BY ANDUALEM SISAY GESSESSE Accra, Ghana – African countries are at risk of falling once again into debt trap. But this time around the countries in the continent are rushing into a new form of debt trap that could lead them to colonization if they don’t react wisely and timely.
“Superpowers mainly China is using debt and trade diplomacy to enslave Africa,” says Godfred Bokpin, Economics Professor at University of Ghana. Describing the current situation as the new scramble for Africa, “Africa is up for sale again,” says Godfred Bokpin. He stated that China has been using debt and trade to colonize African countries competing with the former colonizers of African countries, which are busy to get back their ex-girlfriend [Africa].
Mentioning the latest visit of the Vice President of the United States in African countries including Ghana, he said: “they [the Western powers] want their former girlfriend [Africa] back”. “The global financial architecture is anti-Africa…Africa is designed to serve others,” he said, reflecting on the global economic and political architecture at play.
He made the comment last week lecturing African journalists from 31 countries gathered in Accra, Ghana at the third edition of media initiative organized by African Forum and Network on Debt and Development (AFRODAD) and Africa Center for Energy Policy (ACEP).
Natural resources, infrastructures collateral
History has recorded that poor management of external loans by a country can easily lead a nation into bankruptcy resulting in political, economic and social turmoil. From Greece and Italy to several Latin America and Asian countries.
With the transition of the world from unipolar to multipolar, the number of countries Africa is securing loans has been diversified China becoming the major lender. But it all comes with unbearable cost – the risk of losing basic infrastructures and natural resources including minerals and oil reserves, among others.
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The latest incident in Kenya was the manifestation of the secrecy of China’s deal with African countries deals and its danger. Kenya is said at the verge of losing its Mombasa Port after it failed to repay its loan to China. Likewise reports show that because Sudan has developed its oil pipe using the Chinese loan, the country sells the majority of its oil to China.
Similarly, from Zambia with its debt reaching 123 percent of its GDP, to Mozambique, which is also burdened with heavy debt of over 100 percent of its GDP, many African countries are being forced to use their natural resources for repaying loans instead of utilizing the resources through value addition that can create jobs and wealth for the citizens of Africa.
“African countries don’t properly read the terms of the loans they take. They just say where I sign and sign loan agreements,” says Professor Godfred Bokpin mention the different strategies used by the lenders. “…For instance, China’s loan is different from others. If you failed to payback, they take your port etc,” he says.
Lack of transparency failure to share information about the details of a loan agreement to their citizens is often observed as one of the major reasons for the ballooning of African countries debt.
“African people have the right to know the terms and conditions of every loan as they are the one who repay the loans at the end of the day,” argues Dr. Khanyisile Tshabalala, former South Africa member of parliament.
At global level, the combined debt stock of low- and middle-income countries rose by 5.6%, from $8.6 trillion in 2020 to $9 trillion in 2021 mainly due to COVID-19 and its impacts on the global economy. “Excluding South Africa, the region’s external debt stock in fact increased by an average of 4.3 percent to $591 billion. Several countries’ external debt, such as Cote D’Ivoire’s and Senegal’s, increased by double-digits in both 2020 and 2021 (15.4 percent and 23 percent in 2021, respectively),” the Word Bank report stated.
In Africa eight countries out of nine assessed recently by the World Bank are experiencing debt distress. The major creditors of Africa include China, the Western countries, emerging economies such as Turkey, India, multilateral institutions, and commercial lenders such as, Eurobond. “African development strategy relies heavily on borrowing,” says Theophilus Yungong Jong, Policy, Advocacy and Research Manager at AFRODAD.
Based on the latest report of the IMF currently out of 38 Sub-Saharan African counties excluding South Africa, eight are already in debt crisis, while 16 countries are struggling with high debt distress. The debt distress level of the remaining 14 other African countries is moderate.
It is estimated that Ghana’s 70 revenue goes to servicing its debt, while Ethiopia is expected to repay to its lenders from $1.4 billion to around $2 billion annually until it completes its total debt of $57.3 billion by June 2022 – about $475 per individual.
Prospect
Reports show that the debt of many African countries is likely to worsen in the years ahead. “The deterioration of the debt outlook of the SSA countries is especially concerning given the global economic challenges that have persisted through 2022 and beyond, intensified by the conflict in Ukraine. Under these circumstances, SSA countries’ debt outlook will likely worsen further,” stated the latest International Debt 2022 report by the World Bank.
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Many experts agree that borrowing by itself is not a problem. They say it is rather the terms of the loans, the inappropriate use and abuse of the money one borrows causes complications.
“If you have a plan to justify that your investment can actually pay for the debt and its interest, the borrowing wouldn’t be a problem,” says Benjamin Boakye, Executive Director of ACEP. “But the reality is that we borrow to consume and spend on few politicians…So, we have deb that is growing,” he says, referring to the case of Ghana as an example.
“The problem with Africa’s debt is not so much about what has been borrowed. It is about how the borrowed money is being used. In most circumstances the money is stollen by the political elites and their accomplices in the private sector,” says, Manasseh Azure Awuni, Editor-in-chief of the Fourth Estate.
The way out
To narrow the infrastructure gaps, which ultimately contribute to the overall economic and social development of their citizens, African countries are likely to continue borrowing.
Meanwhile the governments of these countries should come out of doing business as usual, according to experts. The highly indebted African counties and those at risk of debt distress are advised to have proper plans and strategies about why they take loans and how they repay.
“We [Africans] are talking about every problem in the world. But we can’t plant our development. It is time to address our problems instead of complaining,” suggests Benjamin Boakye.
Transparency
In order to avoid debt distress African governments are advised to disclose and be clear about the intention of a loan before approving.
The African governments are advised to be transparent about the liabilities accumulated, repayment plans, make public the full details of guarantee, and report monthly to the media and the parliament as well as release an annual report on the overall debt status of the country.
The experts suggest that media and journalists in African countries need to play their watchdog role. They need to monitor closely and report in depth about the amount of loan their governments take, for what purpose they take, and scrutinize if they utilized it for the intended purpose or abused and diverted the fund.
“We need to be able to have media people to track the debt that we procure and to link them with actual development… Otherwise we borrow and we default. And this cycle continues,” says Benjamin Boakye of ACEP.
It is important for journalists in Africa to scrutinize African governments to be accountable to their people in whose name they borrow, according to Manasseh Azure Awuni.
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Wahiga Mwaura, investigative journalist in Kenya, advices the media and journalists to collaborate with whistle blowers to investigate and report on corruption and misuse of debt. “Meanwhile this collaboration requires strict observation of journalism ethics by the media and the journalists not to expose the identities of the whistleblowers,” he recommends.
Unified strategy
“All development partners of Africa have strategies on how to engage with Africa. But Africa doesn’t have one,” says Theophilus Yungong Jong of AFRODAD, indicating that it would be tough for an African country to separately negotiate with its lenders. according to experts.
“One small African country can’t negotiate with countries like China in relation to restructuring of debt… African countries need to come together and negotiate…The African Union should play a coordinating role,” he suggests.
Before seeking external loans, African counties are also advised by experts to focus on domestic resource mobilizations such as taxing the rich properly, and designing proper system that can bring aboard those in the informal sector to the tax system. Fighting illicit financial flows can also help Africa to tap into some of the $88 billion that leaves the continent every year.
As Africa remains at the center of global politics and economy, all eyes of the West and the East are on the untapped resources of the continent. Without Africa’s precious minerals, gas and oil as well as tapping into the biggest common market in the world with over 1.3 billion population, neither the United States of America sustains its global economic leadership and political influence; nor China takes over the leadership.
Reading from what has been happening in all four corners of Africa and in the central part of the continent, to win this competition both sides and other emerging powers seem committed to use debt as a new weapon.
Many analysts agree that the existence of highly corrupt power-hungry leaders, and conflict breading oppositions and armed groups found all over the continent is a futile ground to make this new weapon work perfectly and enslave the people of Africa – the current and the future.