By Jason R. Braganza – The 11th session of the African Regional Forum on Sustainable Development being held here in Kampala, Uganda. It comes at a time when we are facing a multiple-pronged crossroads as a continent, as a region, and also as a people.
As we speak today, four countries continue with the G20 common framework. Besides that, there are over 25 African countries that are in debt distress or at high risk of being in debt distress. So in total, that's over half the continent facing a formidable debt crisis. All of this is against a very polarized international architecture, both in terms of politics, economics, and security.
So as we have been gathering here in Uganda to discuss what can be the critical drive of this multi-polar and multi-crisis conundrum, a key feature has been on how to generate opportunities that have been afforded to us as a region through the African Continental Free Trade Area, through curbing illicit financial flows, and also building momentum and coherence around a comprehensive debt reform package that we need to advance as a continent and also reforming the global debt architecture. I will try and brief on each of these as they have been discussed throughout the week.
Now, on issues of reforming the global debt architecture, what we're witnessing right now is a situation where African governments do not have a platform where they can collectively come together and negotiate and strategize on how they can restructure or renegotiate their debt dispensation with their creditors.
Part of the reason for this is that the debt architecture has changed quite dramatically over the last 20 to 25 years, whereas we've had a situation where our creditors were largely bilateral (this is country to country) or multilateral (this is the international financial institutions like the World Bank, the IMF, and the African Development Bank). Today we have a situation where we have new bilateral lenders who do business very differently from what we have been used to. We also have an emergence of private and commercial lenders who do business very differently, but whose interests tend to be more short-term than medium to long-term.
This combination of factors, with the existing debt architecture remaining relatively constant and not adjusting to this new creditor landscape, has meant that countries, both lenders and boards, have not been able to adjust in situations where debt crises or defaults, or debt restructuring needs to be done. Part of this has meant that many countries have refused or been reluctant to look into how they can restructure their debt for fear of actually losing out on international private capital markets, in particular.
The second issue is around illicit financial flows. The amount of money lost through illicit financial flows is estimated to be around 80 to 90 billion U.S. dollars annually. This is both through licit and illegal ways of doing business on the continent. This is a huge problem because it contributes to having deficits on the continent, which then forces governments to borrow. Dealing with illicit financial flows becomes a significant part of why the debt crisis is emerging and deepening.
Because every year, if we're losing close to $80 billion a year, this is money that African governments have to find through taxation, largely through regressive taxes. The opportunities therein need to be very specific in terms of national-level interventions, but also coherent in terms of a coordinated continental set of interventions. Some of these are presented in the high-level panel report on illicit financial flows, the Beckie panel report of 2015.
The third dimension we've heard a lot about this week in Uganda is around the African Continental Free Trade Area, which has been ascended to by all African Union member states and is being implemented gradually across different member states to facilitate trade across the continent. There are teething problems, but yet there are still opportunities in which the Continental Free Trade Area can act as a catalyst for development and increased trade and movement of goods and services across the continent.
With that in mind, these are the kinds of interventions and dimensions we have been looking at this week and trying to advance as a coherent position for our African governments as they look towards negotiating a new international dispensation under the fourth financing for development conference at the United Nations, which is taking place in Seville, Spain later on this year in June.
Key things here are how do we come out of the debt conundrum in this very multi-polarized world? How do you deal with the continuous threat of illicit financial flows leaving the continent? How do we catalyze initiatives like the African Continental Free Trade Area to spur development and growth of our own industries and movement of goods and services across the continent that can then generate domestic resource mobilization and help reduce the burden of debt that is currently facing our countries and citizens?
Just before I conclude, it's important to note that one major aspect that has also come up in the discussions this week is the diversion of resources from public investments, whether in public services, social services, or creating incentives for domestic businesses to flourish, is the diversion of those resources towards debt servicing.
We must critically think about the debt crisis's impact on the continent—not just on our ability to develop and grow our economies but also on creating the right incentive structure for domestic businesses and industries to emerge and spur growth, development, job creation, and wealth for us as a continent and as a people. Linked to that is the diversion of resources from critical sectors like health, education, agriculture, water, and sanitation, which form the bedrock of many of our economies across the continent.
Thinking through how we are going to deal with these challenges and how we catalyze opportunities presented to us through Agenda 2063 is extremely important if we expect to get any meaningful negotiated outcome from the 4th Financial for Development conference taking place in Spain later this year.
EDITOR’S NOTE: The writer Jason R. Braganza is Executive Director of the African Forum and Network on Debt and Development (AFRODAD)