The African debt crisis is one among a wide range of problems that this HUGE continent is facing.
After Asia, Africa is the world's second largest and second most populous continent. At about 12 million sq mi, it covers 6% of the Earth's total surface area, and 20% of the total land area. With 1.0 billion people (2009) in 61 territories, it accounts for about 15% of the world's human population.
Regrettably, most countries in Africa can be considered Heavily Indebted Poor Countries (HIPC countries).
Over 60% of Africa’s debt is owed to official creditors such as the World Bank, the IMF and world leaders. The high interest rates along side the cost to reschedule debt have forced Africa and other developing regions into a relapse of instability, extreme poverty, and human suffering... tens of millions are at great risk... and the situation is growing rapidly worse.
In 1970, Africa owed just under $11 billion in debt... by 2002, that debt had swelled to the unbelievable figure of almost $300 billion. Its foreign debt today (partially reduced by debt forbearance) of roughly $175 billion amounts to more than $200 per person, a large burden in a region where the average annual incomes are under $1,000.
Less well known is the fact sub-Saharan Africa experienced an exodus of more than $700 billion in capital flight since 1970. Some of this money wound up in accounts at the same banks that made loans to African governments. Africa is a net creditor to the rest of the world in the sense that its foreign assets exceed its foreign liabilities. But there is a key difference between the two: the assets are in the hands of private Africans, while the liabilities are public, owed by the African people at large through their governments.
Africa’s debt inflows and capital flight outflows are closely connected... there is a powerful statistical correlation between the two. For every dollar of foreign borrowing, on average more than 50 cents leaves the borrower country in the same year. This tight relationship suggests that a substantial portion of Africa’s capital flight has been debt-fuelled.
As foreign loans come to Africa and a part of the proceeds is siphoned abroad, Africa still receives an inflow of money, albeit less than the face value of the debt. The net drain on African economies comes in subsequent years when the creditors are repaid with interest.
Every day people in Africa die from curable disease, poverty and hunger. The government cannot put money into helping these people because it must pay $15,000,000,000 a year in debt repayment to places like the World Bank and IMF. African economic advances cannot possibly be made when it must pay a shocking $1,000,000,000 a day interest fee. These loans from organizations such as the World Bank are meant to aid the country during this economic crisis... but these loans actually sabotage African countries.
Nigeria is a prime example... it borrowed $5,000,000,000 from the World Bank... to date they have repaid $16,000,000,000... and shockingly, due to high rates of interest built up... they still owe the bank $32,000,000,000 in interest.
To help solve the problems... more can and should be done to identify looters and their accomplices and to repatriate stolen funds back from those safe-haven countries where the funds have been deposited.
Better enforcement of existing laws to curtail money laundering and new laws to strengthen safeguards are needed to staunch the outflow of illicit money from Africa into the havens abroad.
African governments should be encouraged to selectively repudiate debts incurred by past dictatorial regimes that cannot be demonstrated to have been used for legitimate purposes... this will stop dead in its tracks new funds from being unscrupulously lent out.
The vital economic function of transferring money from savers to investors – creates scope for self-dealing, fraud, and outright theft that can be curtailed only by public vigilance. Repair of international financial architecture is desperately required, strengthening incentives for the exercise of due diligence by creditors and responsible borrowing by governments.Without these reforms, ‘debt relief’ can offer only a temporary solution to a crisis set of problems, and the impoverished African people will continue to bear the brunt of the suffering.
