The New World Order and Africa

By Gregory Simpkins

There has been increasing talk about a New World Order created by the alliance primarily of China and Russia, along with other nations interested in eliminating the economic and political hegemony long asserted by the United States. The primary tool the United States has used in this regard has been the U.S. dollar – currently the world’s reserve currency. Lately, this alliance, which includes Brazil, India and South Africa – the other members of the BRICS coalition – are said to be developing a new currency to rival the dollar.

Eddie Donmez, a frequent writer on financial issues on the social media platform LinkedIn, recently reported ominous developments for the dollar:

• Saudi Arabia has agreed to join the Shanghai Cooperation Council as a “dialogue partner”.
• China and Brazil have agreed to trade in their own currencies, ditching the US dollar.
• France and China have also completed their first Yuan-settled LNG trade, again ditching the US Dollar.

Donmez believes these developments potentially upset the existing “petrodollar system”, which came into dominance after the collapse of the Bretton Woods global economic system (1973) and is one of the major drivers behind the dollar maintaining its world reserve currency status. Saudi Arabia, China, Russia, India, and others, he says, have been strengthening relations and trade at a dramatic pace over the past year. Saudi Arabia even said that it is open to joining BRICS along with Turkey (Türkiye) and Egypt this year.

These countries, as well as members of the Shanghai Cooperation Organization (SCO), have all stated their intentions for a “roadmap for the gradual increase in the share of national currencies in mutual settlements” and agreements to “ramp up coordination on energy (oil, natural gas and nuclear) exploration and policy” among other things, Donmetz writes.

This sets the stage for a commodity-backed reserve currency to rival the dollar.

Dollar shortage

At the same time, some African countries, including Egypt, Ghana, Kenya, Nigeria, Zambia, and Zimbabwe are currently experiencing shortages of U.S. dollars. The dollar is the dominant currency in international transactions, and these countries rely on U.S. currency to pay for foreign debts, essential goods, and industrial inputs.

In the April 6 edition of the Daily Nation, Christopher Adam, Professor of Development Economics at the University of Oxford, writes that global trade is conducted in the currencies of the world’s major economic powers, principally the U.S. dollar, but also the European Union’s Euro, the Japanese Yen and, to a lesser extent, the Chinese Renminbi and the UK’s Pound sterling. Individuals, firms, and governments in the world need these currencies to import goods and services and make other payments overseas.

But if large powers begin to seek ways to overcome dollar dominance and developing countries are having trouble obtaining dollars, what is to say these trends could not overlap, with resource-rich nations amassing the power and influence of a new resource-backed currency?

Although I have been assured by a Kenyan colleague who is an exporter to the United States that the dollar shortage in his country will be relieved when the current avocado crop is harvested and sold, many others are not so certain about there being rapid and lasting relief. Professor Adam feels the only surefire way to avoid a dollar shortage is self-sufficiency – referred to in economics as autarky.

A range of political systems – from fascist to communist – have contemplated autarkic systems to control their resources against perceived threats, preserve a social order or protect a favored industry. Autarky can result from economic isolation or from external circumstances in which a state or other entity reverts to localized production when it lacks currency or excess production to trade with the outside world.

There are no fully autarkic nations in the modern world, as even the most isolated have some level of participation in international trade and receive outside support or aid. North Korea and Nazi Germany are two of the very few examples of nations that have pursued a policy of total autarky.

But if large powers begin to seek ways to overcome dollar dominance and developing countries are having trouble obtaining dollars, what is to say these trends could not overlap, with resource-rich nations amassing the power and influence of a new resource-backed currency? Such a plan might seem enticing to emerging nations interested in creating more agency for themselves and breaking the economic ties many see as strings of control.

Sanctions

In fact, one of the primary reasons China, Russia, and others want to end dollar dominance is that it enables the U.S. government to use that control to implement sanctions for behavior with which it disagrees. The ubiquitous nature of the dollar means that the U.S. government can enforce sanctions by halting dollar-denominated trades just about anywhere in the world. Without such economic leverage, African and other emerging country governments would be free from the current tool of punishment by the United States.

But would that be an altogether good thing for Africa’s people?

China and Russia are seeking not just to do business in Africa, but also to win the “hearts and minds” of African governments if not its people. The United States has earned goodwill for providing humanitarian assistance and significant investment in health throughout Africa for the past few decades. However, China especially has been engaging more in infrastructure and manufacturing than the U.S. government or private sector.

When China does business in Africa, its government doesn’t examine its host’s human rights record or adherence to the “rule of law”. The U.S. position on these issues is more in line with African civil society and presumably its citizenry. Nevertheless, African jobs are a major concern, and jobs are created by small business, not so much big business, which is often mechanized and employs expatriate workers.

There are more than 10,000 Chinese firms currently operating throughout the African continent, and the value of Chinese business there since 2005 amounts to more than US$2 trillion, with US$300 billion in current investments. The U.S. drive to increase U.S.-Africa trade and investment involves mainly large companies, which “move the needle” on measurements of the value of U.S.-Africa trade and investment more than small and medium enterprises (SMEs) would. It isn’t that U.S. government officials don’t realize that SMEs would be of great benefit to our commercial relationships on the continent through job creation.

During the early days of developing Prosper Africa, discussions in which I participated covered the need to increase the jobs created by U.S.-Africa trade and investment as well as the dollar amount of trade and investment. But for U.S. government officials and American multinationals, the amount of effort to promote SME involvement is the same as for promoting deals by big business, which are seen as having a greater measurable impact.

Admittedly, it is not as easy to determine accurately how many jobs a deal will produce in Africa, and saying that U.S.-Africa trade and investment has doubled in terms of dollar amounts has a more dramatic effect than saying that 50,000 jobs were created in African countries. The aim of job creation through trade and investment is supposed to mutually benefit the United States and our African partners, but the African Growth and Opportunity Act was created to boost African exports to America, and our government doesn’t focus on the full impact of handling imports from Africa – at least not yet.

Ivor Ichikowitz, a South African industrialist and philanthropist writing in the March 1 edition of the New African magazine, referenced a poll conducted among young Africans in 15 countries by his foundation last year, based on more than 4,500 interviews. The African Youth Survey (AYS) looked in depth at what the rising generation’s expectations of, and concerns about global powers are.

“More than three-quarters of Africans between the ages of 18 and 25 years expect to realize a standard of living better than their parents, and an astonishing 78 percent plan to start their own business in the next 5 years, our survey found,” Ichikowitz said.

“The African workforce does not reflect the West’s present state of ‘Great Resignation’. Our human capital is our greatest resource.”

If African youth are expecting a future with more jobs available, then the United States has to help create at least a reasonable share of those jobs if we want to remain competitive with others in the new economic framework under the African Continental Free Trade Area.

Gregory Simpkins, a longtime specialist in African policy development, is the Principal of 21st Century Solutions. He consults with organizations on African policy issues generally, especially in relating to the U.S. Government. He also serves as Managing Director for the Morganthau Stirling consulting firm, where he oversees program development and implementation. He further acts as a consultant to the African Merchants Association, where he advises the Association in its efforts to stimulate an increase in trade between several hundred African Diaspora small and medium enterprises and their African partners.