AS Africa is about to celebrate Africa Day on May 25, it is important to take stock of the continent's economic achievements and obstacles.
The debt load in Africa is one important issue that needs to be addressed. Africa's economy has developed significantly, but the continent's debt load has soared, endangering its hard-earned progress.
The figures are striking. In the previous 10 years, Africa's external debt has doubled. African economies are severely burdened by this debt load, which takes money away from development initiatives and other critical public services.
Today, a large portion of the budgets of many African nations is devoted to debt payment, leaving little resources for investments in infrastructure, healthcare or education.
A large portion of government spending in many African nations is dedicated to debt servicing. For instance, in Ghana, debt service consumes more than half of government revenue, leaving little left-over for basic public services.
In Zambia, however, debt repayment accounts for more than 30% of the national budget, making expenditures in healthcare and education difficult.
Over 15% of government spending in South Africa goes towards debt repayment, which restricts funding for social services and infrastructural improvements.
For African nations, the decision to prioritise debt repayment over public expenditures has dire ramifications.
- Open letter to President Mnangagwa
- Feature: ‘It’s worse right now than under Mugabe’: Sikhala pays the price of opposition in solitary cell
- Masvingo turns down fire tender deal
- Human-wildlife conflict drive African wild dogs to extinction
Keep Reading
Their capacity to invest in healthcare is restricted because underfunded healthcare systems result in sub-par medical facilities, staff and equipment, which worsen health emergencies and increase death rates. It also limits their ability to invest in education, inadequate funding for education hinders the development of human capital, perpetuating cycles of poverty and limiting economic growth. Inadequate investment in infrastructure, such as roads, bridges and energy systems, hinders economic development, increases transportation costs and limits access to markets and services.
The government of Nigeria spends more on debt repayment than on healthcare and education put together, which results in subpar healthcare facilities and a severe scarcity of medical professionals.
In Mozambique, debt repayment accounts for over 40% of government spending, impeding investments in healthcare and education thereby escalating poverty and inequality.
In Kenya, debt servicing consumes over 20% of government revenue, restricting funds for infrastructural development, such as road construction and energy provision.
The debt issue in Africa has many different and intricate causes. The Cold War and colonialism's legacy are two historical elements that have exacerbated the continent's economic weaknesses. Africa's economic structures, institutions and relationships are still marked by the legacy of colonialism and the Cold War, which limits the continent's potential for long-term economic growth and development.
Natural resources in Africa were taken out by colonial powers, where they exported raw materials instead of finished goods with added value. Many African nations are still largely dependent on commodity exports, leaving a legacy that persists to this day.
Additionally, they dissuaded Africa's industrial growth out of concern for competition with their sectors. Because of this, Africa's industrial sector is still underdeveloped, which prevents economic growth and diversification.
Cold War-era political unrest and proxy conflicts in Africa discouraged investment and hampered the continent's economic growth. Several African nations continue to struggle with the political and economic fallout from these wars.
Many African nations supported the Western or Eastern blocs during the Cold War, which made them economically dependent on these nations. Because of this continued reliance, Africa's economic autonomy and sovereignty are constrained.
As a result, foreign loans and help to African nations increased dramatically during the Cold War era, frequently with political and economic conditions attached. This has increased Africa's enormous debt load and made it harder for the continent to implement independent economic policies.
For instance, one of the most resource-rich nations in Africa is the Democratic Republic of the Congo, a former Belgian colony. Its economy is still mostly focused on exporting raw resources, with little emphasis on value addition or industrial growth.
Nigeria, a former British colony, suffers from poor power and transportation networks, which impedes the country's ability to thrive economically. Angola's economy was severely damaged during the Cold War proxy conflict, which made the nation dependent on international help and heavily indebted.
As a non-aligned nation during the Cold War, Ethiopia benefited greatly from loans and aid from abroad, which increased its debt load and reduced its degree of economic sovereignty.
African economies have been subject to external shocks more recently due to the global economic slowdown and shocks related to commodities prices. The debt issue has also been made worse by bad economic management, corruption, and weak governance.
Due to its strong reliance on commodity exports and lack of economic diversification, the continent is vulnerable to changes in international markets.
The 2008 start of the global economic crisis has had a big effect on African economies. African countries saw a drop in exports as global demand slowed, which resulted in lower earnings and economic contraction. This slump also decreased the demand for African products.
Additionally, it resulted in a drop in foreign investment in Africa, which restricted the continent's access to finance and impeded economic expansion.
Examples of how the global economic crisis and shocks to commodity prices have affected African economies include Nigeria, the continent's largest oil producer, which had a 30% fall in government revenue and a major decline in oil prices in 2014.
A fall in commodity prices affected South Africa, a significant mineral exporter, which in turn caused a drop in exports and a recession in 2018. A drop in cocoa prices in 2014 caused a reduction in exports and a budgetary problem for Ghana, a significant cocoa exporter. 2015 saw a drop in oil prices for Angola, a significant oil producer, which resulted in a drop in exports and a fiscal crisis.
Because African nations heavily rely on commodity exports, their resilience to external shocks has been weakened by their insufficient economic diversification. This has increased the impact of these external shocks. Inadequate economic institutions and governance have also made it more difficult for African nations to react forcefully to shocks from without.
Furthermore, a lot of African nations are heavily indebted, which makes it difficult for them to make investments in economic development and react to outside shocks.
It is imperative to address the debt problem head-on as Africa commemorates its independence and development. This necessitates a thorough strategy that deals with the problem's symptoms as well as its underlying causes.
To guarantee that borrowed monies are used properly and efficiently, African governments need to place a high priority on fiscal restraint, accountability and openness. In addition, foreign creditors and partners need to own up to their involvement in the debt cycle and strive for more sustainable and fair financing methods.
Economic diversification, better economic governance, and economic development spending must be given top priority in African nations to lessen the effects of external shocks. To do this, it will be necessary to enhance economic institutions and governance, diversify exports and encourage industrial development, invest in the development of infrastructure and human resources, and encourage regional economic cooperation and integration.
African nations can lessen their susceptibility to outside shocks and advance sustainable economic growth and development by implementing these measures.
To sum up, as Africa commemorates its accomplishments on Africa Day, it is critical to recognise the debt load that imperils the continent's development. Africa can overcome its debt and reach its full economic potential if it takes on this challenge head-on and acts decisively.
Artwell Dzobo is a policy analyst and writes in his personal capacity
