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Greek crisis: lessons for Africa

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Ecobank's Charles Kie

Events such as the Greek debt crisis and falling commodity prices are serving as an eye-opener to African countries, says Charles Kie, group executive of Ecobank’s corporate and investment bank.
‘In Greece, borrowing has become the shortcut to mismanagement of the economy. If African countries don’t make the right decisions now, we can expect another heavily indebted poor country (HIPC) to occur in the next 10 to 15 years as a consequence of some measures not being properly taken care of now.’
African countries went through in the 1970s and 80s what is happening in Europe today. Most, if not all, of them have gone through adjustment problems with the IMF. ‘It was very painful. A lot of governments even fell when applying those policies word for word. But in the end it paid off, because one of the reasons why African countries from the mid-90s started seeing growth in their economies was because they made the right adjustments in their fiscal accounts, in the sources of revenues for the countries and in the overall framework of the business environment. They have been able to sustain growth for more than 15 years,’Kie says.
Despite the sustained growth, Kie believes African countries can learn on the back of what’s happening in Europe today. ‘Firstly, excess in indebtedness is not good. Secondly, fiscal discipline is critical: the countries which forget about fiscal discipline feel the pain very quickly and have to go back to the IMF, which they could have avoided.
‘Thirdly, countries that have not diversified feel the pain of commodity price volatility: hence the need for Africa to diversify its economies.
‘Lastly, convergence and integration in economies is crucial. The only reason why Greece has been set aside is simply because the convergence was not there: they should never have been at 180 percent debt to GDP, they should never have been at 9 percent fiscal deficit.
‘These are all good lessons that we can learn as African countries in order to make sure that, as we go forward, we get stronger and we ensure more stability in our economies.’
Some of Africa’s largest economies have been heavily reliant on the oil price to secure their foreign exchange reserves and to take care of their fiscal balance. But it has become crucial for these countries to think about their models differently. ‘For the likes of Nigeria and Angola, it is time to think about diversification. It’s not sustainable to think that a country can rely on oil for more than 80 percent of its foreign exchange reserves. Intrinsic adjustments need to be made to rebalance the economies. If more value is not created in Africa, that dependency on commodities is going to be a major impediment to future growth,’ Kie says.
African countries have a huge opportunity and need to look strategically as how to rebalance their economies. ‘They should be saying, “What are the clusters we should develop? What are the new industries we should look into?”’
Some countries have understood it: the likes of Rwanda, Botswana and Côte d’Ivoire have really taken steps in terms of reforming their economies. But there should be more economies taking those steps, he urges.

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