In 2013, the African Development and Network on Debt on Development launched a document titled “AFRODAD Borrowing Charter” and the latter got recently revised from content to title, and it’s now referred to as: “The African Borrowing Charter”. But before delving more into the “charter:”
The history below is the reason AFRODAD firmly believes that this Borrowing Charter is so crucial!
African countries borrowed heavily during the 1970s supported by high commodity prices and the eagerness of commercial lenders to off-load their petrol-dollar surpluses. The deteriorating terms of trade and increasing interest rates did not deter African countries from borrowing during the 1980s driven by the need for development. The region during the 1980s had in the meantime experienced stagnation and even decreases in industrial output and exports.
By 1990, the African countries were under debt stress and unable to service the loans. The inability to service loans accumulated arrears which were capitalized. The debt stock had increased from US$ 9.9 billion in 1970 to US$ 271.9 billion by 1990. External debt as a percentage of GDP which was at 13% in 1970 had risen to 112.4%. The debt was unsustainable, as African countries were unable to repay current and future debt service obligations without recourse to debt rescheduling, debt relief or accumulation of arrears. The unsustainable debt burden contributed, among other things, to fiscal un-sustainability, a decline in social indicators, decline in industrial output and undermined development institutions. Broadly, it compromised poverty reduction efforts.
Debt relief was inevitable and was secured through debt cancellations by bilateral and multilateral donors through various initiatives and finally through the Heavily Indebted Poor Countries (HIPC) Initiative initiated in 1996 and the Multilateral Debt Relief Initiative (MDRI) initiated in 2005. Post HIPC efforts saw a decline in the debt burden in 26 African countries from a GDP weighted average of 104% down to 27% in 2006. Debt relief was secured through concerted lobby and advocacy efforts of African governments, African and global civil society movements. One key point to remember here is that the larger part of the debt was owed to bilateral governments and multilateral financial institutions.
Recent increases in borrowing from the new sources pose a risk largely because African countries are still fragile: they have weak infrastructure, narrow production bases, are mostly still highly dependent on commodities, have shallower financial markets, weak institutions (including project and debt management), limited administrative capacity, less efficient tax systems as well as weak legal frameworks. In more recent times a number of African countries have increasingly turned to issuing international sovereign bonds. The World Bank IDS (International Debt Statistics) show that Sub-Saharan African bonds issued to private creditors (without making the distinction on whether on domestic or international markets) rose from $18.3 billion in 2008 to $77.5 billion in 2016. It is estimated that around US$ 25 billion is set to mature in 2018 and some African countries are already contemplating seeking refinancing.
Fiscal instability has been a major feature of African economies directly related to debt issues. Lack of fiscal discipline in African countries has led to persistent budget deficits and mounting debt stock. Sub-Sahara Africa has equally shown a decline in budget transparency, participation and oversight. The Open Budget Survey of 2017 shows that of the 27 countries in Africa is less open about their fiscal activities than other countries in the world.
The Open Budget Survey of 2017 shows that of the 27 countries in Africa is less open about their fiscal activities than other countries in the world. In the Open Budget Index 2017 Sub-Sahara Africa scored 29 as compared to 73 by Western Europe and United States of America. Lack of transparency and accountability contributes to persistent budget deficits and debts.
AFRODAD plans to launch it in different African countries and present it to the African Union and other relevant bodies with the aim of having it endorsed as an authoritative, legal guiding Charter for governmental borrowing.
Simplified from the African Borrowing charter.
ZAMBIA has continued to record massive losses in revenue due to the dubious manner in which mining and other sources of national revenue are being managed, AFRODAD has observed.
In an interview in Gaborone, Botswana, during a seminar on Illicit Financial Flows in Africa and their negative impact on development, African Forum and Network on Debt and Development (AFRODAD) economic governance policy officer, Tafadzwa Chikumbu, said due to the secrecy that surrounds agreements with multinational companies on mineral extraction, Zambia was losing huge sums of money through illicit financial flows.
“Mineral extraction has placed Zambia at a very precarious situation because the bulk of illicit financial flows come from commercial activities which are either transfer mispricing or trade misinvoicing by multinational corporations. The secrecy around the contracts awarded to mining companies expose Zambia in such a way that it loses more money in the region just like South Africa, Congo DR and Angola,” he said.
Chikumbu said the danger of losing more money through such flows had persisted in Zambia and the country would continue grappling with challenges of getting meaningful revenue from such operations if nothing was done to abate the situation.
He said if Zambia was able to collect enough resources, the country could have been in a position to finance education, health, infrastructure development and reduce the gap between the rich and the poor by simply giving social protection to the majority of the poor people.
“Discussions of illicit financial flows should not remain a technical issue because they affect the lives of ordinary people, the poor. We should always relate the implications of such illegal acts on the lives of the majority poor. Efforts, however, have been made by Zambia to try and mitigate the problem by implementing Extractive Industry Transparency Initiative. Although it’s yet to be implemented in a robust way, the country has taken a very positive development to move towards transparency and accountability in the mining sector,” Chikumbu said.
He said illicit financial flows were a problem for Zambia and considering the fact that the money that moves out of the country ends up in another jurisdiction, probably in the global north, there was need for cooperation between the government and countries where the money was going.
Chikumbu said the disclosure of beneficial owners who have corporate offshore accounts was critical in abating the problem.
The participation of parliament, civil society organisations and the academia in decision making is a fundamental prerequisite for good governance in the natural resources sector. In democratic states where civil society organisations (CSOs) and parliamentarians are allowed to influence decisions, they often lack the capacity to meaningfully engage. The extractive sector is a highly complex and technical sector. The limited extractive industry knowledge of various African actors compromises efforts towards effectively harnessing the natural resource wealth of Africa for positive development outcomes.
In light of this, the African Forum and Network on Debt and Development (AFRODAD) is hosting the inaugural Extractive Industries Summer School in Harare, Zimbabwe. The summer school will run from 6 to 12 September 2015. The one-week training programme will draw participants from parliaments, CSOs, faith based organisations (FBOs) media and academic institutions in Africa among others.
The specific objectives of the training are:
To improve participants’ knowledge of the extractives value chain (development of resources, capturing of value and transforming value into long term development) and related governance issues
To share and exchange experiences among participants on effective monitoring of the extractive sector and the various actors concerned
To critique and challenge the traditional model of resource based development
To establish linkages between civil society organisations, parliamentarians, labour movements and women as well as the youth in mining
To ensure that CSOs, parliamentarians, labour movements and women as well as the youth in mining play an influential role in monitoring and influencing the governance process, particularly on natural resource
Renowned experts who include professors, captains of industry, government officials as well as grass root people will present and share experiences on the following thematic areas: Political Economy of Natural Resources, Impacts of Mining, Tax, Royalty and Contract Terms, Legislation and Policy, Revenue Management, Disclosure, Small Scale and Artisanal Mining, Employment Creation and Skills Development, Infrastructure and Local Content development//END
Follow the Summer School on hastag: #ExtractivesSummerSchool2015
Location : Harare, Zimbabwe
31 Atkinson Drive, Hillside
P O Box CY1517, Causeway,
Telephone +263 4 778531/6 or 2912751-4
Telefax +263 4 747878