Africa is in a debt crisis, and the economies of many countries are stagnating because part of the public spending budget is being diverted to repay huge external debts. Consequently, the continent’s population is bearing the brunt of underfunded public sectors such as healthcare, education and infrastructure. According to a UN Trade and Development 2022 report, Africa’s public debt reached USD1.8 trillion in 2022, an increase of 183% since 2010. That rate is about four times higher than the continent’s Gross Domestic Product growth rate in dollars.
Why is Africa in debt crisis?
Several African countries are borrowing heavily from foreign lenders to fund the construction of massive infrastructure projects such as roads, railways, and airports. Ironically, exorbitant repayment terms including high interest rates are crippling countries’ development goals and limiting their capacity to cope with future crises. According to a Christian Aid report, African countries’ external debt payments plus interest were US$85 billion in 2023 and this has risen to US$104 billion in 2024. As a result, 34 African countries are spending more to repay external debts than they do on their healthcare and/or education budgets.
African debt crisis case studies
Kenya is mired in the cycle of repaying external debts while still borrowing. By December 2023 the country’s external principal debt plus interest had surged to US$3.7 billion. For the 2023/2024 fiscal year, the Kenyan treasury allocated Kshs.138 billion (about US$1.06 billion) to the health sector and for 2024/2025 fiscal year the allocation is Kshs. 147.5 billion (about $1.13 billion). The US$3.7 billion owed to foreign lenders would be more than enough to fund or significantly improve Kenyan healthcare for two years. Nigeria also has an ever-increasing external debt repayment cycle. Between 2008 and 2017, just less than 2% of the country’s revenue was used to pay external debts but by 2023 that had risen to 14%. By the end of 2023, Nigeria had US$ 42.4 billion of external principal debt plus interest, money that could fund the country’s health or education sectors. In 2024, Nigeria’s federal government allocated ₦1.33 trillion (about US$885 million) to the health sector. For a country with over 200 million people, analysts argue that the sector is “catastrophically” underfunded but the country still has to repay its external debts.
Aid versus repayment gap
Preliminary data from the OECD in 2023 shows that net bilateral ODA flows from DAC members to Africa stood at US$42 billion but the continent’s external debt repayments were US$85 billion. This means that African countries spend more on repaying external debts than the amount of aid they receive. Countries are also struggling to make repayments, for example, in December 2022 Ghana defaulted on about US$30 billion of external debt after debt costs and inflation spiraled plunging the country into an economic crisis.
Impact of external debts on tax revenues
According to Debt Justice research, in 2024 African governments’ external debt repayments will be at least 18.5% of their budget revenues. This is the highest since 1998, almost four times more than in 2010, and the highest of any region in the world.
From 2008 to 2016 Kenya’s external debt repayments on average accounted for 6% of the government’s revenue, and in 2019 this figure reached 24%. In January 2024, the Kenyan treasury revealed that external debt repayments of US$3.7 billion would consume 57% of the government’s tax revenues equal to Kshs1.05 trillion (about US$6.14 billion).
Effects of external debts on citizens
Ordinary citizens are suffering due to the debt crisis as the cost of basic goods increase or are overtaxed. In 2022, Ghana was ranked as the country with the highest food prices in sub-Saharan Africa by the World Bank. In Kenya, the President has promised to increase taxes to 22% in order to reduce public debt and a finance bill that proposes to introduce a 2.5% annual car tax has made the government unpopular with Kenyans. Meanwhile, civil servants also face the risk of losing their jobs as the Kenyan government aims to reduce the public wage bill.
Who are the lenders?
Between 2000 and 2020, Africa’s external debt increased five times to US$696 billion, and bilateral lender China accounted for 12% of this amount. The World Bank is the biggest lender to Africa while China is the largest state lender. In 2021, Africa’s debt to China accounted for 13% of the continent’s external debt and the World Bank’s accounted for 17%. African countries borrow from China because there are no strict conditions whereas international public institutions like the World Bank and the International Monetary Fund (IMF) may demand that countries improve their human rights record or foster democracy before agreeing to any loans. However, multilateral lenders charge an average interest rate of 1% which is lower than the 3.2% China charges per year on a loan.
There are also private lenders to African countries such as Blackrock, AllianceBernstein, Franklin Advisors, Capital Group, and Lord Abbett & Co. These companies attract scorn from critics due to the high interest rates that they charge, 6.2% on average. According to a 2022 Debt Justice report, Black Rock stood to make a profit of 110% equal to US$180 million from the Zambia debt crisis by owning US$220 million of Zambian bonds even though Zambia was in economic crisis.
Is debt the new colonialism?
The debt crisis that is plaguing some African countries has brought back memories of colonialism in view of the new scramble for Africa that is being led by China. In 2018, after Zambia defaulted on Chinese loans there was some talk that China would take over vital infrastructure like the Kenneth Kaunda International Airport, Zambia National Broadcasting Corporation, and ZESCO the state-owned power company. Although the Zambian government denied this, there is a perception that China is subtly colonizing Africa by providing loans, and, when a country defaults, the trade-off is natural resources.
China has invested heavily in copper mines in Zambia and there have been reports by Human Rights Watch that Zambians working there are abused and work long hours. In mineral rich Democratic Republic of Congo, 80% of cobalt mines are owned by Chinese companies where child labor is common, according to a report by the US Congressional-Executive Commission on China. Video clips have been circulating on social media showing African workers being abused by their Chinese bosses in Kenya, Rwanda, Sierra Leone Zimbabwe, and Zambia.
The debt restructuring “solution”
Unable to repay huge loans, several African countries are working with foreign lenders to restructure their external debts. This may involve reducing interest rates and extending repayment periods to ease the countries’ debt crisis. Ghana and Zambia are receiving monetary aid from the IMF to keep their economies running and restore investor confidence as they repay outstanding external debts. In March 2024, Euro bondholders agreed to forego US$840 million loans to Zambia but negotiations are ongoing with two Chinese state-owned banks to work out debt relief so that they can receive what they are owed.
Analysts argue that as debt restructuring takes shape in Africa, this should serve as a lesson to the continent’s leaders to borrow and spend wisely in the future. Gordon Brown, former UK Prime Minister, has urged foreign lenders to consider debt restructuring to Africa, since “it is a matter of life and death” because countries are spending more on paying them than on education and healthcare.
