Demands: Heads of state at the African Development Bank’s annual meeting, which took place in Nairobi, Kenya.
In the wake of successive economic shocks, the “Africa Rising” slogan — popularised in the early 2010s — doesn’t have quite the same ring to it.
Mounting debt threatens to undo the continent’s development gains. So do growing geopolitical tensions and the intensifying climate crisis, which will disproportionately affect Africa.
Against this backdrop, the African Development Bank (AfDB) has called for a review of the global financial system, which has locked countries out of desperately needed concessional funding.
This plea took centre stage at the bank’s annual meetings in Kenya this week, where African leaders criticised the slow pace of reform.
Calls by the continent’s leaders for change come in the wake of growing consensus that the global financial system is in need of an overhaul — a mission that has become even more urgent as a number of countries endure debt stress, threatening their ability to build resilience against climate shocks.
According to the UN Trade and Development (Unctad) agency, Africa’s share of external debt as a percentage of GDP rose from about 19% in 2010 to nearly 29% in 2022.
The continent’s vulnerabilities were exposed after the 2008 global financial crisis. In recent years, starting with the Covid-19 pandemic, these have become more acute.
AfDB president Akinwumi Adesina has described Africa as suffering from “economic long Covid”.
In a discussion on the sidelines of the AfDB’s annual meeting, Lucie Villa — a lead Moody’s analyst for several sub-Saharan African sovereigns — called the years since the pandemic “the worst crisis for low-income countries in decades”. More shocks will follow, she said.
Addressing the conference’s official opening on Wednesday, African Union Commission chair Moussa Faki had this to say about the continent’s predicament: “This meeting is being held in a framework marked by the entanglement of political and economic crises — compounded by the impact of Covid-19.”
“To cope with this situation,” he added, “our member states have been caught in a cycle of debt which has put them in the yoke of creditors, despite all the promises to alleviate this burden.”
Faki noted that the International Monetary Fund (IMF) sought to provide countries relief amid the pandemic’s onslaught through the issuance of $650 billion of special drawing rights, an interest-bearing international reserve asset created from a basket of currencies.
However, African countries had received the “bare minimum” — $33 billion — through this relief, Faki added.
The inability of African countries to access adequate financing in the pandemic’s aftermath has widened the gap between advanced and developing economies.
In its 2021 annual report, the IMF dubbed this phenomenon “The Great Divergence”. At the time, IMF managing director Kristalina Georgieva warned that there was “a major risk that most developing countries will languish for years to come”.
Three years later, despite recording some economic recovery, countries in sub-Saharan Africa continue to be more vulnerable to global headwinds, while facing rising political instability and more frequent climate shocks, according to a recent IMF report.
Kenya, the host country of this year’s AfDB meetings, recently felt the effects of such shocks when heavy flooding killed more than 200 people. More than 250 000 people have been displaced since the rains started in mid-March.
As the East African country reels from the effects of the climate crisis, it is also have to come to grips with its debt problems.
According to Unctad, Kenya spends 25% of government revenue on debt interest payments.
Though the IMF considers Kenya’s debt to be sustainable, in December the financial agency noted that its risk of debt distress remains high. At the time, 44% of Kenya’s external debt was non-concessional — carrying substantially less generous terms than concessional funding.
Since the pandemic, Kenya has turned to concessional borrowing from the IMF, the World Bank and the AfDB. Kenya’s debt to the IMF stands at $2.6 billion.
But while IMF loans carry below-market interest rates and longer repayment periods, they come with other conditions, compelling countries to reorient their economic policies. Kenya, for example, has recently enforced a new tax regime to achieve IMF-backed revenue targets. The move inspired protests last year.
Kenya’s president, William Ruto, described the prevailing global financial system as being “fundamentally misaligned” to Africa’s aspirations.
Reflecting on the recent floods, Ruto called climate change a “threat multiplier”, noting it has the effect of both reducing revenues and forcing governments to spend more in the context of already tight fiscal conditions.
“A better, more responsive and fairer international financial architecture is urgently needed. Time is of the essence,” he added.
Asked whether the Bretton Woods institutions, the IMF and the World Bank, are fit for purpose, Rwanda’s President Paul Kagame said: “In Africa we are hard pressed to see that there is a change in the design of these institutions.
“But maybe the way the institutions are set up — benefiting some parts of the world — those in those parts of the world are not interested in having the change happen.
“Because it gives them control. It gives them say over other people’s resources … It’s not that they don’t understand, but it is because it serves them very well, benefits them. [And so] they are not interested, or are slow in, allowing change to happen.”
Despite overlapping crises, the AfDB’s Adesina is optimistic about the continent’s prospects — noting in his opening speech that 10 African economies are among the 20 fastest-growing in the world.
Africa’s growth is considered even more important going forward. The continent will represent up to 40% of the global population by the end of the century. Africa also has an estimated 60% of the world’s uncultivated arable land.
While it might be true that the world’s future rests on Africa’s shoulders, its economy will struggle to make its much-anticipated ascent as long as it is constrained by debt, as well as burdensome policies.
The journalist’s travel and accommodation were sponsored by the African Development Bank.