A book on the need for financial planning shows that many African nations are placing themselves in economic jeopardy through financial recklessness.
In his work Rich Dad, Poor Dad, Robert Kiyosaki attempts to dissect the mentality of the poor, the middle class, and the rich. Among all the differences he notes of the three, one is constantly repeated and stands out as pivotal in the difference. The rich, he argues, invests in assets and not liabilities. And when the rich makes these investments, they do so through incomes earned through assets, and not by taking on more liabilities in the form of loans to be repaid. By wisely investing in income-generating assets within their means and then reinvesting resulting incomes in more assets, a small initial capital can quickly turn into a large sum.
He points out that one reason many people, including many one-time rich people who lost everything later on, cannot stick to this principle is a complete lack of financial discipline. Instead of living within their means, people increase their expenditure when their salary incomes grow, only to face financial struggle when the salary income is suddenly disrupted by the likes of company restructuring. What would have been reasonable amount of liabilities in the past now becomes unbearable as whatever little assets remaining are sold off to cover the expenses. This, to Kiyosaki, is simply financial inaptitude that needs to be rectified.
While Kiyosaki is mostly talking about financially unsophisticated individuals who do not sense the urgency of making investments to prepare for such sudden income disruptions (the author, ashamedly, is definitely in the rank of such unsophisticated individuals), his notions of financially "living outside one's means" is just a valid when applied to nations. As he correctly emphasizes, the fact that even the most economically advanced nations such as the US now face a massive national debt as well as failing Society Security and other national pension schemes ultimately come down to the financial inaptitude of the political leaders.
Unfortunately, this emphasis on financial failures of nations hits home particularly poignantly here in Africa. It is no secret that over the course of past decades, many African states have taken up large amount of loans ranging from individual Western donors to large institutions such as the World Bank in a bid to quickly improve economic capacity. However, as the previous post stated, resources from these loans are spent inefficiently, resulting in expenses that did not add to the local economy's ability to further develop independently. In Kiyosaki's words, these end up being pure expenses without adding to any assets.
Indeed, just as Kiyosaki predicted, the increase in resources available only increased the expenditure, all without additional concern for increasing assets or skills in financial management. In Africa's case, recent years' boon in Chinese financing has led to a flurry of new loans that are used to build shiny new skyscrapers and highways. In many cases, the returns on investment from these loan-financed projects remain dubious, with the only concrete beneficiary being the Chinese construction firms who made millions executing new contracts across the African continent.
And today, African governments are quickly feeling the pinch of that massive debt as their proverbial "sudden disruptions in income" is unfolding. African governments certainly have vast quantities of income-generating assets in the form of commodities and natural resources. But with the construction boom in China, and the resulting global market prices of these assets, in decline, paying back loans have become all the more difficult. Longer repayment window in turn signifies larger sums of interests, making financially struggling African governments even more at the mercy of their foreign creditors.
In this time of financial difficulty, it is even more pertinent for African leaders to go back to Kiyosaki's main point in Rich Dad, Poor Dad, that expenses in liabilities should be minimized so that more money can be thrown into income-generating assets. While Kiyosaki concedes that sometimes it could be difficult to discern what exactly is an asset, but often liabilities are much clearer. Everyone knows that a flashy car instantly loses value when purchased, and would not gain any back until decades later as an antique. To take out a loan for something like that simply makes no financial sense.
Individuals purchase flashy cars (as well as houses and luxury items) because they want to feed a sense of pride, a feeling of being rich even when they are not. African governments do the same. They pour money into national airlines and grandiose monuments fully knowing that they create maintenance costs simply because of national pride. For the cash-strapped, whether an individual or a nation, such behavior is fatal for a financially secure future. The piling costs will quickly spiral out of control, forcing the indebted to take out even more loans just to cover the rising expenses. Only financial implosion will ensue.
In closing, Kiyosaki does note that no matter how much encouragement, many people may still not be bold enough to take the step toward making investments. For them, he advises to minimize expenses, start saving early, and in aggregate, be okay with an average lifestyle of no luxury. Frankly, the author is quite alright with such a proposition, as he often sees little need to purchase products or have liabilities like houses, cars, and kids. But will the proud African political leaders, convinced of their potential greatness, be content with such mediocrity? If not, perhaps it is better for them to choose a route of financial discipline as soon as possible.
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