Creditors Should Cancel All of Africa’s Foreign Debt

Debt _ creditors _ Africa _ aklog article
Aklog Birara

Aklog Birara (Dr)
May 28, 2020

“To suggest that the time is not yet ripe for considering a political union of Africa is to evade facts and ignore realities in Africa today. Here is a challenge which destiny has thrown to the leaders of Africa.”

Kwame Nkrumah, AFRICA MUST UNITE 

I was attending the George School, a Quaker High School in Newtown, Pennsylvania at a time when African’s independence and the American civil rights movement were hot topics. Mrs. Pearl Morell, the Librarian, was among the most helpful mentors and guides I ever had. I remember asking her timidly, how I could find a book by Kwame Nkrumah of Ghana. She never asked why? She promised that she will find out. She called her contacts in Philadelphia and ordered the book, “Africa Must Unite.” I read it at the library. The book made a lasting impact on me. 

My generation would recall vividly that decolonization and socioeconomic transformation in Africa and East-Asia and the Pacific were huge concerns then. More than 60 years later, the outcomes are entirely different. I ask why? 

Wikipedia tells me that “Malaysia and Ghana shared similar economic and historic backgrounds 6 decades ago. They are both former British colonies and gained independence from the British Empire in 1957. Both countries began with rich resources and sturdy British political and legal institutions, as well as identical educational systems.”

Why did Ghana and Malaysia diverge then? 

Although it is now changing faster than a decade ago, Ghana is still among the poorest nations. In contrast, Malaysia is a fast-developing country. It is among the East-Asian and Pacific ‘Tigers.” It is part of the middle-income group of nations. The Ghanaian Economist I quoted in the previous commentary, George Ayittey, would agree with me that Ghana is not yet an “African Cheetah” country. Why is that?

I do not believe that race or nationality is the reason. In high school, my newly acquired friend Eddie Theo and I used to debate decolonization, growth and development. We had no answers but agreed that development would depend on us, on indigenous people. He used to worry about Malaysia’s’ mixture of peoples:  Chinese, Indians and Malays. He thought that Singapore will go its own way; and that Malaysia will remain multiracial. He was right. So, race and ethnicity is not a major barrier to rapid transformation.

Then, why the difference between Ghana and Malaysia? I subscribe to the notion that there is no single variable or factor that determines equitable and sustainable development. However, stability that comes from competent and merit-based political leadership matters most. Investment in human development such as quality education, indigenous or local or community centered enterprise and entrepreneurship, diversification in the structure of the economy, government commitment to fairness, justice and equity all matter. Good political leadership addresses regional disparities that contribute to conflicts and instability. Clearly, overcoming the retarding effects of tribalism and tribal parochialism in investment, in access to job opportunities and or in the means to create and sustain them matter a great deal. The single most critical factor that propelled Hong Kong, Japan, Malaysia, Singapore, South Korea and Taiwan into the club of middle, high income and or prosperous nations is political stability; and the institutions that support such stability.  

Eddie Theo was deeply concerned that Malaysia would suffer from ethnic conflict. It did for a while; bur resolved them in due course. I have been to Malaysia a number of times. It is one of the most stable nations on the planet. It demonstrates safety and security for all racial and ethnic groups. People I run into do not identify themselves by race or ethnicity. They are all “Malaysians.” 

Sixty plus years later, Ghana and Malaysia followed different paths and ended up in different places on the world’s development map. For too long, Ghana was conflict ridden of coups and counter-coups. For many decades, Malaysia enjoyed peace, stability and sustainable development. The cost of instability is poverty. The benefit of stability is prosperity. 

This leads me to Kwame Nkrumah’s book that provided a framework for the unfinished work of Pan-Africanism whose time has arrived. Fragmented African nations have tried; and have largely failed to achieve sustainable socioeconomic transformation. Nominal independence has not led to real economic freedom for the vast majority of Africans. It is therefore time to ty the unthinkable or the “impossible,” namely, real economic and political unity. Among other benefits, Africans would have a better chance to leverage their unity and to negotiate better deals with the rest of the world. Just take a look at the voting power of big nations in the governance of the World Bank and the IMF. Fragmented African nations have no chance to bargain. 

I strongly suggest that COVID-19, the adverse financial and economic consequences ahead compel African nations to think big and act big now. 

Until I read the latest update from the WHO & the Africa Centers for Disease Control and Prevention (Africa CDC) that called COVID-19 an “existential threat,” and reported a 43 percent increase in new cases over one week in April, I was guided by the Trinity College projection. Its estimate is now eclipsed by more than twice, to 10 million cases. This massive increase requires immense and urgent global support. The African Union, the European Union, the United Nations, the World Bank, the African Development Bank, the IMF, China, the United States and others must be involved. More specifically, they must respond to Senator Sander’s and Rep.  Ocasio-Cortez’s transformational appeal to cancel all debt to low income countries

In addition to the human toll emanating from the Pandemic, the socioeconomic costs on Africa’s hundreds of millions will be huge. continent would be high. Growth will decline substantially. I showed earlier that revenues from commodity exports, tourism and remittances have declined, for example, by $40 billion in revenue annually from tourism alone.

Imagine how may jobs are lost, 20 million or more. Most of these losses are in urban areas. Foreign Direct Investment (FDI) is projected to decline by 15 percent. What worries me the most is lack of food, a basic human need, for Africa’s urban population. 

The Africa that produces much of the world’s chromium, cobalt, vanadium, manganese, phosphate, titanium; and tropical products such as cocoa, coffee, palm oil, vanilla, avocadoes and mangoes is in a dire situation. The Bretton Woods Institutions, the World Bank and the IMF seem to be impervious to change in fundamental ways. Their preoccupation with the universalization of the liberal market model or capitalist economies in a region that needs more central government leadership and guidance that cares and empowers youth and communities to produce is a major hurdle that African nations need to deal with. 

The social and economic costs that emanate from Structural Adjustment Programs (SAPs), such as reduction of tariffs that benefit large corporations kept poor people poor; and diminish local capacities. SAPs also compound foreign indebtedness. What social sense does it make for any low-income African nation to borrow more in order to pay foreign debt?

Low-income African nations including Ethiopia can and should learn why and how prosperous nations and ‘Tiger” economies such as Malaysia and South Korea are able to deal with the Pandemic and its devastating impacts on their societies? I say this because it is not sufficient to ask for debt cancellation unless you are ready and willing to change how you govern your nation. If you do not you will repeat the same mistake and will not be the next Malaysia. 

In prosperous countries, central banks have the technical, monetary and financial tools to create and pump monies to save their societies from catastrophe. In Africa, there are no such mechanisms. The IMF and the World Bank, and especially the former, can and must act as a central bank and save the day. Among the instruments at its disposal are Special Drawing Rights (SDRs). Experts argue that the problem the IMF faces is political. As the largest shareholders of the IMF and the World Bank, the United States exercises intrusive and overwhelming power over the Bretton Woods Institutions. Emerging economies such as China and India should leverage their resources in partnership with the entire African continent and influence policy. 

This leads me to an important factor in debt relief, namely China. It is a huge creditor to Africa, especially in infrastructural and other commercial lending. Given the size of its portfolio in Ethiopia and the rest of Africa, China must be subjected to the same ethical and moral standards in debt relief and debt forgiveness as the rest of the world. My sense is that China will budge. 

China is the single largest official and bilateral creditor to Africa. Given its long-term vision and goals, the Belt and Road comes to mind, China must be encouraged to weigh in; lend its voice; and participate in changing the Western-value imposed toxic financial and development environment in Africa. African-Chinese economic and trade relationships might thrive if China becomes more transparent than it has been in the past; and if Chinse society treats African students with dignity and humanity.   

For more than 30 years of my professional life with the World Bank, I argued vigorously and passionately, most often heatedly with managers and senior staff I trust that both the IMF and the World Bank imposed heavy conditions and terms in their lending practices to African nations. The debt burden that we see today should therefore not mask the notion that it is a consequence of decades of Western-financed structural adjustment; and other non-productive packages imposed on Africa’s poor. Just take the agricultural sector in Ethiopia alone. Why is Ethiopia unable to attain food security and self-sufficiency after decades of food aid?

You then need to ask the ethical and moral question; Why lend if there is no productivity or self-sufficiency in the provision of basic goods and services or in sustainability or in resiliency? Why continue to lend and then require debt repayment when fiscal and monetary austerity causes vulnerability among the poor and causes unemployment among youth? Who bears the debt burden and for whose benefit? 

I should like to remind the reader that the standard Bretton Woods development model required “tightening your belt” first. It means cutting public expenditures in the foundational sectors that impact the lives of ordinary citizens. These include health and education. In the process, harsh measures prop up bureaucracies that in turn become a burden on society. 

Let me illustrate this using example from Ethiopia. I remember that in the 1990s, the Tigray People’s Liberation Front (TPLF)- led regime in Ethiopia agreed to privatize hundreds of public enterprises at the insistence and on behest of the IMF and the World Bank. Many of these enterprises were profitable and employed thousands of Ethiopians. Sadly, there was no competition and no transparency in the privatization process. The proceeds were captured by ethnic elites at a cost to Ethiopian society. 

Do you remember “land grab” under which Ethiopia offered millions of hectares of farmlands and water basins to selected country ethnic elites and to numerous foreign firms and governments? Donors did not object to “land grab” and the new form of colonization that swept Sub-Saharan Africa. Neither Egypt nor Saudi Arabia uttered a word when Sheikh Al-Amoudi was granted hundreds of thousands of hectares of lands in Gambella that enabled him to steal “Nile waters” for private use. He contracted to produce rice for the Saudi and Gulf markets. Indigenous people died or were evicted from their ancestral lands or were forced to flee to neighboring nations. The effects of this disastrous policy remain. 

Do you remember the “land grabber” Karuturi, whose headquarters is I India, who borrowed local currency from Ethiopia’s banks squandered the money and then fled? Did donors and creditors express outrage? They did not. It was the ‘free market.”

For decades, the standard Western development model was premised on these countries slashing state expenditures on healthcare and education. These occurred against heavy pushes to deregulate and privatize public infrastructure. It is largely a few elites, foreign investors and companies who profited from this opening up of poorer countries.

There is no doubt that the “free market” has contributed hugely to productivity, innovation and change. However, it is time that Africans ask the question of whether they can afford to follow the model. Western governments protect their economies through numerous vehicles such as tariffs. They use their enormous powers to dictate a “free and unregulated market” to developing countries while protecting their domestic markets. 

Take a closer look at the composition of aid to SSA countries. Both the United States and the European Union “dump” huge quantities of food to SSA countries, most notably Ethiopia. Yet, Ethiopia has enormous untapped potential to produce food and become self-sufficient. 

Western nations and aid agencies have so far failed to apply the following principle: “Give a man a fish, and he’ll eat for a day. Teach a man to fish, and he’ll eat for a lifetime.” If donors determine this is the ethical, moral and right thing to do to achieve food security and self-sufficiency, then the missing link will be “a fishing rod” that Trevor Noah says the fisherman would need. Governments and civil society can supply the “fishing rod.” 

For more than half a century of aid to SSA countries, the missing link is empowerment, namely the simple edict “Teach a man to fish” and to provide him with “fishing rod” in order to succeed. I do not think donors want this to happen. They prefer dependency instead. Dependency is a tool for control and for submission. 

Return Africa’s tens of Billions of dollars in illicit outflow

Western countries served as hiding places for illicit capital from SSA countries. It is the “free market” after all. The World Bank conducted numerous studies on corruption in Ethiopia. The World Bank and the IMF both knew the corrosive effects of illicit outflow from SSA; but did not follow through in terms of implementation. They do not tolerate graft, theft and corruption in their own countries; but they give leap service to corruption and illicit outflow from SSA countries. Is this not a double standard? 

The double standard repeated over and over again in terms of the global economic governance regime shows that the “free market” is not free at all. Poor and least developed nations in SSA are therefore required to operate in the absence of level playing field. 

Let me summarize my argument. 

The glaring gap presented above intensifies both dependency on external aid and keeps poor countries poor; and perpetuates unsustainable public debt services. 

This is why I strongly suggest that a moratorium is not enough. It fails to address the root and fundamental problem African nations face. 

What do I recommend? 

1. I do not yet recommend that we go back to “50 years is enough.” The World Bank and the IMF have roles to play as long as they change their paradigm of thinking. Among others, they need to focus on the common good; on community; and on resiliency; and not on profit.

2. I urge the Bretton Woods Institutions, the IMF and the World Bank, to demonstrate to the global community and to Africa’s youthful and energetic population that Africa’s “Marshall Plan” must center on “writing off” all debt. A moratorium is inadequate and does not address the cumulative effects of the debt burden on African nations. I support Senator Sanders and Rep. Ocasio-Cortez’s Proposal for Debt Cancellation for low-income nations as long as they commit to do the right thing. 

3. Africa’s debt burden is a global problem. It is not only unsustainable; it also causes civil conflicts, wars, instability and massive migration. Migrants are not bound by borders. Self-interest dictates that donors and recipient SSA countries create a conducive and empowering environment and create enterprises that generate meaningful incomes and generate employment within Africa. This is possible. A united Africa can do it; a fractured Africa cannot do it. 

4. The above proposal will become viable if the debt burden is removed. In 2019, 64 countries, nearly half of them in sub-Saharan Africa, spent more on servicing external debt than on health. As Ethiopia’s Prime Minister, Dr. Abiy Ahmed argued in his commentary, Ethiopia “spends twice as much on paying off external debt as on health. We spend 47 percent of our merchandise export revenue on debt servicing. The International Monetary Fund described Ethiopia as being at high risk of external debt distress.” The World Bank and the IMF acknowledge the debt burden. My argument here is that they also hold the key mechanism to solve it. They need to “walk the talk” by forgiving Ethiopia’s debt. 

5. The Bretton Woods institutions, regional banks, the entire donor community and investors must convene a global forum on SSA Africa, discuss and offer a more humanity-based, equitable and just development model that enables African farmers and other producers to “fish” rather than to depend on handouts. This should include removing the hurdles of protectionism; and the opening-up of Western markets for African producers.  

6. The UN system and the African Union both must leverage their institutional muscles and mediate the trade war between the United States and China that has unnecessary ripple effect on growth and development of SSA countries. Africa does not need to be a playground of a new trade and economic “cold war.”  

7. SSA countries must be allowed to serve their own developmental visions and programs by forging relationships with countries and regions that serve them better in the long-run. 

8. The Bretton Woods institutions, UN specialized agencies, regional banks, bilateral aid agencies, foundations and non-governmental institutions as well as domestic banks must, from now on, be encouraged to provide interest free loans to promising African entrepreneurs without collateral requirements. The sole criteria for the loan should be viability, productivity and sustainability. In short, productive enterprise and employment generation must be central. 

9. Africa’s rapid development is in the common interest of the global community. It is vital for peace, stability and security. The prospect of sustainable and equitable development in Africa is now hampered by the effects of the pandemic. This is real. I do not know the exact amount of expenditure African countries would need to deal with the pandemic. I propose that it will be in the tens of billions of dollars. Ethiopia’s PM is quoted saying that his country “must spend an extra $3 billion by the end of 2020 to address the consequences of the pandemic, while our balance of payments is set to deteriorate”.  The moratorium proposed by the G-20 will not be the magic bullet in filling the resource gap. It is true that Ethiopia will save $1.7 billion from the moratorium deferment of bilateral and commercial debt services for one year and a little more than twice that if extended for another year. Deferment is however, postponement. The repayment must be honored soon after the moratorium is over. It is a form of recycling at a cost to Ethiopian society. 

I suggest strongly that debt cancellation is a must for low income SSA countries including Ethiopia. Cancellation will affect positively two policy hurdles.

  1. It will go a long way in coping with the pandemic; and, 
  2. It will also offer wiggle room to restart growth and development in SSA countries including Ethiopia. 

10. Last but not least, I believe that graft, underhanded commissions, bribery, illicit outflow of financial resources, misallocation and mismanagement, waste and bad policies and programs are a huge drain on Sub-Saharan African economies including Ethiopia. Accordingly, countries with a history of corruption in general and illicit outflow of funds in particular must:

  1. Criminalize theft, graft and illicit outflow;
  1. Identify and trace illicit gains and destinations and do their level best to retrieve the billions of dollars taken out of Africa;
  1. Multilateral and bilateral agencies including the World Bank, the IMF and regional banks, specialized and independent organizations such as Transparency International and Global Financial Integrity must be asked to assist African governments in recovering the stolen billions of dollars; and,
  1. Destination countries in the West, the Middle East, East and South Asia and the Caribbean Island countries must be approached and must be asked using specific data and documentation in recovering Africa’s stolen billions of dollars. 



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