I was approached to see if I was interested in hosting an article on African continent debt, after the author, Jackie, discovered my earlier guest blog post: Banks, mass debt and monetary reform:the big picture goes public . I have long worried how organisations like the IMF and World Bank have crippled emerging economies with massive debt and requirements for ‘austerity’ measures. I see this post as a simple re-introduction to the wider discussion and would love any informed responses that can dig down into this complex issue further.
We Can Overcome the Injustices of African Debt
As a continent, Africa has the fastest growing economy on the planet. There is a real potential for African countries to flourish in the coming years, with an increase in well paid jobs created by a strong economy. However, Africa is facing a debt crisis. When Sub-Saharan African nations gained independence in the 1960s, they had no debt. However, since the 1990s, debt levels have risen sharply. What are the reasons for this and can we overcome financial problems in the Trump era of politics?
The Need for Infrastructure
Colonialism devastated much of African infrastructure, leaving a huge funding hole when these countries gained independence. The roads and railways which had been built by European empires were used to export goods out of Africa, rather than to help the people within it. There was little in the way of schools or hospitals, as these didn’t serve imperial interests.
African colonial leaders also took their manufacturing equipment with them when they left. This meant that those left behind didn’t have the machinery needed to build their infrastructure. Despite the potential for oil and crops to provide the region with plenty of wealth to build their own infrastructure, African countries remained poor. This is because they had no way of accessing the minerals and raising their own funds, so the only option was to take out a loan.
Dependency on the West
Since the infrastructure was in place to export goods into Europe, African nations required their ex-colonists to import from Africa. This meant that even after independence, Africa was still reliant on the West. This kind of dependency is unstable, making it hard for African governments to invest in infrastructure without certainty that they will have the funds to pay for it.
Despite a large amount of oil, African countries lacked the refineries needed to access it. Therefore they have also remained dependent on the West for their energy needs. Rather than receiving the money they deserve for selling their surplus energy resources, African nations have been overspending. There have been attempts to overcome this, such as the Volta hydroelectric dam in Ghana. While this provided citizens with the energy they needed, it also led to Ghana becoming one of the most indebted countries in Africa.
The Effects of Writing Off African Debt
In 2005, the IMF agreed to write off much of Africa’s debt and up until now 30 countries have seen their debt almost completely removed. This is a good step in the right direction, but it is important to note the effects of such a move.
By taking responsibility for the debt they imposed upon Africa, European countries have helped to reduce poverty across the continent. Poverty-reducing expenditures increased up to three times due to the extra funds available. This includes heavy investment in health, education and nutrition programs.
With a healthier workforce, African nations are able to create jobs for their citizens and stimulate the economy. It has been shown that those countries who had their debts forgiven were able to implement better economic policies than those who did not. It should therefore be a priority for the global community to come together and help to write off the debts of the poorest countries.
Fostering Global Economic Stability
While African countries have reawakened their sense of national identity following independence, there is no escaping the fact that we live in an interconnected world. If we want the African economy to grow without increasing the burden of debt, then the Western world needs to nurture stability.
The UK’s decision to leave the EU and the election of Donald Trump as US President have both increased global uncertainty. This could be bad for Africa. There is a culture emerging in the West of prioritizing shallow nationalist agendas over economic competence, which Africa depends on in order to reduce its debt levels.
Fortunately, the price of natural resources is increasing and the technology needed to extract it is becoming significantly cheaper. However, with a surplus of energy production in Africa, it is essential that other countries are willing to purchase these materials.
There is little doubt that African debt has been largely caused by its colonial history. By taking responsibility for this, the developed world has helped the African economy to grow. However, the UK and USA need to focus on stabilising their economic and political climates and continue to work with African nations to help them to bring down their debt levels.
What do you think? Do you have anything to add?