- The AU Summit 2024 is taking place in Addis Ababa, Ethiopia.
- The AU Summit 2024 has brought together the Committee of Ten Heads of State and Government.
- Marking a historic first, the year dedicated to Education follows its endorsement at the 36th Ordinary Session of the Assembly of AU Heads of States.
Finance and economic experts from Africa have called on African leaders at the AU Summit 2024 to match unity speak with actions and step up regional integration efforts, as theselatex hood brock bowers jersey adidas yeezy boost 350 turtle dove custom stitched nfl jersey air max 270 women air jordan 1 element air max 270 women jordan proto max 720 borsa prima classe black friday wig sale asu football jersey asu football jersey luvme human hair wigs jock strap custom sublimated hockey jerseys are key to the continent’s agency and success in the push for debt reforms and an overhaul of the global financial architecture.
Speaking on the sidelines of the African Union summit in Addis Ababa, Ethiopia, where African heads of state will convene over the weekend, the experts noted that over 30 countries in Africa are in debt distress primarily due to structural traps that keep the continent locked at the bottom of the value chains.
“The continent is largely an exporter of raw commodities and importer of finished goods, and this means we will always be in a liquidity crunch and cash shortfall. This necessitates having to go for loans,” said Jason Braganza the Executive Director of African Forum and Network on Debt and Development (AFRODAD).
He said the only way to address these structural deficiencies would be for Africa to have a coherent and coordinated approach that underscores the value that the continent brings to global trade and commerce as a net creditor to the world.
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Mavis Owusu-Gyamfi, Vice President of the African Center for Economic Transformation (ACET), called for a global financial architecture responsive to Africa’s current realities and complex challenges.
“The international financial systems were set up 80 years ago when most African countries were colonised, and the system locked them out of industrialisation. Given what Africa has given to the world as a provider of natural resource capital, it is not too much to ask for an increase and a fair share of allocations through public goods such as the International Development Assistance (IDA) and the Special Drawing Rights (SDRs),” said Owusu-Gyamfi.
Hannah Ryder, the CEO of Development Reimagined, stated that Africa still requires significant support from the rest of the world. She explained that despite efforts made domestically and the involvement of new lenders like China and private sector entities, it is essential to reflect on the situation dating back to the 1980s.
AU Summit 2024 Heads of State Plans
During that period, African governments recognized that their ambitions, such as infrastructure development, couldn’t solely rely on domestic resources. Factors such as colonization had severely impacted their economies.
Ryder highlighted that analyses conducted at Development Reimagined, drawing from various reports examining 13 African countries, revealed that to achieve the aspirations outlined in Agenda 2063 and meet the SDG targets, these nations would require an annual investment ranging between USD 100 to 150 billion.
“If they were to do that through external finance the way it works at the moment, they would be crashing their debt sustainability thresholds within a few years, and many countries have done so. The global financial architecture, which was initially set up to serve major powers, needs to be overhauled if they are to respond to the needs of Africa and developing countries,” said Ryder
Dr Patrick Ndzana Olomo, the Acting Head of the economic policy and research division at the Department of Economic Affairs of the African Union Commission, emphasized that Africa’s admission to the G20 presents an opportunity to establish comprehensive frameworks within the G20 aimed at curbing illicit financial flows, which result in the continent losing USD90 billion annually.
Read Also: 2021 AU Summit: What to expect as the baton passes to the next chair.
He stressed the importance of Africa’s participation in the G20 discussions to address strategic issues relevant to the continent’s interests.
The experts spoke at a media briefing event convened by the African Forum and Network on Debt and Development (AFRODAD) and Christian Aid.
African Debt Landscape
It is estimated that 25 African countries are at high risk of debt distress or are already in debt distress. AFDB states these factors will escalate external debt service payments for 16 African nations from $21.2 billion in 2022 to $22.3 billion in 2023.
The surge in Africa’s debt is attributed to the COVID-19 pandemic’s economic impacts, shrinking fiscal space, downgraded credit ratings, and heightened energy and food costs due to the Russian-Ukraine conflict and climate change adaptation expenses.
Africa’s debt structure has evolved, with non-Paris Club bilateral and commercial creditors becoming significant sources. Bilateral debt decreased from 52 per cent in 2000 to 25 per cent in 2021, while commercial debt increased from 17 per cent to 43 per cent. Annual bond issuances rose from $10 billion to $80 billion between the early 2000s and 2016–2020, driven by low global interest rates.
China’s share of Africa’s external debt grew from 1 to 14 per cent by 2021, mainly in infrastructure loans. Debt interest rates vary significantly, with multilateral debt at 1 per cent, bilateral at 1.2 per cent, and private debt exceeding 6.2 per cent. Debt maturity has shortened, with official debt averaging 30 years compared to 10 years for bonds.
Resource-backed loans have become common, with 30 African countries signing deals worth $66 billion between 2004 and 2018, leading to debt crises for many after the 2014 commodity price crash.
Regarding debt-to-GDP ratios, Kenya ranks third in Africa at 67.3 per cent, with Eritrea having the highest ratio at 164 per cent. Public debt in Kenya stood at $73 billion in December, comprising $36 billion in domestic debt, $303 million in guaranteed debt, and $37 billion in external debt. South Africa ranks second at 67.4 per cent, while Nigeria ranks fourth at 38 per cent. Congo has the lowest debt-to-GDP ratio at 15.2 per cent, followed by Burundi at 15.9 per cent and Botswana at 18.2 per cent.
China’s appetite for Africa
The proportion of Africa’s external debt held by China has rapidly escalated. China’s debt share to Africa surged from a mere 1 per cent in the mid-2000s to 14 per cent by 2021, with infrastructure projects representing the bulk of this debt.
Additionally, there has been significant divergence in average interest rates across different types of debt over time. Multilateral debt carries a rate of 1 per cent, bilateral debt at 1.2 per cent, and private debt exceeds 6.2 per cent. The duration of these debts has also expanded among various creditors.
“While official debt matures over 30 years for 62 per cent of the total, bonds have an average tenure of 10 years, indicating a shift towards the shorter-term debt with higher interest rates,” said African Development Bank Group President Akinwumi Adesina,
Moreover, an increasing portion of the debt is now tied to natural resources. Between 2004 and 2018, 30 African nations entered into resource-backed loans totalling $66 billion, primarily secured by oil, minerals, and other commodities. However, the commodity price crash 2014 resulted in severe debt crises for 10 of the 14 countries utilizing such loans.
