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February 21, 2019

Africa is back to crippling debt regime

Kenya currency notes/FILE
Kenya currency notes/FILE

Africa rising was a breathtaking saga. We all believed Africa was on track to lose the shackles of hunger, poverty and disease. The lions of the Savannah were beginning to roar, and yes they could hunt.

Africa’s debt has been soaring. By 2016 sub-Saharan Africa’s gross public debt to GDP ratio had doubled. In 2017 the debt to GDP ratio for Cameroon, Ethiopia, Ghana, Kenya and Zambia had crossed the 50 per cent line.

Like a pendulum, Mozambique has vacillated from being one of Africa’s sterling economies to a nation withered by a blistering debt crisis. In March this year, the Mozambique government said creditors might have to wait a decade before they are paid. Mozambique’s fall has been swift and precipitous.

Sudanese President Omar al Bashir fired the entire Cabinet because they failed to tackle the economic crisis. Sudan faces an acute foreign exchange shortage, inflation is above 65 per cent and basic commodities are unaffordable.

The end of Ethiopia’s happy growth story is nigh. Ethiopia is facing rising foreign exchange shortages and public debt is stacking up. China is scaling back its investments in a move that underscores the fragility of sub-Saharan Africa’s leading investment destination. Investors who poured money on roads, railways and industrial parks are now taking a cautious approach.

Kenya faces a revenue crunch. Public debt is ratcheting upward, due to large infrastructure projects, corruption and a large, wasteful bureaucracy. Moreover, public revenue is not rising fast enough. The tax base has not expanded rapidly because of an economy that is largely informal.

The government has announced a raft of measures to bolster revenue, including levying an eight per cent VAT on petroleum products and cutting public spending by about Sh52 billion ($516 million). This is pretty modest, given an expenditure budget of Sh3 trillion ($30 billion).

I think the measures announced by President Uhuru Kenyatta are just the beginning. Bold and deeper measure will be needed to manage public debt and to restore public and investor confidence.

Africa’s rising was always fraught with peril. The much-praised growth failed to grow jobs. Both agriculture and manufacturing failed to take off. A booming service and retail sector led to unprecedented expansion of the informal sector, which created tens of millions of vulnerable and low- wage jobs and cemented Africa’s dependence on cheap imports.

Roads, railways, water and power are critical to Africa’s growth and economic transformation. According to the African Development Bank, Africa’s infrastructure funding gap is estimated to be $130-$170 billion per year.

Debt is inescapable. Africa must borrow to grow the infrastructure to harness farmland, build industry, generate growth and raise revenues. Hence, infrastructure investments must be targeted and built at a spatial density that generates efficiency and synergy across agriculture, resource extraction, manufacturing and services.

But debt must be sustainable. Moreover, African governments must be clean, lean and efficient. Unwieldy wasteful bureaucracy and onerous levels of representation will choke growth and starve Africa of investment revenue.


Alex O. Awiti is the director of the East Africa Institute at Aga Khan University

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