The Vanguards of the Paradigm Shift against their Intellectual Progenies—Part 5

By Musa Sanneh 

A specter is looming over The Gambia—the specter of bloated government and “class antagonism.” Fifty years after The Gambia’s foundational economic blueprint was minted, ‘a new thinking’ conceived on bloated government and class antagonism seems to be seeping its way into the country’s economic discourse. 

The ‘new thinking,’ according to its proponent is a “Transformative Agenda,” an agenda whose time, he said has come if not passing. The agenda, at its core, has a very small but persistent and highly indoctrinated fanatical disciples. They are mostly the proponent’s ideologically subservient allies who assume no responsibility for scrutinizing the efficacy of the proponent’s non-econometric models of development policy. For a powerfully distinguished fellow who is accustomed to acting unaccountable, the prospect of any type of scrutiny will invariably feel like crucifixion. 

Not surprising therefore, the “Transformative Agenda” has not only been accepted wholesale, but the pilgrims, without even testing the predictive accuracy of the policy—if there even exist data to that effect, have since argued that for The Gambia to have any chance of an economic miracle, adoption of the “Transformative Agenda” in its entirety is a foregone conclusion.  The agenda, they cried, is a culmination of decades of scientific analysis the like of which has never taken place anywhere else in the world. Henceforth, a new school of economic thought has been developed which according to them will revolutionarize the world economic discourse to the extent that the prevailing economic thoughts centered on the Austrian and Keynesian Schools will be proven utterly inferior. 

With this ‘new thinking,’ they claimed, the departure from socialism by Russia and the former soviet republics will be halted and reversed; and that China, which until now combines communist dictatorship with market capitalism, will be forced to reconsider moves to opening up her economy to foreign trade and investment. Theoretical literature on heavily government-subsidized banking and the statistically significant correlation between such governmental interventions, and inefficiency, waste, fraud and abuse should not be matters of empirical evidence in the case of The Gambia. 

In The Gambia, they argued, the only way to ensure equitable distribution of the country’s resources is through some form of government-controlled planning. It is only through the central planning that civil servants could be provided free breakfasts, lunches and presumably dinners; free transportation for government workers could become a norm rather than exception; the farmers who until now, in their view, have been colossally sucked to bare bones by private banks can be adequately cared for; and the impoverishment of farmers which according to them was a direct result of high interest rates and credit squeeze by the private banks can be remedied, they cataloged. 

Consequently, the government, they asserted will establish a cooperative bank that will be provided with unlimited resources to finance farm inputs and implements at giveaway prices to farmers. The provision of giveaway credits to farmers in their opinion is what will eventually help eradicate poverty of the rural poor. 

Meanwhile, the capital that would be needed to fund this government largess would be siphoned from the coffers of the Social Security and Housing Financing Corporation (SSHFC). Damn the economic and financial interest of the private contributors, along with the fiduciary responsibility of the fund managers, to the funds. Nay, who says the contributors of the funds to SSHFC deserve a market determined returns on their investments and who cares about the management’s fiduciary responsibility in making sure that their clients’ best economic and financial interests are preserved and protected? Smacks of dictatorship and class antagonism, isn’t it?

Furthermore, sovereign national wealth fund shall be the new lingua franca and thus Part III Subsection 7(1) of public finance act which states that:

Pursuant to provisions of section 150 of the constitution, there shall be a consolidated fund into which shall be paid: 

(a) all REVENUES or other PUBLIC monies raised or received for the purpose of, or on behalf of the government, including tax revenues, non tax revenues, grants, and loans, and;

(b) Any other money raised or received on trust for or on behalf of the government

Must henceforth be read as:

Pursuant to provisions of section 150 of the constitution, there shall be a sovereign national wealth fund into which shall be paid: 

(a) all REVENUES or other PUBLIC monies raised or received for the purpose of, or on behalf of the government, including tax revenues, non tax revenues, grants, and loans, and;

(b) Any other money raised or received on trust for or on behalf of the government.

Apparently, change in the nomenclature alone is a central pillar of the “Transformative Agenda” and by default a necessary precondition for the success or failure of the entire project. So be informed, one of the reasons for extreme poverty in The Gambia is a direct result of the past governments’ recalcitrance of making this necessary and important name change.

But, whilst the pilgrims of this new economic orthodoxy continue to rejoice and breathe sigh of relief, skeptics on the other hand have mostly been left holding their breathe on so many fronts leading some to wonder if the “Transformative Agenda” in its descriptive form is anything more than an equal opportunity political zinger. For some skeptics, the manifesto looks more of a cudgel for moral opprobrium against political opponents than a scientific economic policy. Yet for others, the content seems a perfect match of the definition of the theory of virtue signaling.  

Whatever it is, the first point to note is that the notion that a sleek central planner knows more about the markets than the rational market players; and that within his infinite wisdom, could smooth macroeconomic imbalances without creating dislocations and distortions in the system bare not only the defections and deceptions inherent in that ideology but also seems to suggest that the ideology itself is shrouded more in arts than science.

Indeed, evidence abound that The Gambia, like many other developing countries, has experimented with different macroeconomic policies in the past. The rationale for such policy experimentations were both as a means to expanding the productive base of the economy and as well as ways to providing solutions that could potentially lessen or eradicate the dependence on foreign loans if the country was to maintain any semblance of economic sovereignty. One must admit that many of those policies had proven to be the wrong economic diagnostics. Notwithstanding however, one must equally admit that moral condemnation of those failed policies is not, cannot, and must not in itself be accepted as a scientific affirmation of someone else’s economic theory. Worst still, advocating for a policy shift while discounting the potential dangers of the shift and oblivious to its cost are indeed not only recipes for economic disaster but also basking in moral turpitude. Were such disasters to occur, the fault, as in the words of Shakespeare in Julius Caesar will not be in our stars, but in ourselves. 

If evidence and not just platitudes are to form the basis of any future viable economic policy and if the argument that high interest rates and credit squeeze were to be accepted or refuted as leading factors in the impoverishment of the farmers, then clearly, a fast rewind of the financial system of the bygone era and its implication on the economy is necessary. Let’s begin from 1960s.

History has informed us that from 1960s to early 1970s, the Gambia’s monetary system consisted of mainly five financial institutions. These institutions were The Gambia Currency Board – now referred to as the Central Bank of The Gambia, Standard Chartered Bank, B.I.C.I, Post Office Savings Bank, and The Gambia Central Cooperative Banking and Marketing Union Ltd (GCCBMU). The financial system of the country was aligned with the sterling zone and the currency, the Gambian pound, was pegged to the British pound sterling. During this period, financing of buying and exporting of groundnuts, was done indirectly by The Gambia Currency Board (GCB) through the intermediaries—the private Banks and the government. The GCB issued loans to the private banks at a rate about 5.5 percent. The private banks in-turned relend to GCCBMU at 6.5 percent. The GCCBMU was owned by local cooperative societies and its membership by some estimates exceeded 40,000 members. Given the strength of the organization and its sound financial management, GCCBMU was able to accumulate assets totaling over £270,000 (pound sterling) by 1968 more than £4,803,478 in 2021 adjusted for inflation. More than 20 percent of its assets were in the form of credit to its members. The loan repayment rate by members averaged between 95 percent and 98 percent annually. Agriculture grew at a rate of 2.6 percent annually—the same pace with population growth thereby eliminating the imbalance between production and consumption and elevating the household income of the farmers; averaged GDP growth was between 3.3 percent and 4.9 percent per annum. Number of guest workers mainly from Guinea Conakry, Mali and Senegal according to some statistics totaled “10% of the active male population of the country.” Real income per capita snowballed from 3.5 percent shortly before independence to 5.5 percent by the end of 1960s. The ripple effect of the economic growth was felt not only in rural Gambia but also in the urban areas. The one percent difference in interest passed on to the farmers was marginal and deemed reasonable considering the administrative and other transactional costs to the bank. Fast forward to 1970s, and1980s, the question then becomes, how has the situation changed? 

By early 1980s in addition to other financial institutions like The Gambia National Insurance Corporation, the Post Office Saving Bank, and the Social Security and Housing Finance Corporation, The Gambia had mainly five major financial institutions. These institutions were the Central Bank of The Gambia, The Gambia Commercial and Development Bank, International Bank for Commerce and Industry, the Standard Chartered Bank and the Agriculture Development Bank. Agricultural Development Bank, it has to be mention literally died in the birth pangs. It was established in 1981. By 1982 it was essentially incapacitated for lack of funds and by 1989, it died a natural death. 

As part of the policy reforms in the late 1970s to mid 1980s, with a view to expanding agricultural productivity and the need to rebuild the foreign exchange reserves, The Gambia embarked on an array of policy reforms. Combined with floating the Dalasi, several policy reforms including the raising of the producer price of groundnuts, increased government subsidies and adjustments in the methods of provision of credits to farmers were made. By 1986, the prevailing price of D1800 per tonne of groundnuts was at par with price offered by Senegal—at least more than tripled the price offered to the farmers in 1984 and “50 percent more than export parity price,” (C. Jones & S. Radelet). Total of D83 million, equivalent to 8 percent of the country’s GDP was expensed to finance the subsidy. The Gambia Commercial and Development Bank through The Gambia Cooperative Union was tasked with the provision of heavily subsidized government guaranteed loans to farmers. Government guaranteed loans gave GCU unfair trade advantage over the private traders. Consequently, as a result of its competitive advantage, GCU was effectively able to increase its market share to 80 percent between 1975 and 1985, thereby crowding out most of the private traders. Furthermore, as quasi governmental entity, GCU was accorded complete monopoly over the distribution of farm inputs and implements and because most of the loans it disbursed to the farmers were either government guaranteed loans or loans provided by the donors, GCU was able to lend to farmers on concessional terms with exceedingly relaxed requirements for loans security thereby making it possible for even those with low repayment potential to be given credits that are over and above their credit risk profiles.

The table below provides a snapshot of the amounts of subsidies and official price of input to farmers. The data proves that at no time between 1980 and 1984—the period prior to the commencement of the economic recovery program had the farmers lack farm inputs leading to impoverishment from high interest rates or debt. 

Fertilizer Prices in The Gambia 1980 – 1984 (in Dalasis per tonne)

Source: Graham, Meyer et al. Qtb Oludele A. Akinboade

Illustrated in the table is a data set showing the type of chemical fertilizer used by farmers, Cost insurance and freight value of the fertilizer (CIF), wholesale price, retail price— i. e. the market price and the official retail price—i. e. subsidized price. The market price for SSP, UREA, and 20-20-20 per ton in 1980 were D411, D648 and D641 respectively. As a government policy to increase agricultural production, these products were sold to farmers on credit at subsidized prices of D105, D267 and D133 respectively. On average, SSP was subsidized at a rate of 74 percent or D306 off the market price, UREA was subsidized 59 percent or D381 off the market price and 20-20-20 was 79 percent subsidized that is D508 less than the market price. Until the start of the economic recovery program in 1985, the same was true for 1981 to 1984.

Evidently, absent data to the contrary, it is reasonable to dismiss the ruse that high interest rates and credit squeeze were responsible for the impoverishment of the farmers. We hold the view that the opposite is in fact true. It was precisely the unsustainable excessive government subsidies, waste, fraud and mismanagement coupled with the prolonged Sahel Drought and other external factors such as recession of the 1980s, soaring oil prices and collapse in world market price of agricultural commodities that led to the colossal impoverishment of our farmers. Most farmers, up until the beginning of the economic recovery program were basically free riders when it came to farm credits.  It was partly because of the free ridership mentality that some farmers opted to sell their groundnuts to Senegal notwithstanding the comparable prices in The Gambia largely to avoid repayment of their loans. Moreover, some studies have even estimated that subsidies alone boosted the rural income by 7 percent and real GDP in agriculture by 20 percent but because of its unsustainability over time led to an erratic situation which adversely affect the cropping decision of the farmers. This adverse effect further led to loss of efficiency and erosion of confidence in government’s support for agriculture. But this is only one side of the equation.   

On the other side of the equation, the picture is even worse. The desire to improve the lot of the rural poor by way of giveaway subsidized loan policies has not only failed to achieve that objective on a longer-term basis, but have led to other undesirable and untended consequences leading to artificial distortions in the income distribution, weakening of the overall financial system and ultimately leading to eventual collapse of the system itself.

As numerous researches over time have clearly indicated, subsidized government credit policies seldom work. The world over, best practice has proven time and again that the best way to subsidize government sponsored or supported activities are better done through the budget rather than through the financial system. It is only through the budget that the possibility boundaries of junk policies are distinguishable from sustainable and workable policies. Unfortunately, this message is yet to reach the politicians in The Gambia even though the evidence is unmistakable.

Evidence has show that prior to the collapse of The Gambia Commercial and Development Bank, notwithstanding the good last-ditch efforts of the government to reduce rural poverty through the financial system, only a relatively very few people—the political cronies and the subservient allies—received the elephant share of the loans. The vast majorities of the people were either left out or were given loans well above their potentials to repay those loans. Data reported by Akinboade (1994) on investigation into the distributional profile of GCDB loans has shown that from the pool of 2911 individual borrowers, 2499 people received loans of D50, 000 or less. Of this group, average individual loan of about D12,000 or a combined total of D30 million remained outstanding. Furthermore, 201 individuals received D100,000 or less. Of this group, average individual loan of approximately D67,000 or a combined total of D13 million remained unpaid. By far a smaller group of 211 individuals each received more than D100,000. The average individual outstanding loan of this group amounted to D862,000 or a combined unpaid balance of D182 million.

Clearly, the evidence is indisputable. Absent evidence base plans, vision fails. Policymakers are therefore better advised to return to the basics where every economic policy proposal is backed with comprehensive budget plan and convincing statistical analysis stating in clear and unambiguous terms the measure of their predictive accuracy. Wagering the future of The Gambia on policies that empirical evidence has overwhelmingly rejected is not a policy proposal Gambians should be blindfolded into on the currency that the proponents and its executors, this time around, are different from the players of the failed experiments.