War and Colonial Finance (Africa)

By Karin Pallaver

1914-1918 Online

Internal Encyclopedia of the First World War

This text is licensed under Creative Commmons Licence

(Attribution-NonCommercial-NoDerivs 3.0 Germany-CC BY-NC-ND 3.0)

Table of Contents

- 1 Introduction

- 2 African Colonies and the Cost of the War

- 3 From Trade Tariffs to Direct Taxation: Africans Paying for the European War

- 4 Currency Policies during the War

- 5 Conclusion

- Notes

- Selected Bibliography

- Citation

1 Introduction

As Hew Strachan noted in his Financing the First World War, historians have generally neglected war finance, probably because its administration was not apparently decisive to the outcome of the war.[1] However, the European powers’ capacity to obtain money to finance the war effort was one of the key elements of the war. Colonies in Africa and elsewhere were an important source of funding and were used by colonial powers to raise funds, both to contribute to the war in Europe and to finance the campaigns in Africa.

There is no comprehensive analysis on the financial contribution of the African colonies to the war effort. The subject is treated only incidentally by the works that deal with specific African colonies during First World War. As in the case of the war economies,[2] the lack of a thematic approach, in favor of a more country- or regional- based treatment of the First World War in Africa, has produced a patchy, even if in some cases very detailed, picture of the financial situation of the colonies. The war had important consequences on colonial balances. The limits put on commerce and shipping by the outbreak of hostilities reduced imports and exports and, as a consequence, colonial state revenues. This caused a significant decrease in development expenditure. All over Africa, direct taxation and trade tariffs were increased. Another direct consequence of the war was the reduced supply of money to the African colonies, owing to shipping problems and the lack of metals to produce the coins.

This article is an attempt to connect the available evidence and to identify both some general trends in the ways in which the colonies contributed financially to the European war effort, and the consequences of the war on African colonial finances. In order to provide a general overview, this article will analyse the direct contribution of the colonies through an examination of their financial balances, the issues of taxation and revenues, and finally currency policies.

2 African Colonies and the Cost of the War

African colonies made an important financial contribution to the European war. To start with, the colonies bore a large part of the burden of the cost of the African campaigns. In West Africa, the costs for the Togoland and Cameroons campaigns were born by the local treasuries. [3] The Gold Coast paid the total cost of the occupation of Togoland (60,000£), but also contributed to the increased costs of the forces in the Cameroons and East Africa.[4] When the war ended in West Africa with the conquest of Cameroon in 1916, West African porters were moved to the campaign in East Africa. Although the imperial exchequer took over responsibility for the payment of the Nigerian carriers sent to East Africa, the Nigerian Carrier corps cost the territory over 46,000£ between December 1916 and December 1918.[5]

African colonies contributed to the war effort both directly from colonial budgets, and through individual subscriptions and private collections of funds. The Gold Coast contributed 500,000£ in gifts and loans from revenue. Private contributions and miscellaneous war funds amounted to 100,000£.[6] Madagascar contributed 2,000,000 francs for the fabrication of large calibre artillery, and 100,000 francs were raised for the liberated regions of France. There were also individual contributions by French settlers and colonial officers, through which Madagascar collected 5,248,000 francs (i.e. 1.50 francs for every inhabitant of the colony).[7] In French West Africa, debt subscriptions for a total of 31.2 million francs were obtained between 1914 and 1920. And the individual participation in the Ouvres et Journées (special events held to raise funds for specific war-related purposes) allowed the collection of 3.8 million francs. This was presented by the administration as a demonstration of the patriotism “from the far reaches of Chad to the ports of Senegal,” but, according to Marc Michel, this was really only a demonstration of the incapacity of colonized subjects to pay taxes.[8] Stories about the patriotic spirit of Africans abound in the colonial literature. For instance Hubert Garbit (1869-1933), governor general of Madagascar, tells the story of a village on the island colony where the inhabitants had raised a standing stone in honor to the first Malagasy killed on the battlefield. On that occasion, 100,000 francs were collected for the colonial ambulances and a further 20,000 for the French Red Cross.[9]

The outbreak of hostilities disrupted pre-war shipping and trade patterns, dramatically reducing the most important source of revenues for the colonial states: import and export duties and custom tariffs. Many governments, therefore, decided to increase, wherever possible, shipping freights as well as import and export duties. In Nigeria, for example, custom duties were dramatically reduced when the ban on commerce with the enemy interrupted the trade in spirits that had dominated West African-German relations in the pre-war period.[10] In order to increase revenues, Frederick Lugard (1858-1945), Governor of Nigeria, raised custom duties on tobacco and some foodstuffs, such as rice, with the aim of taxing people from the south who had benefited before the war from the rise in the price of palm kernels.[11] Furthermore, the colonial state obtained revenues from a new export duty on three staples and from a 25 percent surtax on all imports. Since 1917, this produced an increase in the government revenues, also thanks to a surtax of 30 percent on railway freights.[12]

The war also meant a shortage of credit, because local banks refused to grant loans to companies that, owing to the shipping limits and war situation, were very likely going to be unable to repay them. In West Africa, the Bank of British West Africa, which enjoyed a monopoly in the banking business in all the West African British colonies, refused to make loans, leading to a shortage of silver coins, only obtainable from the bank. This disrupted the local economy since merchants were no longer able to buy local products.[13] In Nigeria, the refusal of the Bank of British West Africa to grant loans to local companies led the colonial state to make loans to the mining companies in order to avoid production stoppages.[14] Despite the general economic and financial crisis, there is also evidence of an increase in personal deposits in local banks. This was especially the case of the colonies where porters and soldiers could save and deposit their wages. In Malawi, for instance, deposits in the Post Office Savings Banks continued to increase during the war, probably owing to the savings of soldiers and carriers who were accumulating money to pay for bridewealth after the war.[15]

Another point that must be taken into consideration is the importance of South African gold for the war. Even if during hostilities the gold standard was abandoned, the war created more interest in the precious metal and European powers took special measures to protect their gold reserves. For Great Britain, in particular, South African gold was of great importance, since it represented two thirds of the entire Empire’s output. Before the war, the South African economy revolved around the gold mining industry: gold was sent to London weekly and from there it was sold on the open market. With the beginning of hostilities, this became impossible because of the fear that the enemy could capture the gold and also because of the dramatic increase in freight and insurance charges.[16]

It became essential, therefore, for Great Britain to prevent enemy access to South African gold. With the so-called August Agreement, signed on 14 August 1914 between the Bank of England and South African mining companies, the British government stated that it was ready to buy all South African gold at the official rate of £13 17s 9d per standard ounce. If South African mining companies agreed to sell gold only to the bank they obtained an advance of 97 percent of the value of gold when it arrived in London.[17] In principle, the agreement was accepted voluntarily, but in practice, if South African companies tried to sell gold to other countries, the bank intervened to prevent it. The agreement was maintained until almost eight months after the armistice had been signed. No doubt, it was detrimental to South African gold producers, because despite the increase of the gold price during the war, the mining companies had to sell gold at the price fixed in the agreement. The agreement was an integral part of Great Britain’s war strategy and during the war the extent to which Great Britain had become dependent on South African gold to sustain both sterling and the London gold market was starkly revealed.[18]

One of the most important consequences of the war on Africans was a revision of the fiscal policy in the colonies. In order to face the reduction in revenues from trade, colonial governments introduced new taxes or increased those already at place.

3 From Trade Tariffs to Direct Taxation: Africans Paying for the European War

In many colonies, the war conditions led to an increased burden of impositions on the African populations, especially in the form of higher taxation and the introduction of various restrictive trading regulations.[19] Before the war, colonial balances were largely based on trade revenues and custom duties.[20] The reduction of import and export trade, as well as of shipping space, caused a contraction in trade that dramatically curtailed the main source of revenue for the colonial state. As a consequence, and with the exception of those colonies where military exigencies necessitated them, public works came to a halt and development plans were shelved until after the war.[21] In order to compensate for the reduction in trade revenues, colonial governments both increased import duties and shipping freights and raised or introduced direct taxation.

The Kenya administration, for example, faced major deficits both in 1914-15 and in 1917-18, determined by a fiscal crisis during the war: as in other parts of the continent, revenues from custom duties dropped as shipping shortages severely curtailed non-essential imports as well as exports. And after 1916 the protectorate had to contribute to the cost of the East Africa campaign. As a result, the government turned to increased taxation of Africans. Taxes were increased from three to five rupees in 1915. In this way, revenues in some districts could be increased by up to 60 percent. The new tax only applied to some districts of the protectorate, and pastoralist groups, like the Maasai, were not involved.[22] In Northern Nigeria, direct taxation was increased and in Yorubaland taxes were introduced for the first time in 1916, causing strong opposition from the local populations.[23] In the southern part of the colony, additional revenues were obtained from court fees.[24] In South Africa, the need to obtain funds for the war led to the introduction of a new income tax and to an increase in indirect taxation, causing strikes during the last two years of the war that continued into the post-war years.[25]

In the Gold Coast, the decrease of imports caused by the outbreak of hostilities led to a reduction of the income from custom duties that had been the main source of revenue for the colonial government. This affected, among other things, railway development, considered by the Governor Sir Hugh Clifford (1866-1941) as the key for the development of the colony. To continue railway construction, in May 1915 Clifford raised railway rates. In this way, work could be resumed on the northern line, also thanks to an increase in the duty on imports from 10 to 12 percent. In September 1916, further funds for public works were obtained from a new export tax on cocoa.[26]

In French West Africa, custom duties had provided at least two thirds of the total budget before the war. The money so obtained had been partly used to fund public works in the territories, but after the outbreak of the war these had to be dramatically reduced. In order to address the lack of revenues, the Governor General of French West Africa, Joost van Vollenhoven (1877-1918), reformed fiscal policy in 1917. This produced a general increase of fiscal revenues from 20 to 50 percent, mainly in Guinea and Dahomey and partly also in Senegal and Niger.[27]

In general terms, the increase in indirect and direct taxation during the war period led to a general increase of the control of the colonial state over its subjects, especially in some areas such as the Kenya reserves. The capacity of African subjects to pay taxes, and therefore the amount of revenues that the colonial state could collect, was also related to the availability of coins with which to pay taxes. However, the supply of currency was made problematic during the war by shipping problems and by the need for metals to produce munitions instead of coins.

4 Currency Policies during the War

With reference to the Gold Coast, Elizabeth Wrangham points out that nothing better illustrates the colonial relationship during the war than “the differing attitudes and responses to the currency problem.”[28] The outbreak of hostilities caused shortages in the circulation of currency all over the continent. There were two main reasons. On one hand, the reduction in trade caused a general decrease in the circulation of money: imports were scarce and more expensive and African traders and peasants could not sell their produce. On the other hand, the war caused a dramatic reduction in the number of coins that could be produced by European mints. The British Royal Mint was employed in the production of munitions and nickel and bronze, generally employed to produce small-denomination coins, were now needed to produce arms.[29]

The reduced availability of money caused both problems in trade and in the payment of labor.[30] Various problems arose, owing to the kind of production that each colony could bring to the market during the war years. The demand for currency was clearly connected to trade patterns and to the seasonality of the agricultural production; as a consequence, the disruption of commerce during the war also created dramatic fluctuations in the demand for coins. In the Gold Coast, for example, at the beginning of the war there was a slack in the cocoa trade that produced a surplus of coins. The West Africa Currency Board[31] was required to send these back to London, where they were converted into English silver. A total of 530,000£ were repatriated between August and November 1914. But then cocoa prices quickly recovered and in December 1914 there was a new demand for coins that could not be easily satisfied because of the outbreak of hostilities. In 1915-16 all the colonies in West Africa faced a serious shortage of coins, made worse by the combination of a large crop of Nigerian groundnuts coming on the market at the same time as Gold Coast’s cocoa. In 1915 the serious lack of coins in the Gold Coast risked leaving half of the cocoa crop unsold on the market.[32]

Despite the well-known general distrust of people towards paper money, to solve the situation in 1915 paper notes were sent to West Africa. Currency notes were regarded with suspicion by laborers and many refused to work for them. Those workers and soldiers who were paid in notes, frequently exchanged them for coins with money dealers at a loss. They were accepted almost only in those areas involved in the export trade but generally refused elsewhere.[33] Owing to the lack of metals, and since the Royal Mint was employed in producing munitions, beginning in 1917 no coins could be sent to West African colonies. In the German Cameroon, Governor Karl Ebermaier (1862-1943) paid the white staff in bank drafts, whereas askaris were paid in silver. Circulation was partially maintained by taxing the askaris in silver coins whose supply was however seriously limited.[34] French West Africa had to face the same problems in the supply of money. Coins were moved from colony to colony to face temporary shortages and paper notes had to be introduced to replace small-denomination currencies.[35] In Kenya, the government needed money to pay the porters and soldiers employed in the East African campaign. However, no coins could reach East Africa because of the war. To face the problem of the lack of currency circulation, one-rupee notes were issued to pay the military staff and were demonetized shortly after the war.[36]

To solve the monetary problems in the colonies, some colonial governments attempted the introduction of new currencies. This was the case, for instance, of the Italian government in Eritrea. Here, the Maria Theresa thaler had been used as the currency of commerce in the trade relationships along the East African coast and the Red Sea since at least the 1760s.[37] The outbreak of the war interrupted the supply of thalers from Vienna. Therefore, the Italians coined a new thaler that replicated the Austrian one. To gain the confidence of the local traders, the new thalers had similar size, design, weight and finesse, as well as the Empress Maria Theresa effigy.[38]

In German East Africa, the supply of coins was completely stopped after the British blockade began in 1914. This reduced revenues as well as cash in circulation. As a way to call in cash, the Deutsch-Ostafrikanische Bank increased its rate of interest from 4 to 5 percent. The outflow was sustained by the payment of salaries to government staff monthly rather than quarterly. Nonetheless, by mid-1915 there was no cash in circulation. This caused serious problems for the military campaign because porters and soldiers could not be paid and food for the army could not be bought. To compensate the lack of silver rupees, the government printed rupee notes but they could not be easily circulated because of the general distrust towards paper money. This was made more acute by the British intelligence which forged several million twenty-rupee notes, in this way contributing to the discrediting of German paper currency.[39] To solve the problem of money scarcity, the government started a self-sufficient production of coins, as it had done with the production of other previously-imported items, such as quinine, candles, soap, etc.: brass coins were successfully minted from used Mauser cartridges. In Tabora, which replaced Dar es Salaam during the war as the capital city of the colony, the government struck 16,000 fifteen-rupees gold coins, known as Tabora sovereigns.[40]

In many parts of Africa, the process of colonial monetization was still largely incomplete and there were many areas in the continent not yet reached by colonial coins and notes. No doubt, the problems in currency circulation caused by the war contributed to an increase in the distrust towards colonial money, especially currency notes. At the same time, commodity currencies, still largely in circulation, could fill the void left by colonial money. According to Michel, in some areas of French West Africa there was a return to a “cowry economy.”[41] This is confirmed also in some parts of British West Africa, such as in the Northern Territories of the Gold Coast, where cowries were used as currency during the war.[42]

5 Conclusion

Africans paid a heavy price for maintaining the colonial governance of their countries in war-time.[43] The war period showed that trade taxes were an unstable foundation on which to build colonial rule and led to the introduction of more widespread direct taxation.[44] New export and import taxes, as well as trade restrictions such as the imposition of limited numbers of licences to ships, marked both a modification of the policy of laissez-faire that had dominated before the war and an increase in the control of the colonial state.[45] The war also determined a revision of currency policies and a return, in some areas, to the use of commodity currencies. The war also meant an increase in the wealth of some sections of the population, such as carriers and soldiers, who could accumulate money from their wages that could be used to pay for bridewealth or livestock.

Karin Pallaver, University of Bologna

Section Editors : Melvin E. Page; Richard Fogarty

Notes

1. ↑ Strachan, Hew: Financing the First World War, Oxford 2004.

2. ↑ See Pallaver, Karin: Organization of War Economies (Africa), in: 1914-1918-online. International Encyclopedia of the First World War, ed. by Ute Daniel, Peter Gatrell, Oliver Janz, Heather Jones, Jennifer Keene, Alan Kramer, and Bill Nasson, issued by Freie Universität Berlin, Berlin 2015-09-17. DOI: http://dx.doi.org/10.154633/ie1418.10727.

3. ↑ Killingray, David/Matthews, James: Beasts of Burden: British West African Carriers in the First World War, in: Canadian Journal of African Studies 13/1-2 (1979), p. 22.

4. ↑ Killingray, David: Repercussions of World War I in the Gold Coast, in: The Journal of African History 19/1 (1978), p. 42.

5. ↑ Killingray/Matthews, Beasts of Burden 1979, p. 22.

6. ↑ Killingray, Repercussions 1978, p. 42.

7. ↑ Garbit, Hubert-Auguste: L’effort de Madagascar pendant la guerre au point de vue financier, économique et militaire: européens et indigenes, Paris 1919, pp. 17-18.

8. ↑ Michel, Marc: Les Africains et la Grande Guerre. L’appel à l’Afrique. (1914-1918), Paris 2003, p. 220.

9. ↑ Garbit, L’effort 1919, pp. 19-20.

10. ↑ Osuntokun, Akinjide: Nigeria in the First World War, London 1979, p. 21.

11. ↑ Ibid., p. 29.

12. ↑ Ibid., p. 52. The government of the Sudan also increased freight prices; see Daly, M.W.: Empire on the Nile, The Anglo-Egyptian Sudan 1898-1934, Cambridge 1986, p. 228.

13. ↑ Osuntokun, Nigeria 1979, pp. 26-27.

14. ↑ Ibid., pp. 26-27.

15. ↑ Page, Melvin E., The Chiwaya War. Malawians and the First World War, Boulder and Oxford 2000, p. 205.

16. ↑ Ally, Russel: War and Gold. The Bank of England, the London Gold Market and South Africa’s Gold, 1914-19, in: Journal of Southern African Studies 17/2 (1991), p. 228.

17. ↑ Ibid., pp. 226-227.

18. ↑ Ibid., p. 238.

19. ↑ Wrangham, Elizabeth: Ghana During the First World War. The Colonial Administration of Sir Hugh Clifford, Durham 2013, p. XXI

20. ↑ Gardner, Leigh A.: Taxing Colonial Africa. The Political Economy of British Imperialism, Oxford 2012, p. 69.

21. ↑ Crowder, Michael: The First World War and its Consequences, in: Boahen, A. Adu (ed.): General History of Africa, vol. VII, Paris 1985, p. 304.

22. ↑ Overton, John: War and Economic Underdevelopment? State Exploitation and African Response in Kenya 1914-1918, in: The International Journal of African Historical Studies 22/2 (1989), p. 210; Gardner, Taxing 2012, p. 97.

23. ↑ Osuntokun, Nigeria 1979, p. 52; Crowder, The First World War 1985, p. 300.

24. ↑ Osuntokun, Nigeria 1979, p. 21.

25. ↑ Garson, N.G.: South Africa and World War I, in: The Journal of Imperial and Commonwealth History 8 (1979), p. 73.

26. ↑ Killingray, Repercussions 1978, p. 44; Wrangham, Ghana 2013, pp. 122-123.

27. ↑ Michel, Les Africains 2003, p. 222.

28. ↑ Wrangham, Ghana 2013, p. 129.

29. ↑ Osuntokun, Nigeria 1979, p. 43.

30. ↑ Killingray, Repercussions 1978, p. 45.

31. ↑ The West African Currency Board had been founded in 1912 to regulate currency matters in the British West African colonies. The East African Currency Board was established only after the war in 1919.

32. ↑ Wrangham, Ghana 2013, pp. 120-137.

33. ↑ Ibid., p. 132; Killingray, Repercussions 1978, p. 45; Osuntokun, Nigeria 1979, p. 43.

34. ↑ Strachan, Hew: The First World War in Africa, Oxford 2004, p. 25.

35. ↑ Michel, Les Africaines 2003, p. 167.

36. ↑ On this and the problems connected to the demonetization of these notes, see Pallaver, Karin: Paying for Demobilization. African Porters, Rupee notes and the End of WWI in East Africa, forthcoming.

37. ↑ Kuroda, Akinobu: The Maria Theresa Dollar in the early twentieth-century Red Sea region: a complementary interface between multiple markets, in: Financial History Review 14/1 (2007), p. 91.

38. ↑ Colosimo, Gaspare: Relazione al Parlamento sulla situazione politica economica ed amministrativa delle colonie italiane, Rome 1919 p. 63.

39. ↑ Strachan, First World War 2004, p. 121.

40. ↑ Henderson, W.O.: The War Economy of German East Africa, 1914-1917, in: The Economic History Review 13/1-2 (1943), p. 109.

41. ↑ Michel, Les Africains 2003, p. 167.

42. ↑ Wrangham, Ghana 2013, p. 137; Killingray, Repercussions 1978, p. 45.

43. ↑ Rathbone, Richard: World War I and Africa: Introduction, in: The Journal of African History 19/1 (1978), p. 7.

44. ↑ Gardner, Taxing 2012, p. 69.

45. ↑ Wrangham, Ghana 2013, p. XXI.

Citation

Pallaver, Karin: War and Colonial Finance (Africa) , in: 1914-1918-online. International Encyclopedia of the First World War, ed. by Ute Daniel, Peter Gatrell, Oliver Janz, Heather Jones, Jennifer Keene, Alan Kramer, and Bill Nasson, issued by Freie Universität Berlin, Berlin 2014-10-08. DOI: 10.15463/ie1418.10733.

License

This text is licensed under Creative Commmons Licence (Attribution-NonCommercial-NoDerivs 3.0 Germany-CC BY-NC-ND 3.0)

Table of Contents

Table of Contents

Introduction

African Colonies and the Cost of the War

From Trade Tariffs to Direct Taxation: Africans Paying for the European War

Currency Policies during the War

Conclusion

Selected Bibliography

Citation

Content