The African Debt Situation

By Bill Turnbull W.F.

 
The African Debt Situation has been with us for some years and there have been many attempts to solve it - so far no real solution has been found. The countries' debts have steadily risen along with the interest rates charged, the problem being compounded by inflation, devaluation of local currencies and many other factors which have become familiar terms.
 
Britain knows only too well what recession means and its consequences. The negative growth has lasted less than two years, imagine if it were to last five or ten years, as long as it has for some African countries. Then the only way out is to go to rich neighbours for help. But there comes a point when the neighbours want repayment - for Africa that time has begun.
 
We are probably more familiar with the debt involving the big four high street banks - Midlands, Lloyds, Barclays and National Westminster - as that has received more publicity. Africa's debt is different and harder to deal with. Over the next few pages we will see some of the causes, effects and suggested solutions to this vast problem. It is an over simplification of the situation, but gives an idea of what the prospects are for Africa and millions of its population.
 
All countries rely on investment to obtain growth. The common recognisable form of investment is money, although it can be argued that investment in the human form of education, health etc. is of equal or more importance. Developing countries have always depended on outside help for economic growth and this is given in three forms official aid, government loans and commercial bank loans. In the early 1970's there was plenty of 'excess' money in the northern industrial countries which had been banked by the oil rich states. This had to be invested and as there was a need in the Third World, loans were made to various countries. Investment is often driven by the rate of return. Those who have the greatest need often end up paying the investor the greatest rate of return.
 
At this time no real check was made to see if the countries involved could cover their debts. Interest rates rose and the price of imports, especially oil, soared making things difficult for developing countries. In 1982 it began to emerge that most of the borrowers could not repay the interest on their debts, let alone the capital sum. As a result this meant trouble for most Western banks who had invested many times their own worth in these ventures. The possibility of their collapse was imminent, and also that all credit based business with the Third World would cease.
 
In order to stop this, the International Monetary Fund - IMF - intervened and suggested a way to keep the 'illusion' of repayment alive. The banks and governments would lend the Third World enough money to pay the interest on their loans if they would take measures to generate new cash to help pay off interest on the loans. The measures involved included growing 'cash' crops for export to earn cash to pay off loans. Also government departments involved with health, education and development had cutbacks. In effect the important investment of human development ceased to keep the money investment artificially current. This attempt at 'rescheduling' the debts offers no long term solution. The knock-on effects of trying to repay loans, together with other factors, contribute to the suffering of many millions of people in the Third World.
 
African countries are in a different situation to those of South America and Asia as their debts are mainly to governments - only 20% are to commercial banks - for trade and project loans. This does not make the problem any easier to bear and helps to cause more poverty in the continent. Now 27 African countries are classed as low income and it is estimated that 40% of the population is 'absolutely poor', with less than $1 a day to live on. The poverty ranking table below gives an idea of the amounts owed by twenty seven of Africa's poorest countries.
 
A situation of 'reverse aid' has arisen and between 1980 and 1983 Sub-Saharan countries paid back an average of over $19 billion per annum, this dropped to $2 bn. in 1985. But in 1989 Third World countries paid back $52 bn., in debt servicing, more than they received. In an over simplification of the problem debt repayment is self-sustaining by three basic factors. They are exports, imports and finance.
 
Africa's rôle in the world market is very small in relation to its size and potential. At independence it was 2% but, through exploitation by corrupt governments and Western or Eastern interventionism, in the 1980's it fell to 1%. Therefore, it lacks the power to influence Western governments to effect changes in trade to give it fair prices. Africa's main exports are commodities, often raw materials, and their prices have continually fallen - between 1980-82 by 25% and in 1985 by 11%. Most African countries are dependent on one or two exports e.g. Zambia at around 90% on copper. Often, if crops, they are vulnerable to the weather and always are at the behest of external forces where price fixing is concerned. All these factors mean that attempts to salvage a nation's economy leads to more borrowing.
 
Imports are also an unknown quantity. African countries need to import food, manufactured and other goods which they cannot produce themselves. Their prices have steadily risen over the last twenty years but none so fast as oil. In 1970 oil was $1.30 a barrel, in 1981 $32.50, before the invasion of Kuwait $18 and in the following six weeks it fluctuated between $23 and 33. During the 1970's increased oil bills counted for 70% of the rise in Third World debt. All this continues a vicious circle which is very difficult to get out of.
 
'Finance' is yet another problem for Africa. The exceptionally high interest rates were mainly caused by the United States Government's budget deficit which created a world demand for capital and forced increased payments from debtor countries. This gave rise to the phenomenon of 'reverse aid', already mentioned. If domestic politics are added to the above, all helps to inflame the situation in many African countries. Some have problems of political instability, civil war, corrupt regimes, drought, famine, failure to exploit resources and a general lack of technology and capital.
 
The World Bank has classed thirty Sub-Saharan African countries as 'debt-distressed' and this factor brings into play all sorts of other problems. Trade payment arrears mount up, as does debt servicing, this in turn blocks new credit and the possibility of rescheduling of debts. Commercial banks rely on an IMF assessment of a country's credit worthiness and if it fails to reach the standards, then no credit is given.
 
Western, IMF and World Bank agreements have helped to alleviate some parts of the burden but not to cure it. There is no doubt that the internal problems of a debtor country are intensified if they go to the IMF for rescheduling of debt or for other financial help. This is especially so if a corrupt government is attempting to hold on to power. The IMF and World Bank ask as a first requisite that some household reorganisation is carried out and this can have quite drastic consequences especially for the poorest of the population.
 
The IMF's rescheduling is no long term solution, it just postpones the day of payment , though it can be of help in individual cases. A 'structural adjustment programme' is basically an attempt to sort out the country's balance of payments problems covering imports, exports and paying off external debt and its interest. The programme encourages poor countries, among other things, to increase export earnings by expanding crop production; to cut imports and save foreign exchange; reduce public spending and development programmes.
 
The table below gives an idea of some government spending in the years 1972 and 1986 showing percentage spent on healtheducation defence. subsidies foodtransport agricultural needs also may be cut which means that subsistence farmer or casual labourer has to work more gain lesswhile his family suffer care education. Inevitably prices rise - see table below - though not necessarily wages social unrest can ensue such as Zambian riots Liberian civil war. All this is suffered attempt reduce imports produce exports latter going onto a world market often causing over-supply raw commodities reduction prices.
 
The developed nations have put forward many ideas for the solution of the debt situation but none have been really effective. There is no blanket answer and each country needs to be seen on its own merits. The greatest problem with all the attempts is that they are considered on a purely statistical and business level. Often deals are finalised far from the countries, the individual people involved not being considered, nor can they be.
 
The United Nations Children's Fund - UNICEF - has asked the IMF not just to look at things in a purely economic way but also set a certain humanitarian criteria when implementing 'economic adjustment'. Among many proposals it suggests that the package should not force cuts in basic services; should encourage the country to be self-sufficient in food; health and nutrition standards should be monitored; measures should be taken to protect the environment. When new aid is given it should be used for the poor and saved from being squandered on prestige projects - such as airlines, urban highways, but then what becomes of a country's infrastructure? - and an attempt should be made to stop the more unscrupulous government leaders from investing the money abroad and also wasting it on arms.
 
Without a doubt the debt burden needs to be reduced by various means. A possibility is to set an interest rate 1-2% above inflation and to implement fully the agreement to write off government debts of the least developed nations - which was given added impetus when Britain announced the writing off £500m. Longer periods should be given for repayment and donors be sympathetic to countries who set a ceiling on debt servicing. Investment is also needed in value added goods. So far it is only put into raw materials, such as in Zambia which mines copper but does not make the actual wire which we use in the West. If these were combined with an increase in the financial flow to developing countries, with no political strings, then there would be signs of hope for the future.
 
Despite all, even external finance, the real solution to Africa's debt situation is to be found in Africa itself. Many believe that 'food aid' is not need - being only 7.5% of Africa's GNP - but that justice in the world market is. A step towards this would be to reduce Western protectionist policies and fix fair prices for commodities. But to help this come about African, governments need to provide political, social and economic conditions for development.
 
Africa has great resources and capabilities - human and mineral - which should be utilised to bring about self-reliance. Cooperatives and self-help schemes should be established. This could be enhanced by diversifying to get away from dependence on exports, gradually bringing industrialisation and self-sufficiency in producing food. But most of all loans and development should be 'people centred' and they should always come first. Without this consideration, from Africa and the West, debt is just a financial balance sheet and not a matter of the life or death of the poor.
 
Sources: 'The African Debt Crisis' by Dr. Ekei U. Etim. 'For Richer for Poorer' by John Clark (OXFAM). Various articles in OXFAM, UNICEF publications, also various articles in 'New African', 'New Internationalist' and 'Third World Guide 91/92'. 'Africa 2000' a special joint report by 'New African' & UNICEF.
 
Thanks to the 'Debt Action Committee', set up by CAMEC, and Tony Richardson for discussion and inspiration.
 
 
Debt and the decline in social spending
Country
Education
Health
Defence
1972
1986
1972
1986
1972
1986
Botswana 10.1 17.7 6.1 5.0 0.0 6.4
Burkina Faso 20.6 17.7 8.2 6.2 11.5 19.2
Kenya 21.9 19.7 7.9 6.4 6.0 8.7
Malawi 15.8 11.0 5.5 6.9 3.1 6.0
Tanzania 17.3 7.2 7.2 4.9 11.9 13.8
Uganda 15.3 15.0 5.3 2.4 23.1 26.3
Zaire 15.2 0.8 2.3 1.8 11.1 5.2
 

 

Central government expenditure on education, health and defence, as a percentage of total government expenditure, 1972 and 1986. (Taken from 'Africa 2000', page 28, a joint report by 'New African' & UNICEF)

 

Item
1980
1985
1991
A loaf of bread
63t.
81t.
K1.32
Average bar of soap
42t.
60t.
86t.
Packet of Persil
35t.
42t.
K1.11
A litre of paraffin
26.5t.
96t.
K1.29
One kilo of steak at the village market
K1.65
K2.60
K3.00
Fish at the village market
31t.
63t.
K1.50
500 gms. of Sugar
27t.
32t.
53t.
A box of matches
2t.
6t.
10t.
A pair of shoes
K20.25
K30.25
K69.25
A blanket
K14.65
K28.25
K51.90
A set of baby clothes
K7.00
K10.00
K16.40
50kg. bag of fertiliser
K14.50
K18.50
K27.75
Selling price of a bag of local maize
K13.00
K19.00
K29.90
Selling price of a bag of hybrid maize
K15.50
K21.50
K27.80
Price to buy a bag of local maize
K17.50
K26.60
K34.00
Price to buy a bag of hybrid maize
K17.50
K26.50
K34.00
A bicycle
K135.00
K287.00
K480.00
Labourer's daily wage
60t.
80t.
K1.87

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Above is the result of a small unofficial survey carried out in a rural area of Malawi to show the price increases in basic things which people use every day. The figures are an average of the answers obtained in the Malawian currency: 100 tambala (t) = 1 Kwacha (K). There are about five Malawian Kwacha to one pound sterling.

 

Country
World poverty
ranking
Debt as % of
1989 GNP
1989 total External
debt in millions $
Mozambique
1
426.8
4,737
Ethiopia
2
50.6
3,013
Tanzania
3
186.1
4,918
Somalia
4
202.8
2,137
Malawi
7
91.4
1,394
Chad
9
36.7
368
Burundi
10
81.9
867
Sierra Leone
11
119.5
1,057
Madagascar
12
154.1
3,607
Nigeria
13
119.3
32,832
Uganda
14
39.0
1,809
Zaire
15
96.6
8,843
Mali
16
105.2
2,157
Niger
17
79.4
1,578
Burkina Faso
18
29.6
756
Rwanda
19
30.2
652
Kenya
23
71.7
5,690
Benin
25
71.9
1,177
C. African Rep.
26
65.8
716
Ghana
27
59.9
3,078
Togo
28
91.2
1,186
Zambia
29
158.8
6,874
Guinea
30
85.3
2,176
Lesotho
32
39.0
324
Mauritania
34
213.2
2,010
Liberia
38
62.8 (1980)
1,761
Sudan
40
65.7 (1980)
12,965
 

Figures taken from 'World Development Report 1991', World Bank 1991. Poverty ranking (Gross National Product per head - ie. Mozambique is the poorest country in the world); total external debt as a percentage of GNP; total external debt - pages 244 & 250.


This article first appeared in "White Fathers - White Sisters" (UK), issue 302, of February-March 1992.
It may be published freely with due acknowledgements to the "White Fathers - White Sisters" magazine.

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