Why Mali’s economy could quickly get strangled

ECOWAS imposed a drastic embargo on trade and financial transactions on Mali last week.

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Mali finds itself more isolated than ever after fellow West African nations imposed strict sanctions, and now risks running short of liquid assets which could swiftly strangle the economy.

Mali military junta leader Colonel Assimi Goita

The 15-nation Economic Community of West African States (ECOWAS) imposed a drastic embargo on trade and financial transactions on Sunday, in response to the military junta’s plan to abandon elections and rule for five more years.

Landlocked in the heart of the Sahel, Mali depends greatly on coastal ports in Ivory Coast and Senegal, ECOWAS members with which it can no longer trade. For now, the sanctions do not cover essential basic products or hydrocarbon fuels, so the immediate impact on the populace should be limited.

“These products make up the bulk of Mali’s trade balance. In the short term, there is no big loss in trade,” Malian economist Etienne Fakaba Sissoko told AFP.

But sanctions will still affect daily lives. Money transfers via operators like Western Union, a major source of income for Malians, could become impossible in a shortage of liquidity.

‘Revenue will drop enormously’

The sanctions inflicted their first impact on Wednesday, when Mali was unable to perform a short-term bond issue of 30 billion CFA francs (45.7 million euros / $52.3 million) on the regional financial market. The blow was hard for a country, burdened by a significant budget deficit, which used such operations a lot in 2021 to finance itself.

“From the moment when all Mali’s accounts are frozen with the central bank, the Malian treasury can no longer carry out financial operations,” said Kako Nubukpo, a commissioner from the West African Economic and Monetary Union.

“All transactions with the outside world pass through the central bank. So Mali is cut off from the rest of the world.”

Customs revenue is also expected to dry up under the sanctions, dealing another blow to a poor country that faces a security crisis and difficulties in the public health sector.

‘Mistrust and uncertainty’

“We are entering a cycle of mistrust and uncertainty. The political powers that be will be impacted in their ability to mobilise resources for their daily activities,” said Nubukpo.

A liquidity crisis would have a rapid impact on the wages of civil servants, including soldiers engaged in the fight against jihadist forces active in Mali. The first effects could even be felt when pay day comes at the end of January.

“The banks will no longer be able to lend each other money. This is a financial and monetary stranglehold that is clearly emerging,” Nubukpo added.

The economic screws on the junta are further tightening under the impetus of former colonial power France, which is pressing European partners to take measures.

Help from ‘friendly’ powers?

“What would be more serious is if the International Monetary Fund and the World Bank decided to suspend their financial aid,” pointed out Dominique Fruchter, an Africa specialist for the insurance firm Coface.

However, some economists speculate that Mali might get a helping hand from “friendly” powers that are investing heavily in Africa.

“We can’t rule out that Mali will turn to other possibilities, to partner countries that would provide it with foreign exchange reserves. What is happening may encourage Malian leaders to look at emerging countries, Russia, China, India,” Nubukpo said.

“China could put some funding on the table. It is a country generally interested in raw materials, and Mali’s main wealth is gold,” said Fruchter, who also noted that neighbouring countries which are not part of ECOWAS could propose commercial outlets, such as Algeria and Mauritania.

On Tuesday, China and Russia blocked a motion in the UN Security Council supporting the ECOWAS sanctions.

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