The pandemic has seriously worsened the debt situation. On one hand, the need to spend more in a number of public health measures to save lives, coupled with the slowdown in economic activities caused by partial or full lockdowns and general economic slowdown, have all been exerting considerable pressure on governments finances. African Development Bank’s president, Dr. Akinwumi A. Adesina expounded on the impact of the pandemic in Africa. He indicated that 28-40 million people were expected to fall into extreme poverty and 30 million people could lose their jobs. The International Monitoring Fund (IMF) has also highlighted that Africa will require additional fiscus space of US$345 billion by 2023 to finance its development needs.
On the other hand, despite Africa being endowed with vast mineral resources, the continent seems not to be reaping commensurate benefits from extractives. Limited resources at the disposal of African governments evidently depict a huge discrepancy between the continent’s vast mineral wealth and tax revenue flows. The problem is that there have been challenges in mineral resource governance which include lack of transparency and accountability, weak revenue collection and management mechanisms. Further to these challenges, the COVID-19 pandemic has disrupted mining activities and thus led to some illicit activities like mineral smuggling. The other worrisome issue is that countries have been using mineral resources as loans collateral.
Notice that there is a link between debt, extractives and inequality. Certainly, (i) Africa has a rich extractive sector but more than 70% of all IFFs emanate from it. The extractives sector is prone to IFFs as a result of high-level discretionary political control, frequent blurring of public, shareholder and personal interests with regard to extractive sectors. Additionally, the extractive sector involves complex technical and financial processes that require a high degree of expertise which is lacking in many nations thus creating a leeway for fraud. (ii) The other problem is that IFFs are a cost to the national fiscus as they result in revenue losses which push governments to contract huge loans to boost resources in order to finance their budgets. Opaque government mineral deals remain the major cause of national debt cancer and distress. (iii) High debt levels often leading governments to prioritise debt repayments while they underbudget for essential sectors thus depriving citizens of critical foodstuffs, essential primary health care, basic shelter and housing, or the most indispensable forms of education. Meanwhile, few elites have more than enough to meet their needs, luxurious lifestyle even accumulating funds in offshore bank accounts. Moreover, isn’t it the face of inequality that big businesses keep on dodging tax on an industrial scale, depriving governments across the globe of the money they need to address poverty and invest in healthcare, education and jobs?
What should be done?
- Publish and disclose mining contracts: Contractual obligations and processes must be transparent and diligently acquired, highlighting all stages to encourage competitive bidding.
- Implementation of principles of public finance management is critical for government to adhere to since it provides the constitutional base on how national revenue is governed.
- Administrative rehabilitation: Arms of government must practice their role without prejudice-unmasking deals done under the table without due process.
- Leverage on extractive sector to finance social spending: A significant percentage must be apportioned to public health, education and basic needs.
- Disband policies that allow capital flight and tax holidays to mining cooperation: Repeal, reverse and suspend SI 26/2021 that gave Great Dyke Investment illegal rights that violate the right to equal protection of the law. SI 26/2021 violates section 298 (1) (b) (i) the burden of taxation must be shared fairly.
- Parliament should exercise its 3 main functions on issues of debt. Read more in the African Borrowing Charter
- Members of Parliament need capacity building on complex debt issues so that they can effectively scrutinize loans and mining agreements.
- Mining contracts with all terms and conditions should be disclosed and debated by parliament.
- Constitutional weakness and too much executive power must be called out by CSOs, MPs and other stakeholders.