The financing of Africa’s structural transformation requires a combination of all financial resources as well as focus on moving production and supply up the value chain in global commerce and trade. To achieve this, the African Union through vision 2063 has set for a development blueprint that identifies how this structural transformation will be achieved and financed. To appreciate this financing approach in particular, require there to be sound analysis on the intersectionality of debt financing with economic development.
The development path adopted by the AU and several African countries, often on the advice from IFIs, has been to leverage debt finance in sectors like manufacturing, industry, extractives, energy, all of which are key sectors in the industrialisation agenda of the continent. Therefore, over the next five years, AFRODAD will explore how debt as a source of finance for transformation interconnects with issues of trade and industrialisation; the environment due to the spill-overs from sectors like mining, oil, and gas; and the innovations in climate finance.
Beyond the economic transformation of Africa, the democratising of the debt discourse is to appreciate that debt contraction is influenced often by politics with the costs/servicing borne by citizens. In this regard, the political economy of debt contraction and the architecture within which these agreements are made needs to be democratised to give African governments are stronger voice and negotiating position at the table.
The political democratisation of the debt discourse further looks at the role of citizen participation in the process of debt contraction. As the underwriters of government debt, citizens must have a voice and say on the type, use, and cost of debt their governments are signing up to on their behalf.
The third side of the democratisation of the debt discourse is appreciation of how political decisions in the name of economic development impact the social contract between state and citizen. The global financial crisis (GFC) of 2007-08 and the global Covid-19 pandemic are demonstrating the evolution of Africa’s deeper integration in the global economy. The Covid-19 pandemic is brutally demonstrating the accelerating African debt crisis and the first economic recession for thirty years, whose costs are being felt by citizens. Even within the citizen cohort, the severity of impacts is being experienced differently by men, women, young people, and those with disabilities.
Part of the problem is that, despite the importance of decisions around public debt and its gendered impact, women’s collective voices are not included in the decision-making processes on public debt. This appreciation and understanding on how debt contraction impact different segments of society is the third side of the democratisation coin. And in the next five years, AFRODAD will work to interrogate this intersectionality to broaden the network of organisations centralising debt in their work.
Overall Goal: Deepen the nexus between debt & other economic justice issues.
Overview
For several decades it has been known that the costs associated with debt and loan contraction are borne by citizens, and furthermore that different segments of the citizenry carry these costs to varying degrees. Yet for the most part there lies a gap in not only the intellectual discussion of this interconnectedness, but there also lacks a political conversation that speaks to the social inequity associated with debt contraction.
The costs of servicing this debt are disproportionately borne by women, while the funds borrowed are rarely spent in ways that prioritise women’s rights. As the global pandemic deepens, servicing of debt resulting from the recent borrowing spree by African governments now means meeting the commitments on gender equality and the promotion of women’s rights will be relegated down the policy agenda. If borrowed and spent wisely, public borrowing could have a role to play in maximising the resources available to governments to promote gender equality. According to the African Economic Outlook 2021, “Women and female-headed households could represent a large proportion of the newly poor due to COVID-19.”
Inequality has been increasing because of the disproportionate impact of the pandemic on vulnerable groups such as women, youth, and low-skilled informal sector workers. The pandemic has unveiled the magnitude of the existing inequalities, both within Africa and within the large global system. As the world generally, and Africa specifically, recovers from the global pandemic, AFRODAD will keep the debt lens on socio-economic issues as part of guaranteeing building forward together redresses the social inequity resulting from the pandemic through investments in social support and social protection systems.
Overall Goal: To humanise the debt and development discourse/discussion/debate.
Outcomes
- A broader lens approach to debt and loan contraction decision making processes.
- Reduce inequity resulting from indebtedness.
- Gender perspective integrated in the debt and development discourse.
Overview
Over the past fifteen or so years, Africa’s integration into the global economy has deepened given the dearth of raw materials readily available to feed global supply chains. As such, economic growth of the continent has been stable and came with a diversification of development partners who in turn brought with them a menu of financing options for African governments to choose from.
Globalisation has been important to integrating the region into global value and supply chains however the financing options have not been transformative. Debt finance through concessional and non-concessional loans coupled with PPPs and Euro and Sovereign Bonds have led to a heavily debt financed development agenda. This trajectory has worsened some of the major debt drivers of high inflation, weak governance, security spending, and weaknesses in revenue mobilisation. It is therefore imperative that the conversation on debt be linked with the factors that predisposes countries to such.
To attain any improvements in the efficiency of debt-financed investments, it is important that debt is used to finance productive projects that generate revenues to service debt and support investments in future growth. Trade for instance, is an important source of foreign exchange as has been the commodity boom of the past two decades that also drove increasing trade openness of Africa. Conversely, however, the push towards growth has been consumption led and not productive led and contributes to the account’s deficits.
Furthermore, trade liberalisation has also affected budget balance through corruption, and inequalities especially when publicly generated funds are not re-invested but appropriated for private gain. Collectively, this has created a vicious cycle of indebtedness and low value production.
As the global economy begins to recover from the pandemic, there are increasing calls to ensure a ‘greener’ recovery that lays less emphasis on carbon and fossil fuel energy production but on renewable energy. This prioritisation needs an African perspective that balances the need to structurally transform the continent and break the shackles of dependency, low value production, and low revenue mobilisation with the impact of climate variations on livelihoods through food production in particular. This debate carries with it a significant debt component as innovative ‘green bonds’ or ‘green economy financing funds’ are established as part of the broader recovery plans.
AFRODAD’s work in this area is geared towards integrating the economic transformation agenda from a debt perspective in a way that encompasses emerging issues while unpacking the benefits of a job-rich green and resilient economic recovery.
Objectives
- Deepen the debt intersectionality on debt finance and Africa’s structural transformation agenda.
- Integration of debt perspectives on economic transformation issues.
- Centralising the debt agenda in emerging economic issues.
