- Some pundits have already called the strategy a spillover of the US-China trade war that is meant to pressure Beijing to bow to Washington, but economic historians will have a different view.
Last Thursday, US President Donald Trump’s administration through National Security Advisor John Bolton unveiled its Africa strategy at the Heritage Foundation, a conservative public policy think tank. Mr Bolton was honest enough to declare that the strategy mainly centred on countering China and Russia’s influence in Africa.
Some pundits have already called the strategy a spillover of the US-China trade war that is meant to pressure Beijing to bow to Washington, but economic historians will have a different view.
Looking at the timing of the strategy in retrospect to the US-Africa history, US seems to be re-inventing the 1980s Washington Consensus. To explain what the Washington Consensus is, during the global recession in the 1980s Third World countries found themselves in a terrible cycle of debt.
They were paying highly priced loans that were dominated in dollars because their currencies were weakening thus increasing the value of their loans whilst at the same time interest rates that they had to pay on the loans were also spiking.
Since there was a global recession, these third countries couldn’t generate the necessary revenue from exports needed to pay back the dollar dominated loans. Many countries never saw the debt crisis coming until loan payment defaults started, most notably being indexed by the Mexico default, and the others soon followed thereafter.
These countries found themselves with only one option to run to for bailout and that was Washington DC, where IMF and World Bank working together with US leaders and the US Treasury and Federal Reserve stepped in but imposed harsh conditional ties.
The proclamation issued by the World Bank and IMF in conjunction with the others came to be known as the Washington Consensus and the harsh conditions were what came to be known as Structural Adjustment Programmes (SAPs). Coming back to the new Africa strategy by Mr Trump’s administration, there are three key areas that US will seek to advance; namely fair trade and commercial ties with African countries, the fight against terrorism and militant violence, and providing aid in effective and efficient programmes.
But more keenly for economic historians, this strategy is coming at a time when many African countries are facing the risk of debt distress with some already in distress, a reminder of the genesis of the Washington Consensus.
Now, China’s strategy in Africa has been centred on economic diplomacy where they are heavily financing infrastructure projects paid back in form of loans with minimal conditions, leading to many countries piling up Chinese debts. In October, IMF’s African Department director categorised eight African countries as being in debt distress, admitting that the African debt trap is becoming a heavy burden and unsustainable.
Brooking Institution, an American think tank, in its own analysis has also classified ten African countries as soaring heavily in debt. This means African countries will be turning to IMF for bailout packages and the US seems to be anticipating such a situation. One of the main strategies the US will most likely be deploying to counter China will be to demand that IMF bailouts extended to African countries are not used to repay Chinese loans.
This is exactly what the US demanded from IMF when they were negotiating a recent bailout package with Pakistan. In July this year, Secretary of State Mike Pompeo was quoted as saying that the US would not allow Pakistan to use US taxpayers’ dollars to repay China.
If the US deploys this strategy, it will be a blessing in disguise to many African countries but the dilemma will be if US also plans to extend huge credit facilities to counter China. The US is already pushing Kenya to take the expensive project of building a dual carriageway between Mombasa and Nairobi at a cost of more than Sh300 billon in form of debt.