The re-emerging debt crisis in Africa
The Strategic Growth Forum in Johannesburg, South Africa, recently examined problems associated with African countries while making reference to the debt crisis. Data presented at the forum revealed Africa’s sovereign debt-to-GDP levels rose to 44% from its mark at 34% in 2010.
Ventures Africa interviewed Ifediora Amobi, an economic expert and the Executive Director of African Heritage Institution on the re-emerging debt crisis in Africa.
Ventures Africa (VA): I would like you to give an insight into Africa’s re-emerging indebtedness in view of the recent 44% rise.
Ifediora Amobi (IA): About 10 years ago, most developing countries had either their debt written off or rescheduled to minimise its effect on their economy and it was successful to a large extent.
However, countries like Mozambique and Ghana is currently experiencing increase in their debt-to GDP ratio. Ghana for instance, was able to reduce its debt to 40% but now this figure has increased to about 75% in recent years which completely defeats the purpose of the debt relief action.
Recently, the global economy has been going through a recession which has affected many countries, causing some, like Greece, to stand on the brink of bankruptcy. For countries that are unable to manage their debt amidst the current global crisis, debt re-emergence is most likely inevitable.
VA: Significant portions of Africa’s debt have been written off or rescheduled in years past, what are the possible reasons for the re-emergence of Africa’s debt crisis?
IA: A myriad of problems add to the debt process. They include the global, economic crisis, migration issues and terrorism among others. Countries that depend on single commodities like oil or agricultural products whose prices have declined in the past 12-18 months will experience this debt crisis more significantly than others.
Most countries are grappling today just to make enough revenue to meet their budgetary requirements, but the debt crisis has been an incredible hindrance to development. Migration has also been a massive problem. As much as we all encourage foreign investment, African countries need to set up a framework within which they can operate because the current policies are not favourable toward foreign investment. In most cases, foreign investors dictate how they will operate in our economy and the framework our governments set up should be able to stop this.
VA: Debt has impeded development and stability in most African countries, what effective measures can be used to tackle this re-emerging debt crisis?
IA: First of all, African countries must be able to operate independently. We claim to be politically independent but we remain economically dependent on the advanced world. We are dependent on foreign exchange and lack the ability to produce goods for export in Africa. In order to tackle this problem, we have to encourage local production rather than export our resources.
In the past, organisations like the International Monetary Fund (IMF), lent money to countries to boost their trade, encourage export and also achieve balance of payment. What we need is good governance, accountability, transparency and the ability to borrow for productive reasons.
VA: According to an analysis, growing class division was listed as one of the factors contributing to the re-emerging debt crisis in Africa. As it stands, Kenya has one of the highest middle class growths in the world. Is it possible that class division is not applicable to all African countries?
IA: Class division is applicable to all African countries because Africa has been experiencing continuous growth with huge demand. The demand of this growing middle class puts tremendous pressure on the government. The growing middle class has an increasing appetite for certain consumables and luxury items which affect government decisions to increase the size of infrastructure, provide power, housing, and other basic amenities. As a result of this, governments of most African countries feel that they have to borrow in order to meet up with the demand of the middle class which also increases their own debt.
VA: Would you agree that IMF policies have done more harm than good to African countries and are the reason for Africa’s continued indebtedness?
IA: The IMF experience in Africa and most of the developing world is filled with pros and cons. Despite the disadvantages, the IMF has seemingly good intentions to assist the development of countries. The conditions of the IMF have proven to be more strict on developing countries when compared to the more developed countries of the world.
To a large extent they have affected African countries positively and despite these stringent requirements.
VA: Ghanaians have accused western-based financial institutions to have strangled the ability of Ghana to determine its own future, what is your view on this?
IA: Ghana is a sovereign nation and should not blame western-based financial institution for its current situation. An economy based on a particular product would experience hardship once the price of said product crashes which in turn affects their economy. Anytime the global price of the commodity falls, it affects them. Ghana has to effectively manage its economy and not put the blame on the IMF whose responsibility is to assist countries financially.
VA: Do you think African countries can survive without loans given by the IMF or World Bank?
IA: Yes. African countries can survive without loans. We can survive without borrowing from the IMF or the World Bank. Most of our countries have good markets which can be developed. In no time we can begin lending to each other as African countries. We can also make good use of the African Development Bank rather than looking for loans from either the IMF or World Bank.
VA: Is there any hope for African countries to overcome the debt crisis since leading industrialised countries of the west have not recovered from economic crisis from 2007-2009?
IA: I am optimistic that African countries can overcome their debt crisis as long as African leaders are determined to do that. Despite the current economic crisis which has affected most African countries, the debt crisis can be adequately managed. We can overcome this debt crisis if African countries learn to borrow for the right reasons i.e. for investment in order to get returns to pay back and not borrow for consumption.
VA: Is Africa’s dependence on neo-colonial systems an impediment for economic growth in the continent?
IA: We often blame neo-colonial policies but there has been a level of destruction within our own political and social system. We can re-invent the wheel if we look beyond the shores of Africa. Other countries in the developed world have taken advantage of the colonial system and used it to grow. African countries should turn these institutions around; privatise them to drive economic growth and development despite the impediment caused by neo-colonialism.