Africa strains under heavy debt load as AfDB president, Adesina laments $824bn debt, opaque resource loans

Business a.m.

Africa’s immense economic potential is shackled by the shadows of non-transparent resource-backed loans, entangling debt resolutions and casting a pall over the trajectory of countries’ future growth, according to Akinwumi Adesina, president of the African Development Bank (AfDB).

In a media conversation with journalist Yinka Adegoke at the Semafor Africa Summit on the sidelines of the just concluded International Monetary Fund and World Bank 2024 Spring Meetings, Adesina shed light on the dire need for transparency and accountability in Africa’s debt landscape. Considering the looming specter of debt burdens exacerbated by resource-backed loans shrouded in secrecy, Adesina stressed that it is imperative to end the opaque practice, ensuring that debt resolution is navigated with greater clarity and efficiency.

Highlighting the gravity of the continent’s debt challenges, the AfDB president called attention to Africa’s  external debt, which soared to $824 billion in 2021.With a significant portion of the GDP, about 65 per cent, being diverted towards servicing these external debts, Adesina pointed out that African nations would be faced with a monumental challenge in debt servicing this year alone, with an expected $74 billion in debt service payments, a significant increase from $17 billion in 2010.

Adesina pointed to the multifaceted nature of Africa’s debt crisis, which has been aggravated by the twin factors of the Covid-19 pandemic and heightened inflationary pressures. Despite recognising the immediate fiscal challenges faced by African nations, Adesina underscored the urgency to tackle the deeper-rooted systemic issues in Africa’s debt landscape.

Adesina denounced the unjust “Africa premium” that unfairly penalises African nations with higher borrowing costs in the capital markets despite low default rates. He stated that this preconceived risk perception needed to be put to rest, as it was contributing to an undue burden on African nations’ already strained debt servicing obligations.

Furthermore, Adesina stressed the urgent need to establish a structured and reliable mechanism, such as the G20 Common Framework, to address Africa’s debt challenges in an orderly and expedited manner.

The AfDB president highlighted the critical importance of increased concessional financing, especially for African nations with low incomes. He pointed out that the availability of concessional financing has actually been on a declining trend, causing concern for the continent’s most vulnerable economies. He cited the African Development Fund, the concessional lending arm of the AfDB Group, which has been providing much-needed long-term financing at low interest rates to the 37 least developed African countries, underscoring the urgent need to support Africa’s most vulnerable nations with affordable financing options.

Adesina further elaborated on the various instruments and initiatives deployed by the AfDB to encourage the influx of institutional investors and facilitate the financing of key projects across the continent. These include partial credit guarantees, hybrid capital, and synthetic securitisation – innovative financial instruments aimed at mitigating the risks associated with investing in Africa.

“Africa is the best investment destination in the world,” Adesina concluded, emphasising the African Development Bank’s commitment to creating an enabling environment for investments to thrive. 

Held under the auspices of the Semafor Africa Summit, the session, titled “Rising Global Middle Class: Is Rising Developing Nation Debt a Blessing or a Curse?”, provided a platform for an insightful discourse on the mounting debt challenges faced by developing nations, with borrowing costs reaching ever-increasing heights.

Other notable participants included Xavier Becerra, U.S. secretary of health and human services; Raj Shah, president of the Rockefeller Foundation; Andrew Steer, president and CEO of the Bezos Earth Fund; and Brent Neiman, assistant secretary for international finance, U.S. Treasury.

On his part, Shah struck a balance between the economic needs of developing nations and the urgent need for climate action. He highlighted the example of the decommissioning of the coal-fired Komati power station in South Africa, where the Rockefeller Foundation, through its Global Energy Alliance for People and Planet, devised a plan to retrain workers at the plant, create new jobs, and upgrade transmission infrastructure to enable renewable energy to power local businesses.

“It’s an unrealistic conversation to just ask people to shut down their only real source of prosperity and cause job losses,” Shah said.

Neiman  underscored the United States government’s commitment to helping African countries alleviate their debt burdens.

He also noted that despite the volatile economic climate, Côte d’Ivoire, Benin, and Kenya had collectively managed to issue almost $5 billion worth of bonds since the start of 2024 at interest rates ranging from 8 to 10 percent. This was a positive sign, he said, indicating that emerging economies were still capable of accessing capital markets