Our work revolves around three interconnected programmatic areas which are all related to the sustainable mobilisation of resources required to finance Africa’s development process. Besides unsustainable debt levels, many African countries are faced with a resource paradox where the abundance of natural resources like minerals and oil and gas, is accompanied by high levels of poverty, poor infrastructural development as well as a weak link to resource mobilisation by African countries due to a continent plagued with Illicit Financial Flows (IFFs), harmful tax practices manifested through transfer pricing, double taxation agreements and base erosion and profit shifting.
The difficult context is further compounded by overreliance on Official Development Assistance (ODA) that is unpredictable, declining, and increasingly taking the form of concessional loans adding to an increased indebtedness of African countries. The sum effect of these gaps in Africa’s financing has been increased unsustainable borrowing for debt servicing rather than investment that has led to a second debt crisis accelerated by the global Covid-19 pandemic.
Introduction & Overview
Public borrowing is one of several instruments African governments can use to mobilise and enhance domestic resources for development. However, the manner in which debt is contracted has tended to be for purposes unrelated to the productive investment and instead the return on debt investments has been increased indebtedness and low revenue mobilisation thereby exacerbating the continents’ developmental problems. Our debt work in this strategic period is centred in our “The African Borrowing Charter” that calls for public debt contraction to be enshrined in constitutionalism; backed by legal frameworks and the rule of law. It should be coordinated and based on predictable rules and regulations, supported by a debt management strategy geared toward long term debt sustainability.
AFRODAD therefore continues to demand for a new sovereign debt restructuring mechanism for governments to have access to in order to reform the absence of adequate rules and procedures for restructuring debt from non-traditional bilateral lenders and commercially held debt. As part of advocating for the SDRM at the global level, we will champion mechanisms at the continental and national level for neutralising the threat of vulture funds through a statutory, treaty-based approach to sovereign debt restructuring.
At the national level, we will continue to analyse the debt and loan contraction processes and advance for enhanced safeguarding clauses in international debt agreements on a stronger and more uniform contractual approach. Our analysis will challenge the systemic and ideological dimensions of debt, adopt human rights-based approaches as well as feminist lenses.
Overall Goal: To contribute to the development and implementation of sustainable debt policies and practices in Africa.
Strategic Objectives:
- Improve government transparency and accountability on public borrowing
- Contribute to the establishment of a fair and transparent international sovereign debt restructuring mechanism.
- To influence the effective management of public domestic resources mobilisation by African governments.
Introduction & Overview
AFRODAD’s focus on DRM recognises the need for African countries to generate sufficient financial resources from the domestic economy which constitute part of the social contract between African governments and their constituencies – the people. This area of development finance is however confronted with a plethora of challenges that inhibit African countries from deriving maximum benefits from DRM. Africa’s growth has been slow and erratic, and despite growing faster than other parts of the world, growth in real terms is still grossly insufficient to drive Africa’s structural transformation. As it stands, no African country is experiencing double-digit growth and with low domestic savings and the extractives sector which is the mainstay of Africa’s economies is confronted with revenue leakages that undermine revenue mobilisation.
The collateralisation and use of resource backed loans (RBLs) in the extractives sector to attract foreign direct investments has created public finance risk as countries experience serious debt servicing pressures in the aftermath of the 2014 commodity price crash and exacerbated during the global pandemic. Furthermore, there have been significant revenue mobilisation loopholes in African countries in the form of illicit financial flows that undermine the continent’s DRM agenda. These IFFs are generated through harmful tax practices, corruption, and other illegal activities which leads to financial resources being shifted from African countries to networks of tax havens.
AFRODAD will continue to provide oversight on fiscal revenue regimes at a time when countries seek to build forward better from the global pandemic. This work will include analysing fiscal stability, trends in external flows, safeguarding against external shocks, and increasing policy space and ownership of the development process of citizens and state capacity. These issues have been significant in informing AFRODAD’s advocacy work under DRM which is the biggest and most sustainable and predictable source of long-term financing development in Africa.
Overall Goal: To contribute to the development and implementation of transparent, accountable and efficient mechanisms for domestic resource mobilisation in Africa.
Strategic Objectives:
- To advocate for a fair and effective tax system for financing development in Africa.
- To contribute to the strengthening mineral resource governance in Africa.
- To advocate for and support efforts to curb illicit financial flows from Africa.
Introduction & Overview
Achieving Africa’s structural transformation in agenda 20163 will require the mobilisation of all forms of sustainable financial resources. Between 2016-2020 AFRODAD focused on looking at non-traditional sources of finance e.g. from China, proliferation of commercial and private finance, and the evolving composition of ODA. In more recent times, there is a movement towards using public financial instruments to leverage private capital and debt as part of broadening the menus of financial resources available to African countries.
The impact and effectiveness of these innovations depends largely on the existence of rule and regulation governing these financial instruments, adherence by governments and development partners to the agreed development cooperation effectiveness principles that focus on sustainable outcomes and results. The IPPF work will pay close attention to the evolution and influence of (i) non-traditional bilateral lenders and development finance institutions (DFIs); (ii) gatekeepers of the global debt market; and (iii) use of private and public financial instruments. African governments have embraced these lenders in ways that have had a negative bearing on debt sustainability and economic development on the continent.
Chinese investments in Africa particularly in the last decade have been observed, has the potential of being extractive in nature and costly in terms of the conditions and collateralisation needed to secure finance. This has been exposed more so during the global pandemic given the debt distress several African countries have found themselves in. In addition, the gatekeepers of the global debt architecture are credit rating agencies (CRAs).
The CRAs influence has increased over time in controlling finance and investment decision making by commercial and private investors in Africa; and similarly, in how African governments develop policies to attract foreign private and public investment. Moreover, Public Private Partnerships (PPPs) are an example of these instruments that are increasingly being used in a wider range of projects including the provision of social services such as education and health.
The weak evidentiary support for the effectiveness of PPPs in social service provision will need closer monitoring and accountability to ensure they do not cause additional costs to citizens and indebtedness to African governments. We expect to see as the world recovers from economic and social impacts of the global pandemic, to see a shift in focus in how international private and public finance is designed and utilised.
There is an increasing move towards a greener recovery; a disproportionate negative role of credit rating agencies in addressing the current debt crisis interventions; and a demand for leveraging more public finance for private investment. We see our work over this strategic period in analysing the quality, impact and effectiveness of this new form of development cooperation that should continue to focus on results and ownership by developing countries.
Overall Goal: To influence the quality and impact and effectiveness of international private and public finance, in line with the agreed development cooperation effectiveness principles.
Strategic Objectives:
- To influence African governments and development partners to implement development effectiveness principles and practices.
- To enhance the capacity of governments to understand and engage in the implications of public finance from emerging sources and monitor its development on poverty reduction.
Introduction & Overview
The debt ecosystem has never been primed for restructuring and equalising of the power dynamics amongst all stakeholders. And the stakeholders here go beyond creditors and borrowers but includes citizens of nation states; the ecosystem itself also goes beyond the global and incorporates the continental, regional, and national.
Over the years, AFRODAD has undertaken research on loan contraction processes across the continent. These studies have made recommendations that speak to the global, continental, and national level. More so at the national level, our research has focused on strengthening legal and policy frameworks that support sustainable debt contraction, utilisation, and servicing.
At the global level, AFRODAD has been advocating for responsible lending and responsible borrowing; this includes also arbitration mechanisms that are fair and transparent, and support especially debtor countries and not favour creditors, that tends to be case at present. Furthermore, given that African countries are dependent on volatile commodity revenues, making their budgets vulnerable to fiscal pressures, there is a need for a legal framework which will call for fiscal discipline. As such, in this strategic period, we intend to innovate over the next five years a legal approach to our work that builds on previous research we have done; and on the emerging issues on sovereign debt.
The African Borrowing Charter is the second lynch pin that creates the demand for AFRODAD to enter the space on the legal advocacy and analysis on debt. Public debt contraction and use should be anchored in constitutionalism; backed by a legal framework and rule of law; based on coherent and coordinated structures with predictable rules and regulations, supported by a debt management strategy for long term debt sustainability. African governments have an obligation to disclose and publish relevant terms and conditions of all financing agreements to citizens and should respond openly to requests for related information from them. Legal restrictions to disclosing information should be based on evident public interest and should be applied reasonably.
The legal approach to our work is linked to the preceding and following sections on democratising the debt discourse. In order for public debt to be sustainable there is need for a robust legal framework, which also ensures that there is wide consultation on the requirements to be fulfilled, the prudency of government borrowing, the level of transparency and accountability in borrowing processes and agreements, and the right oversight in the utilisation of the borrowed monies. This new stream of work will focus on undertaking legal analysis of laws, policies, contraction processes, with a view of strengthening advocacy for greater transparency, accountability, and governance on sovereign debt.
Strategic Objectives:
- To provide a legal perspective to debt advocacy
- To support legal reform on debt contraction processes at global, continental, regional, and national level
- To strengthen the role of citizens to use legal instruments in advocating for increased public participation.
