetary'

system in Africa- It is therefore desirable fed establish such, a Fund.

In preparing the study, nvtensive consultations -ere carried out with the existing international and regional monetary and financial insti tutions such as the Andean reserve Fund; the Central American

Stablization Fund; the Bank for international Settlements (BIS); the Arab '-onetary Fund; the European liionetary Svster; the International Monetary Fund and tr.e "orld r.aiik..;.Their rich and varied experience and their extensive research, studies and other, publications, provided extremely useful background material and inspired sor^e of the proposals isade in this study. I'ovrever, shc-rtconincs in the analysis or its

findings should not be attributed to tliese institutions*

For ease of expedition, this study is presented in eiaht chapters.

Chapter I examines the bac1 around and the problems experienced by

the African countries in dealing with their monetary problems, especcial- ly the balance-of-paymentF issues and provides the rationale for the creation of an African Ifcnatary Fund. Chapter II deals with the objectives and functions ot the Fund against the background of the pro^leas identified in the first chapter. In Chapter III, the issue of resources for the Fund are discusse !i in the light of its proposed objectives. Chapter IV outlines landing policies and operations, while Chapter V deals with organisational structure and suggests what bodies need to he created to afflC«*T?U*K the Puna's oMectives, including the secretariat. Chapter VI examines the viability of the proposed Fund as a financing institution, -rhila Chapter VII deals with co operation and linkage vith other or^nl-sation? in the monetary and financial fields, both within and outside ^crica. "he conclusions

are presented in Chapter VIII.

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CHAPTER I

BACKGR0U13D TO THF FETABLISHMENT OF AN AFRICA!" rOSETAKY FUtfD

A« The Basic Issues of Concern to Africa

1. Since attaining independence, most African countries have had difficulty in introducing effective national policies to deal with their persistent monetary and financial problems. By and large, their policies have been engendered or influenced by inherited concepts and considerations, albeit that the sovereign right of Governments to regulate their currencies has in principle been observed. At the global level, experience has shown that indivi dual sovereign states in developing Africa cannot significantly influence the decisions taker, in international monetary circles on such vital issues as interest rates, exchange rate adjustments and external reserves.!/ For a clear understanding of the African Monetary

scene, several issues need to be addressed.

2. The first issue is that, partly because there is no unified monetary system in Africa, individual central banks find it difficult to respond effectively to the vagaries of the international monetary situation. At the regional level, Africa's national monetary

institutions hardly consult each other on monetary policy. The continent needs a regional institution to deal with overall monetary issues and to establish a common unit of. account for external and regional transactions. Ifi the absence of such an institution and of independently evolved domestic monetary policies, nofet African currencies cannot attain the required autonomy and have had to be

and j£ /6e !;epor*s of *• development Co-rdttee, the Interim Cotrudttee

and the annual meetings of the Board of Governors of the World EanT

and the International Monetary Fund. '

"pegged" to one or another of the major world currencies for

international transaction purposes, tj

3, The interaction of several factors on the African monetary scene is causing grave concern to African Governments. ; These factors

include (a) the diminishing pover of domestic monetary policy to cope with the current economic crisis; (b) the growing influence

of external factors on-such policies; (c) the drastic decline in

Africa1s export earning capacity and the consequent depletion of countries foreign exchange reserves; (d) mountin? balance-of-payments deficits and the resultant slowing or stopping of development growth;

(e) increasing interest rates and other charges on external borrowing;

and (f) growing external debt, which together have created a vicious circle out of which many African economies have been unable to emerge.

Unless drastic policy changes are introduced immediately, it is estimated that Africa's economic situation will be worse at the end of this century than it is now. 3/ It cannot be overemphasised that there is an urgent need for a serious re-thinking of Africa's.monetary and financial policies. .. '.:■:.

4. The monetary and financial crisis in Africa is aggravated by the fact that the African countries differ in levels of development, incomes, population, geographical size and resource base endowment.

They also have varied degrees of sophistication in monetary and

financial policies,,,-Most individual African countries are not viable in economic terms - Gross Domestic Product (GDP) is small, national

2/ This lack of national autonomy is illustrated by the fact that as at 31 December 1984, f African currencies were pegged to the SDR;

13 currencies to the French franc; 7 currencies to the United States dollar; 12 currencies to a basket of European currencies; 1 currency to the pound sterling; 2 to the South African rand; 1 currency to the Spanish peseta *and 7 other currencies were adjusted on the basis of a set of indicators. : Information on one country _£■ not at present

available.

V See ECA and Africa's Development 1983-200P: a. Preliminary Perspective Study.

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money markets are limited or non-existent, the degree of rronetisa- tion is low, average income levels are low and production capacity

is unutilized; most have large populations dependent on subsistence

agriculture in which money plays a marginal role. African economies suffer from structural weakness in almost all productive and service

sectors; African peasant aariculturs is characterized by low levels

of technology, low productivity and low output. Growth in the agri

cultural sector, especially in food production, is slow, and this

in turn makes monetary policies difficult to irapleJWnt. 4/

5. The second issue is that Africa remains the least developed

continent with the lowest Gross Domestic Product and per capita income levels. The overdependence of African economies on exports of basic raw materials and minerals renders them highly susceptible tb external

developments. Internal policies have resulted in lov? levels of

income and sayings and have led a large portion of resources to be transferred for investment abroad. Post-independence efforts to accelerate economic and social development, including diversification of production and trade and the widening of domestic markets to reduce dependency and peripheralisxn, have led to further dependence on

external sources of funds.

6. The monetary and financial crisis is most seriously felt in the

least developed countries, 26 of which are in Africa. 5/ As a

consequence of Africa's monetary underdevelopment, their economies are disastrously vulnerable to the effects adverse developments abroad.

4/ Partly as a result of this and partly as a result of the serious drought, it was estimated that at the end of 1933 no less than 150 million people were threatened by hunger and malnutrition.

5/ See UHCTAD, The'Least Developed Countries and action in their favour by the International Cosnunity, 19S3.

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The impact of the global monetary system on the African region has been to cause constant decreases In real incomes, increased unemploy ment, rising inflation and, above all, confusion and instability in

the money and capital markets.

7. The third issue is that the monetary disequilibrium which

affected African economies during the 1970s has continued unabated into the 1900s. Sluggish economic performance, high inflation,

high unemployment, chronic balance-of-payments deficits and burdensome

debt service obligations are all beginning to act like permanent

hindrances to economic and social development in the African region.

Economic growth, which averaged 4 per cent in the period 1974-1976, fell to about 2 per cent towards the end of the decade, and to about 1 per cent in the early 19B0s^/ The total current account deficit of African countries increased from less than US$4 billion in 1974 to an annual average of US$9 billion during the period 1975-1979 before escalating to annual average of US£15 billion over.the period

1980-19.83. 7/ The .cumulative current account deficit over the ten

year period 1974-1983 is estinuited at more than US$100 billion. 8/

8. During the 1950s ant? the major part of the 1960s most African countries ran surpluses on their trade balances. Output in the

developed countries of the West was growing at an annual average rate

of 6 per cent in real terms, am3 the value of African countries' primary exports to them was growing at 5 per cent. Given the narrow

industrial base in African countries, the skewed income distribution pattern and the fact that the bulk of the population was living under

6/ See ECA, Survey of Economic and Social Conditions in Africa,

various; years 1975-1931.

7/ i^p, international Financial Statistics, various years 1974-

8/ See International Monetary ?und, International Financial

Statistics.

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subsistence conditions, export proceeds were i^ore than enough to cover

their import needs. It was this fact which enabled the external

balance to cater for income transfers, especially capital income.

9. The situation underwent drastic changes in the 1970s. Rising income during the 1960s had accelerated irrport substitution and industrializa tion- both of which stimulated an increase in imports. Global inflation gathered momentum froi; the time of the Vietnam war in the mid-1960,

spurred by the food price explosion (1972-1973) and then the first oil price hike (1974), leadino to a sharp rise in import prices. At the same time, the world-wide recession (1974-1975) prompted a decline in both the volume and prices of Africa's primary exports, which damaged

African countries' external terms of trade. The worsening in the terms of trade was accentuated further by the second oil price hike (1977-1980) and by international inflation which had reached double-digit levels.

10. The need for. an African Monetary Fund is now more pressing than

ever before. For the past 25 years or so, growth rates in most developing African countries have steadily declined. Export earnings have gradually decreased, import bills have increased,!?/ fiscal and monetary policies have not adequately addressed the problems of financing growth; capital accumulation has not taken place at a pace commensurate with countries' immense development needs; there have been excessive transfers of profit and capital gains from Africa; and the lack of a regional monetary

institution to co-ordinate the monetary and financial activities of member States vis-a-vis external institutions has also weakened Africa's position.

The ability of the African countries to generate resources has been drastically reduced, renderino them increasingly dependent on external borrowing, especially from private sources, to finance their current development programmes.

9/ See also United Nations, Department of Eccnomic Affairs, Comraodity Trade and Development, (E/2518), page 16.

— 6 —

Table 1. Selected Economic Indicators 1990-33

(billions of US dollars at 1930 prices) 19P0 1?<31 1952 . 1983

GDF

Domestic Demand Investment

Savings Exports Imp rts '

Trade balances Reserves

External debt outstanding a/

G9P growth rate Inflation

Terms of trade

Debt as percentage of exports Debt service ratio

315.

307.

81.

89.

94.

74.

19.

33.

77.

2.

23, -7.

■90, 12.

2 a 3

2 7 9 8

7 3

7 3 ,0 ,3

■5

306.6 319.3 85.4 72.6 79.1 85.1 Of .0

21.9 81.0

306, 315

77 69 69 73

—*\

, 15 86

(percentage)

-2.8 ■ 25.8 -6.0

105.9 15.9

IS -4 121 21

,6 .0

.6 r, .4.

.4 ;.

.6 .2 .7 .2

- i ■

.3 .S-

.2- .5

306.

312.

78.

64.

64.

64.

0.

IS.

m

14.

-5.

2 5 2 6 6 1 5 9

1 8

Source; World Bank, TTorld Debt Tables, TIT, International Financial Statistics, and HCA secretariat.

a/ In current US dollars

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11. As a result the African economies have continued to experience serious monetary problems, aggravated by the economic and social crisis which began to bite deep at the turn of the 1980s and has been exacerbated both by unprecedented drought and other natural disasters in many African countries and by the unfavourable inter

national economic environment ..10/ Therefore the thrust of new

policies in African development is to effect a structural transfor mation of the economies of African countries with a view to reducing their monetary and economic dependence on outside factors and

simultaneously promoting economic integration at the continental level. This is fundamental to the attainment of the collective, self- reliance and self-sustainment envisaged in the Lagos Plan of Action and the Final Act of Lagos.' The creation of- an African .Monetary Fund would go a long way towards realizing these objectives, lu

12. The need has long been felt for the creation of appropriate

monetary machinery to oversee the flow of resource^ towards agriculture, industry, human resources, energy, transport and.communications. To

promote socio-economic transformation in the African countries and

bring about monetary co-operation and the integration of African

economies, it is of paramount importance that an African monetary

strategy be clearly articulated.l^v Africa has already articulated

10/ For a full analysis of the crisis, see Special Memorandum by the ECA* Conference of Ministers on Africa's Economic and Social Crisis

(E/ECA/CM.10/37/Rev.2), May 1984.

11/ see for instance Report of the Sixth Session of the Conference of African Ministers of Trade (E/C?3,14/776} and the Report of the

Conference of African Ministers of Trade on its Seventh Session

(E/ECA/CM.3/13).

12/ The need for an institution of this type has also been felt in other developing regions of the world. Regional or subregional monetary institutions outside Africa include the Arab Monetary Fund, the Andean Reserve Fund, the ASEAN Swap Agreement, the Central American Stabilization Fund, and the Latin American Free Trade Association's

Financial Assistance Agreement.

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an industrial development strategy, an agricultural strategy, and a trade strategy within the framework for the establishment of an African Common Market. An energy strategy and a strategy for the exploitation of natural resources are now being defined. The point to stress is that in order to ensure balanced growth in the African economies, all aspects of social and economic development need to

be integrated with efforts towards monetary and financial co-operation.

13. The most daunting challenge in the field of money and finance is to produce guidelines on national and regional policy that will

actually help countries to bring about an "economic reformation" and emerge from the current economic crisis. 13/ The contribution of the monetary and financial sector to economic development and integra tion in Africa will be enhanced by well thought out monetary and

macro-financial strategies directed at some of the basic issues. This is why the Lagos Plan of Action calls for effective mechanisms to ensure that a sound regional financial and monetary institution can be established to protect the African economies from the adverse effects of the world monetary crisis and to deal with the problems of posed by a multiplicity of inconvertible currencies, the lack of effective money markets, mounting external debts and seriously depleted

foreign reserves. !&/

13/ By the terra "economic reformation" id meant the adoption of autonomously induced internal adjustment programmes based on a country's own assessment of its development objectives, priorities and needs bearing in mind the structure of domestic monetary and financial institutions to support such programmes-

14/ See also R. Liebenthal, "Adjustment in low-income Africa"

in World Bank Staff Working Paper No. 466, pp. 33 et seq,

_ 9 -

14. The fourth issue is that Africa lacks a clearly defined ■.?

foundation on which to build monetary and financial-policies for

coping with the growing economic crisis. For example,^there is a serious dearth of knowledge on the dynamics of rapid *pnetization and its impact on socio-economic development. There is no institutional framework to support the transformation of the banking system into a dynamic instrument of change and development. At, present there is

also no means by which the monetary system can enhance the integra

tion of the modem (export/import) sector with the rural economy. 15/

These issues can best be dealt with by an institution whose main

objective is monetary and financial integration at the African-regional

level. Such an institution would also be concerned with reforming today's externally oriented monetary systems, modernizing and stimulating Africa's tradional monetary and sayings institutions, indigenizing monetary and financial programmes, and making other national and subregional monetary institutions more responsive to the new development objectives defined in the Lagos-, Plan of Action. 16/

15. A related issue is that of:the multiplicity of African currencies.

Even at the African level, most currencies, are not readily accept able across national frontiers,except, where parallel markets operate

in respect of certain currenciesOJ/,, There is at present no frame work within which African countries; could work harmonize their

currency and exchange control legislation and practices and remove

,-.; 15/ See African Centre for Monetary Sudies, L1 impact du systeme" monetaire europeen sur les pays africains, page 20.

, 16/. See also Thomas Alfonso Medina. "Monetary and Payments

Agreements Among Developing Countries" in Breda Pavlic, et al. (ed.),

Ther Challenge of South-South Cooperation, (Westview Press, Boulder, Colorado, 1983), pp. 143-162,

17/ For some discussion of the issue of national currencies in an international context see Robert Triffin, The world Money Maze:

National Currencies in International Payments (Yale University Press, 1966).

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monetary obstacles to the expansion of intra-African trade. To attain a consistent African stance on such matters there must be an African financial institution whose operational horizon covers the entire continent. The creation of an African Monetary Fund, which would facilitate movement towards intra-currency convertibility, monetary integration and improved monetary management, would augur well for economic development throughout the African continent. ■'■•>'

16. International monetary and financial institutions do not seem to understand the problems facing Africa, and their prescriptions have failed to help the African countries to cope sensibly with their balance-of-payments deficits. There is an apparent reluctance to

accept that Africa faces not mere short-term cyclical balance-of- payments problems but the longer-term structural challenges of

shifting their economies from primary commodity production to modern

manufacturing. It is also generally argued by economists in the

developed market economies that Africa's problems will be alleviated by economic recovery in the industrialized nations.18/ The African countries, however, hold the view that the establishment of an

African institution such as the proposed African Monetary Fund would

not only help individual countries and subregibnal institutions to

identify and articulate problems arising from monetary and financial policies, but also help to ensure that the solutions put forward

were relevant to the problems identified.

17. Given the social and economic problems now confronting African countries, it has become increasingly important for those countries to strive for regional co-operation and collective self-reliance,

the cornerstones of their overall development strategy. As has already

18/ See communique of the Summit of the Heads of State and

Government of Seven Industrial Nations held in London in 1984,

been pointed out, major policy reforms are required with particular emphasis on the reformation of banking and monetary policies in Africa.

In addition to promoting monetary and financial co-operation, an African Monetary Fund could be expected to assume a leading role in

the design and execution of national aud regional programmes to

bring about currency stability and convertibility, mobilize domestic

savings to finance capital formation, correct external imbalances and reduce dependence on eyternal finance

18. As an African institution, the African Monetary Fund would definitely be sensitive to the sentiments1 of African countries and would use its resources to facilitate the implementation of their programmes. Such a Fund would be capable of designing a broad adjust

ment programne for all African countries irrespective of the differences in their economic systems and approaches to development. It should also be stressed that a rationalization of price mechanisms' interest

rates and exchange rates at tne continental level would be a powerful

stimulus to structural adjustments in African economies(

19. An African Monetary Fund need hot duplicate or even compete with existing subregional, regional or international monetary and financial

institutions in objectives, policies or operations; it could, however, provide a truly African focus on monetary and financial issues and enable African countries to respond effectively to international developments in these matters. 19/ If i'^3 activities were to be

fully co-ordinated with those of similar institutions, its approaches to such critical issues as quotas, convertibility of currencies, balance-of-payments support, lending criteria, compensatory financing

facilities, special drawing rights, supplementary financing facilities

and credit tranche drawings would have to be eatabliehsd in the context of the special problems facing African courtJ.ies, and be geared to the promotion of overall growth in the African economies.

19/ See also Report of the gJ£st_Megti£iig__c:f_ the Intergovernmental

Group of Experts on the establishment of an African Monetary Fund

(E/ECA/ITF/IATATP.fc/Rev.l),- October 1932. This treating discussed the

broad objectives of the proposed African Monetary Fund.

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,B, The Management of African Monetary and Financial Policy

20. The issues identified in the preceding section reflect the tremendous problems experienced by many African countries in manag ing their domestic monetary and financial situations. Such problems have arisen especially during efforts to deal with chronic balance- of-payments deficits and mounting external debts. Host African countries are not equipped to deal with the suddan changes they are experiencing in their monetary situations, especially in the wake of the current, unprecedented, drought. Their reactions can be described as ad_ hoc, relying on stop-gaps and palliatives amid a scramble for external resources to cope with the problem.

21* Worsening internal imbalances have engendered serious economic distortions which have acted as brakes on economic and social develop ment. On the supply side, they have led to neglect of agriculture, slowing agricultural growth and rural development in general. Now agriculture is lagging and industry, where growth has been led by the public sector in most countries, faces problems due to a combina tion of industrial policies and economic imbalances and has to depend on governments to make good its deficits. As a result, neither

agriculture nor industry is contributing significantly to the mobilization of domestic savings to reduce the need for external financing.

22. These problems stem from domestic policies which do not encourage savings and investment. For instance, nonrinal interest rates have long been and are today rather too lav?* They have ranged between 5 and 10 per cent, while inflation has stood at 20 per cent or more. As a result, national savings have not been flowing to the banks or other financial institutions, and this has deprived the financial system of a major source of investment funds. Low nominal interest rates have also prevented commercial banks and other financial institutions from pro viding funds for either agricultural investment or working capital, because the high risks could net be covered with prevailing rates. In the final analysis, most African countries are suffering from a prolonged

"financial depression".

13 -

23. Successful monetary policy requires a highly monetized economy and highly developed capital and money markets, which are at

present monopolized by the industrialized countries. Even then, banks1 use of monetary policy instruments, such as changes in required reserves, interest rates or open market operations, does not always bring about the desired changes in the quantity of money or other conditions of credit because of the shuffling of port-folios by asset holders, especially the transnational corpo rations. 20/ In developing Africa, however, even the wherewithal for an active monetary policy does not exist. Economies are not wholly monetized, there is a large subsistence sector on which interest rates exert little influence, while the capital and money markets that do exist, being almost wholly externally controlled, are not integrated with the rest of the economy. These features severely restrict the

efficacy of monetary policy in developing Africa.

24. Price, tax, income, trade and exchange policies have also con tributed to the slow-down in overall economic growth. Africa's growth strategy, in the light of its past and present internal situation, needs

to be based on three cornerstones: growth in agricultural output;

increased exports, particularly of industrial goods; and higher

stages of import substitution. FAO statistics indicate, however,

that agricultural output averaged 1.6 per cent growth over the period 1981-1983. There was a modest increase in 1982 of 3 per cent, but the figure declined to about 1 per cent in 1983. Industrial crops fared no better: growth actually declined by 1 per cent in 1982.2J7

25. It is evident from current statistics that the objective of food self-sufficiency to which African countries have committed themselves is far from being achieved. The indices of agricultural production

20/ For issues on transnational corporations, see UNCTC, Transna-

tional~~Corporations in World Development: A Re~Exair)ination (E/C. 10/38) March 1978 and ECA, Transnational Corporations in Africa: Some Major Issues (E/ECA/UNCTC/ID

21/ See FAO, Production Yearbook 1982 (Rome, 1982).

- 14 -

Table 2 . Index of Agricultural Production 1980-83 (1974-1976) ■= 100

1980 1981 1982 1983

Central Africa Agriculture Food

105 106

107 108

110 110 111 111

Eastern and Southern Africa 1/

Agriculture Food

107 110 112 114

107 111 ' 113 113

North Africa

Agriculture Food

112 112

97 97

110 110

105 105

West Africa Agriculture

Food

111 112

115 115

118 119

119 120

Developing Africa Agriculture Food,

Population Index (1974 =.1000)

109 109

110 111

113 114

114 115

Source: FAG production indexes and ECA secretariat estimates.

!_/ Includes Rwanda, Burundi and Zaire.

- 15 -

for the period 1980-1983 in Table 2 show that Africa can barely feed itself, given that the estimated growth rate of the population is between 2.5 and 3 per cent. It is for this reason that food imports

have absorbed an ever larger proportion of scarce foreign exchange

resources. During the period 1978-1980, Africa's food import bill averaged US$7.3 billion annually, half of which was accounted for by cereals. The value of cereals imports alone rose from SUS3.6

billion in 1979 to US$5.8 billion in 1981.22/ This seriously affected development by diverting resources away from productive activities to food consumption and also aggravate payments problems.

26. Most African countries have adopted a series of choices and options to deal with domestic monetary and financial pressures. First they tried to trim government expenditure to match available resources, but this quickly led to drastic cuts in imports of goods and equipment needed to sustain existing levels of growth. The trimming also

resulted in increased unemployment and social injustice, since welfare expenditure had in some cases to be drastically reduced, and schemes for economic reconstruction or rehabilitation had to be postponed or

abandoned. The contraction of government expenditure, therefore, was only partially successful.

27. Expenditure trimming was difficult to accomplish because the

success of monetary policy at the national level was impaired by the lack of co-ordination with fiscal policy. The task was made harder by the paucity of financial institutions,, inconpleteness of

monetization in some African economies and the multiplicity and

inconvertibility of African currencies further complicated the formula tion of suitable monetary policy, especially as the pegging of African national currencies to single or baskets of convertible currencies exposed them to exchange-rate fluctuations inherent in the main reserve currencies. The end result of these complicated relationships has been to render monetary policy an ineffective instrument for economic growth

and stabilization.

22/ Ibid,

16 -

28. Therefore, as seen in Table 3, total expenditure increased during the period 1980-1983. The median increase was from 23 per cent of GDP in 1980 to 39 per cent in 1983: an annual growth rate of 18 per cent, much higher than the rate posted by either GDP or revenue. Current expenditures as a proportion, of total expenditure

increased at a median rate of 7 per cent annually, while capital

expenditure remained stable. ...

29, The second option for internal adjustment was to look for external resources. This option was vigorously pursued but external resources

were difficult to mobilize because of the international recession,

the domestic economic situation in mrost Africa- countries, and fears by private creditors of possible default. Because the first two.

options could not, for both political and social-economic reasons, be

adopted by most African Governments, some opted for domestic credit

to cover the deficits through increased money supply. . . _.._._

- 17 -

Table 3. Major Fiscal Indicators in Developing Africa 1980-1983 (per cent)

-i . ' " ■ i r , ■

51 ■',''''■ ^. ■ ■ ' ■ -■''" ■-'-''" .'•■--

1980 .-..■.., 1981 1982 , ■ ■_ . 198S

o3 { ■ wH to I ■ "M

q> <a £1 i a & XH DO ■ J3| 0) H _ •£)l { ■■■}"■• ' ■' ' " ■ ■ ". '. ■ +J : 00 C ■ U Mi S u 60 ■ fi AJ 60 C

rjct) id GJ ,c:<ti WOJ ^ f] rt(D Jl«3 «!(U

MM -H3 COM «H 3 ■ 6D J-i -H 3 60V4 ,-H 3

■ . ,. ,-. ■ ; '■ - ':-r4 d) T3. t-J «H .<D -O H -H OJ T3 H -H al "d W

""" a)t> cu (d' (U > cucfl 4)> d)cd tup Qj5u

3:^ X> S « E3> & « St> 3:rt S>

*

Current revenue/GDP Indirect taxes/current

revenue;

Fore^Lgn trade taxes/

current revenue Current expenditure/

GDP

Capital expenditure/

GDP

Total expenditure/

GDP

Overall deficit/

GDP

Source: ECA, Survey of 27

36

35

19

11

.■ .T ; . ..

22 ...

1

Economic 24

37

35

23

10

33

j

5

and 31

50

42

19

15

33

6

Social 27

55

34

26

10

35

8

24±

, 46

29

21

15

36

11

Conditions 27

48

30

28

12

36

11

37

;5*

36

27'

20

44

9 in Africa

26

51

35

S 28

14

50

9

1982-83 Table V.A.I, and V.A.2, p.82-33, and estimates.

a/ National figures weighted by GDP at current market prices.

b_/ The median is the value represented by the "middle11 country such that half of all countries have higher percentages and half of them lower.

30. The monetary adjustment policies in Africa have been hindered by a lack of development in agriculture, due in large part to shortage of rainfall. In recent years, Africa has suffered severe irregularities in rainfall and shortages of water in many different areas.. Efforts directed at combating water shortage and increasing irrigation have intensified in a few countries. For the African region to achieve a satisfactory level of food production over the period 1960-1990, however, it will require an

18 -

amount of US^IG billion at constant 1975 prices for capital investment (see Table 4) and of course reforms in agricultural policy to introduce more efficient systems of production. The sums involved, however, are clearly beyond the reach of many countries.

31. Many African countries have tried to alleviate their agricultural problems by appropriate changes in capital investment in agricultural development. Local participation in capital investment, an integral part of their restructuring programmes has not, however, been success ful owing to declining incomes. £3/ In mtKy inst3nces agricultural out put and productivity have been constrained by unremunerative government pricing policies, and price structures which have not taken the infla tion rate into account. In other cases, bureaucratic government market ing and distribution channels have become obstacles to agricultural

development.

Table Estimates of capital investment required to achieve self sufficiency in foouB i;wc- ;;;c

(millions of 1975 US dollars)

Rain-fed agriculture Irrigated agriculture

Development Improvement Mechanization

Livestock development

Total

499.00 3 841.00 3 200.00 641.00 3 244.00 2 542.00 10 126.00

Source^ Adopted from FAO, The State of Food and Agriculture", (FAO, Rome

1978>, Table 2-12- > ; >

23/

See also Jerker Carlsson, The Limits to Structural Change. A Comparative Study of Foreign Dirert Tnvpqtment in Liberia and Ghana."

1950-1971 (Scandinavian Institute of African Studies, Upsala, 1981)

pp. 11 et seq.

19

32. Besides the problems in agriculture, using exports of industrial goods to increase export earnings has been made difficult by unfavour able external factors and low demand for such goods. Trade in industrial goods among the countries of Africa is therefore an important constituent of new industrial development programmes at the continental level as has been recognized in the treaties establishing such subregional economic groupings as the Economic Community of West African States (ECOWAS), the Preferential Trade Area (PTA) for Eastern and Southern African States and the Economic Community of Central African States (ECCAS). 24/ The

importance of intra-African trade in industrial goods cannot -is over

emphasized. To achieve a high growth rate in such trade African countr ies must progressively reduce and eliminate internal obstacles to it.

As the trade increases, the industrial base should also develop to higher levels; the growing international interdependence is bound to bear fruit sooner or laterI

33. Movement to a higher level of import substitution, particularly in the production of capital goods, requires the. creation of African

multinational enterprises and joint ventures either within the framework of subregional economic groupings and existing integration schemes or

through a geographical allocation of domestic resource-based industries.

Just as agricultural growth and higher degrees of food self-sufficiency

would reduce Africa1s dependence on food imports, the production of

capital goods domestically or at the subregional and regional levels would reduce capital imports from outside the continent and this, coupled with the use of the clearing facilities now being set up, would help African countries considerably in reducing their external imbalances.

At present, almost all of Africa's capital goods are imported from other parts of the world.

^ is hoped that these subregional groupings will constitute the foundation for an African Common Market and, later an African Economic Community.

- 20 -

Table 5. Financial indicators - Africa (billions of US dollars)

1970

oil countries (OPEC members)

Total

B. Non-Concessional

0.260 1.659

(2)

1973 1977 1981

(1) Total Financial Flows Non-oil countries Oil countries

(OPEC members) Total A. Concessional

Non-oil countries 1.399 2.756

2.150 4.370 11.775 16.619

0 3

.940 .090

0.

4.

342 712

3 15

.238 .063

2 19

.864 .483

0.241 2.997

2.157 3.093 Non-oil countries 0.751 1.616 Oil countries

(OPEC countries)

Total

International Reserves Non-oil countries Oil countries

(OPEC countries) Total

(3) Euro Currency Credits

(gross commitments)

Non-oil countries 0.526

Oil countries

(OPEC countries) 1.366

Total 1.892

6.500 10.429

0.210 0.415 6.710 10.844

5.276 6.191

0 1

.680 .431

0.

1.

100 716

3.

8.

077 353

2 8

.448 .639

4.403 4.397

2.

4.

166 323

3 6

.900 .993

11 15

.076 .479

17.

21.

194 591

1.849

2.108 3.957

1982

1.279

0.640 1.919

- 21 -

Table 5. Financial indicators - Africa (continued) (billions of US dollars) -,.;

1970 1973 1977 1981 1982

(4) External Debt

Npn-oil countries

■? disbursed and

undisbursed - disbursed only Oil countries (OPEC

members) - disbursed and

.undifibursed - disbursed, only

Total

disbursed and undisbursed disbursed only

(51 Debt services

Principal repayments

Non-oil countries

Oil countries - *

(OPEC members)

Total

Interest payments Non-oil countries Oil countries

(OPEC members)

Total

Total Debt Service Non-oil countries

Oil countries (OPEC members)

Grahtf total:

18.013 11.822

6.923 4.435

24.936 16.257

1.326

0.403 1.729

0.415

0.111 0.526

1.741 0.514 2.255

92.600 67.310

34.983 20.523

127.583 87.833

4.872

3.295 8.167

2.840

2.248 5.088

7.712 5.543 13.255

Source: ,.(*) Wo^ld Bank, World Debt Tables. 1983/84 edition

(2) UNCTAD, Handbook of International Trade and Development

Statistics, 1983. ~~ '

34. The problem with'-import--substitution* is that developing Africa's manufacturing industry is still in its infancy, accounting for more than 10 per cent of GDP in only five countries and for less than 5 per cent in most of the rest. 25/ The pace of industrialization has been slow, and in fact, the share of the industrial sector in the value of goods and services produced has remained constant since the early 1970s.

Twelve African countries account for 90 per cent of industrial output.

Further analysis reveals that the North African subregion accounts for 44 per cent of the value added followed by the West African subregion with 29 per cent of value added. 26/

35. Moreover, African industries are mostly concentrated in and restricted to the production of agriculturally based consumer goods.

Light and heavy industries are scanty and limited to assembly plants, with a few exceptions in some oil rich African countries where petro chemical industries have made some inroads. The manufacturing industries in Africa are, without exception, heavily dependent on external supplies of basic equipment, spare parts and other factor inputs. This has had serious repercussions on the development and performance of both the manufacturing industries themselves and the rest of the economy.

36. Oil and mineral resources, for those African countries that have them, have become important sources of foreign exchange earnings. They accounted for 40 per cent of the value of exports in 1965, gradually increase to 53 per cent in 1970, and to over 80 per cent in 1983. 27;

Oil .alone accounts for 75 per cent of the value of exports. It should, however, be pointed out that activities in the mining:industry, includ ing oil are largely controlled and influenced by exogenous factors which are seldom responsive to the policy orientation of ,the African Govern

ments and their development needs.

ECA» Survey of Economic and Social Conditions in Africa*

various years. ~

26/ " ~" **

— See UNCTAO, Handbook.of International Trade and Development Statistics, New York, 1983, Table 3.10A~

—'ibid.

- 23 -

C. The Impact of External Factors dp. lLni.Jj *\A Finance in Africa

(i) Historical perspectives

37. Imb&lancea in the current accounts of African countries are

not a new phenomenon but date back to the early 1970s, when they were

engendered mainly by tfce world energy crisis. During the 1950s and the major parts of the 1960s roost African countries had surpluses in

their trade balances. At ths same time, African industrialization was at its early stage*:, income distribution was skewed, and the bulk of the population was living at subsistence levels. Rising incomes and

accelerating industrialization during the 1960s spurred growth in imports while international inflation caused a sharp rise in imports prices. The world-wide recession of 1974-1975 led to a decline in both the volume aria prices of Africa's primary exports, and the unshot was a substantial woresening in African countries terms of trade (with the exception of the oil-exporting countries), accentuated by the second oil price hike (1979-80) and international inflation at double-digit

levels. 28/

38. It is estiraated that between 1973 and 1980 the non-oil exporting countries1 terms of trade declined by 30 per cent. 29/ Adjustment

policies followed by ftha developed countries shifted the deficits in

their external balances to the developing countries. The reaction of the African non-oil countries was for the most part ineffective. Ris ing import prices were not translated into domestic price rises, so as to reduce real income and hence demand, but cushioned by government subsidies. Increased subsidies caused widening budget deficits, and

28/ See also Adebayo Adedeji, "The Deepening International Economic Crisis and its Implications for Africa's statement made at the formal opening of the ECA Conference of Ministers, Tripoli, Libyan

Libyan Arab Jamahiriya, 27 April 1982.

29/ See.A.W. Clausen (World Bank President) "Let's Not Panic About the Third World Debts" in Harvard Business Review, November/

December 1983, No. 6. ™ '• : ~

- 24

national, saving? were correspondingly depleted. Deficit financing became the mechanisms for bridging the international imbalance (the

savings-investment gap).

39. External trade is made acutely difficult for the non-oil exporting

v'fr ■■-

countries of Africa by their balance-of-payinents deficits. Difficulties in financing their deficits have forced them to curtail imports and investment, and the result has been a major decline in real output. For the most part their real output has been growing slower than their

populations, and in many cases has actually fallen below previous levels.

Their combined current account deficits in fact declined in 1983 30/ but the decline was not due to a positive policy change towards adjustment:

rather, it was achieved at the expense of growth. The extent of the damage to countries1 actual financial situations will be seen more clearly later in this chapter, when the changes in current account balances and their constituent elements are discussed.

40. Features to be highlighted here include the ratio of Africa's total reserves to imports of goods and services, which declined from 33.9 per cent in 1970 to 23.7 per cent in 1981. 31/ The decline in this ratio not only reflects the constraints on Africa's ability to import both consumer and capital goods and services, but also explains why external debts increased so drastically during this period: most

countries borrowed to finance the deficits in their balance of payments because their reserves were already so depleted. An important feature of their borrowing was the increase in Africa's reliance on non-con cessional loans during the period 1970-1981. These developments, arcs.

summarized in Table 5.

J. World Economic Outlook 1963, Occasional Paper No. 21 (Washington D.C., May 1983), Pages 8-9. , <

_ In contrast, the ratio of reserves to imports of goods and services in South-East Asia increased from 20.2 per cent in 1970 to 21.2 per cent in 1981, whiLe in Latin America (including the Caribbean) the increase was from 29.5 per cent to 31.8 per cent over the same

period.

41. Thus it is clear that the current account deficits of African

countries, particularly the non-oil-exporting ones, do not truly reflect those countries' external financial needs in as much as imports have been suppressed and growth reduced to 1 per cent or less. The non-oil- exporting countries would need substantially more than the US$14 billion deficit they now run on their balance of payments if they were to achieve their potential growth rate. Their present deficit is, neverthe less, very large. In 1981 it accounted for 10 per cent of their gross domestic product (GDP), 48 per cent of their total gross fixed investment and 40 per cent of their aggregated exports of both goods and services. 32/

(ii) Africa's External Indebtedness

42. Africa's mounting external debts are of great relevance to the

establishment of an African Monetary Fur>d. Having depleted their foreign exchange reserves to meet principal payment and debt-servicing obliga tions, the African countries have been unable to develop adequate i,

resources for development.^33/ It is important to note the magnitude of Africa's external debt. At the end of 1983, the*total outstanding

debt of all African countries was estimated at about US$150 billion. 34/

Table 6 provides a breakdown of the debt structure. The figure of US$07.8 billion for 1982 is the total of disbursed loans as reported to the World Bank. It excludes short-term debts with maturities of one;

year or less, direct investment, debts repayable in local currency and transactions with ItiF (excluding Trust Fund loans), and covers only 45 African countries. It will be observed from Table 6 that total outstand ing debt increased in nominal terms by US$30,399.2 million (or 52.7 per cent) to US$87,844.2 million in 1982 from US$57,454.4 million in 1978. Of the total outstanding debt in 1978, 52 per cent was accounted

22/ SCA, Survey of Economic and Social Conditions in Africa, 1982-1983.

33/ The African external debt issues are discussed in detail in Annex I to the Special Memorandum by ECA Conference of Ministers on Africa's Economic and Social Crisis, and by Adebayo Adedejis Foreign Debt and the Prospects for Growth in the Developing Countries of Africa in the 1980s (ECA, June 1984).

34/ This is a 1983 preliminary estimate by ECA for all developing African countries as given in the Special Memorandum, and includes short

term credits.

- 26 -

Table 6.

Structure and extent of External Debt of African Countries 1978-1982 ($US million) """"" ~

1978 1979 1930 1981 1982

1. Total Debt Outstanding of which: Official

Private

2. Disbursements

of which: Official Private

3. Principal Repayments

; of whichs Official Private

4. Net flows

of which'; Official Private

5. Interest Payments of which: Official

Private

6. Net Transfers

of which: Official Private .;

7. Total Debt Service of which: Official

Private

57 29 27

15

■ 5 10

3

2

12 4 7 2 1

10 3 6

5 1 3

454 846 607

752 535 216

401 775 625

352, 760.

590,

127.

920.

207,

223.

840.

383.

529.

695.

833.

.4 .6 .7

.9 .3 .6

.5 .7 .6

,1 ,6 ,9

7 1 6

8 5 4

1 1 3

69 36 33

15 6 8

4

3

11 5 5

3

2

8 4 3

7 1 5

640 060 580

713 520 193

536 947 588

177 572, 604,

171.

94o, 222.

006.

624.

381.

707.

895.

811.

.6 .3 .3

.6 .4 .2

.2 .7 .6

.5 ,8 .7

1 4 8

4 6 9

0 8 3

78 42 35

16 7 9

6 1 5

10 6 3

4 1 3

5 5

10 2 8

083 553 529

680 611 018

439 219 220

190, 392, 797,

283.

225.

059.

906.

167.

738.

723.

444.

279.

.1 .3 .7

.0 .9 .1

.8 .6 .3

.2 ,3 ,9

,9 8 1

3 6 3

6 4 3

83 46 36

15 7 8

6 1 5

8 5 2

4 1 3

4 4

■-

11 2 8.

331 549 783

753 737 216 016 564 451

737 972, 764,

616, 417.

199.

120.

555.

434.

633.

981.

651.

.6 .9 .8

.8 .3 .6

.4 .4 .9

.6 .8 ,7

,8 4 4

8 4 6

0 7 4

87 51 36

15 7 8

8 1 6

7 5 2

5 1 3

2 4 1 13 3 9

834.2 024.7 809.5

899.9 603.8 296.1

167.2 927.7 239.5

732.6 676.1 056.3

676.1 485.8 600.8

646.2 190.3 543.6

253.7 413.5 840.4

Source: World Bank, World Debt Tables, 1983/84 Edition.

- 27 -

for by official creditors; by 1982 that share had increased to 58 per cent. From 1978 to 1982, annual disbursements averaged US$15,960

million. Increasing official disbursements barely compensated for reduced disbursements by private, creditors fearing failure by borrowers

to meet their debt-servicing obligations. Nevertheless, as shown in Table 9, the accumulated external debt of the non-oil exporting Affican countries amounted to US$94.2 billion in 1982, of which 0S$/1.4

billion was disbursed. This is five times the 1973 level and repre

sents more than half their gross domestic product (GDP) in 1982.

43. The debt-servicing burden of the 45 African countries covered in Table 6 rose from US$5.5 billion in 1978 to US$13.3 billion in 1982.

Of this total, repayments constituted $US 8.2 billion and interest pay

ments US$5.1 billion in 1982. The prevailing external financial

conditions, particularly the reluctance of OECD countries to provide

greater concessional financial aid and the rapidly rising interest rates in financial markets, made loan refinancing and rescheduling both more difficult and more costly. Total debt service as a percentage of exports

(the debt service ratio) stood at 20 per cent in 1982 for the non-oil- exporting African countries. Alarming reductions in both maturity

periods and concessional elements represent yet another burden on the fragile economies.

Table 7. African (non-oil countries) current account Financing

Non-debt-creating facilities Official long-term capital Private long-term capital Other financing sources Source: IMF9 World Economic

(percentages)

1975

67 30 21 -18

Outlook, 1977

34 25 23 13

, 1983.

1981

33 35 7 25

1983

33 24 -5 30

- 28 -

44v ,}} i-s clear from the figures in Table 7 that the contribution of non-debt-creating facilities to the current accounts of Africa's non-oil countries halved as a percentage. (Non-debt-creating facilities include official transfers and direct investment). The contribution of other financing sources (including reserve-related credit facilities such as the IMF credit and short-term borrowing) increased. Long-term official capital inflows did not follow any particular pattern, but'private long- term capital declined drasticaliy owing to general apprehension among financial institutions about the credit-worthiness of non-oil African

countries.

45. A few factors require special mention. First, interest rates on debts increased from 3.9 per cent in 1970 to 13 per cent in 1982,

largely because the private-sector rate increased from 5.2 per cent to 15 per cent over the same period. At the same time the average maturity of a loan decreased from 28 to 16 years, and the average grace period from 7 to 4 years. The grant element dwindled from 45 per cent to 8

per cent.

• •

- 29 -

Table 8. Average Terms of Debt Commitments 1970, 1977 to 1982

Interest (percentage) Official creditors Private creditors Maturity (years)

Official creditors Private creditors Grace period (years)

Official creditors Private creditors Grant element (percentage)

Official creditors Private creditors

Source: World Bank, World Debt Development Statistics

1970

3.9 3.0 5.2 27.6 30.0 10.0 7.0 9.2 4.0 47.0 58.4 18.0

1977

4.5 3.9 7.8 21.2 38.1 9.1 6.5 7.6 3.8 38.2 53.6 12.2

Tables (1983-84 edition);

, New York.

1978

6.8 4.5 10.3 18.7 37.6 8.6 5.3 7.1 2.9 22.4 47.1 0.7

UNCTAD,

1979

fi.8 5.1 12.0 17.6 22.4 8.7 4.8 6.4 3.1 18.5 35.3 -8.4

Handbook of

1980

8.6 4.5 12.9 19.1 24.8 8.8 5.2 6.9 3.0 20.1 40/2 -13.5 Internat ional

- - ;

1981 . '

11.1 5.3 14.4 16.8 22.3 8.3 4.5 5.8 2.7 9.6 37.6 -18.6

Trade and

1982

13.4 6.1 14.8 15.2 22.0 7.8 4.0 5.7 2.9 8.1 35.0 -20.2