Africa may have a problem with unsustainable debt on its hands if it doesn’t manage to find other ways to finance development and cut off illicit financial flows, a new report from a United Nations trade body has said.
While Africa’s external debt rations appears “manageable,” some countries on the continent may have a debt crisis on their hands similar to the that of the late 1980s and 90s, wrote the authors of the UNCTAD Economic Development in Africa Report 2016, which was published on Thursday.
In those years, Africa’s debt ballooned to $230 billion (209 billion euros), at a time where the continent’s annual export earnings represented about a third of that.
“Borrowing can be an important part of improving the lives of African citizens,” UNCTAD Secretary-General Mukhisa Kituyi says. “But we must find a balance between the present and the future, because debt is dangerous when unsustainable.”
In 2013, average external debt stock among African countries was at $443 billion, or around 22 percent of gross national income.
The UNCTAD said that at least $600 billion would be needed annually to realize the Sustainable Development Goals in Africa, or a third of the continent’s gross national income – and international aid and external debt aren’t going to be enough to cover that.
Remittances and private-public partnerships key
Instead, the UN trade and development body suggested exploring other revenue sources like remittances to Africa, which grew to $63.8 billion in 2014. The UNCTAD also cited private-public partnerships as an increasingly relevant vehicle to finance infrastructure. Nigeria is the frontrunner in this area, with $37.9 billion in investment from 1990 to 2014, followed by Morocco and South Africa.
However, Africa also loses about $50 billion in illicit financial flows yearly, which totaled an estimated $854 billion from 1970 to 2008 – roughly equivalent to the all the development assistance the continent had received at the time.
Several African countries like Ghana, Kenya, Nigeria, Tanzania and Zambia have also borrowed heavily on domestic debt. In some countries, domestic debt nearly doubled by the end of 2013.