A Triple-Barreled Gun Is Destroying African Economies: Inflation, Government Debt, and Taxes
Today it is conclusive that Africa’s socialist experiments failed, as did the state-led development approach. Not only was the heavily statist approach unable to develop African economies, but it made poverty worse. In this context of repressive state-driven economic systems, most African countries are trapped in a morass of high inflation, high debt, high taxation, high dependency, worsening poverty, food insecurity, chronic mass unemployment, and other pervasive problems.
Barrel One: High Inflation
Africa’s unstable and inflationary currencies have been a significant impediment to economic development because of their destabilizing and impoverishing effect. Organic and lasting economic growth must necessarily be driven by savings, not by debt, deficit spending, or money printing.
In the long run, inflation ends in the breakdown of the currency. This is what happened in Angola in the 1990s and in Zimbabwe in the first decade of the 2000s.
Evidence from the past and present, from developed and developing countries, unequivocally shows that inflation is a government and central bank policy that cannot go on forever and that does come to a catastrophic end, however long the run may be.
Postcolonial Africa has been plagued by severe monetary instability due to inflation: currency crises, erratic currency fluctuations, currency devaluations, currency resets, and even hyperinflation. Such a chaotic, destabilizing, and impoverishing monetary situation is not accidental or natural. It is the inherent consequence of Africa’s fiat money systems in the context of monetary colonialism.
On the one hand, a stable and trustworthy currency spurs local capital formation (i.e., saving), leading to homegrown investment and entrepreneurship, which leads to organic, decentralized, and enduring economic growth. An economy based on a reliable currency (e.g., gold money), coupled with other factors like low taxes and economic freedom, also attracts more foreign capital and talent, which leads to broad-based prosperity.
On the other hand, untrustworthy and inflationary currencies, such as today’s African currencies, will have the opposite effect. In a context of monetary instability and rampant inflation, people will tend to save less, spend faster, and avoid long-term investments and business ventures. And capital formation, capital attraction, and long-term capital deployment are essential to industrialization and lasting prosperity.
By shifting incentives from long-term thinking, savings, and production to short-term thinking, consumption, and short-term economic activities, inflationary currencies undermine economic development. They lead to deindustrialization and leave society more dependent on the state. Notice that the more a system depends on the state, the crueler, more oppressive, and thus unsustainable it becomes.
Moreover, by maintaining monetary instability and high inflation, African governments are destroying local capital, unde
Article from Mises Wire