Papa Demba Thiam: “How to build Africa with less debt”

Imped by limited public funds, private investments will be the engine of inclusive growth driven by more value creation in an integrated whole. In the context of emergency measures to combat the health and economic consequences of the Covid-19 crisis, it is important to decipher the reality of the funding offered to Africa. Some of its countries, among the 25 poorest in the world, benefit from special assistance from the IMF to repay their debts during the next six months. These are gifts. Others use Special Drawing Rights (SDRs) to obtain interest-free loans. But all benefit from a six-month moratorium that allows them not to pay interest on their debts for this period. Finally, the African Development Bank (AfDB) and the World Bank (WB) are providing additional resources including through the reallocation of funds from certain projects that were already approved.

African debt: a bottomless pit

While appreciated by African governments, these efforts do not significantly reduce their debts. Some of these measures even increase the volume. Yet it is the multilateral financial institutions that were recently alarmed by the growing weight of African debt. The subject was even at the center of the Dakar Conference of December 2, 2019 on the theme “Sustainable development and sustainable debt: finding the right balance”. Shortly thereafter, a controversy ensued between the World Bank and the African Development Bank (AfDB) over their respective responsibilities in increasing Africa’s debt. At the same time, the cataclysm of the Covid-19 crisis was sneakily underway in China and probably in Italy as well. And now, in three months, the urgency of reducing the debt seems to be shelved by these same institutions to ward off the destruction of Covid-19. This is because multilateral financial institutions only do what they can do best.

In this new context, it is therefore paradoxically the African States, still quite recently accused of “frivolity” towards borrowing, which have become aware of the need to get out of the endless debt cycles that risk drowning their economies. Africa, in the wake of the appeal launched by the President of Senegal Macky Sall, is now demanding the outright cancellation of all of its public debt as well as the restructuring and rescheduling of its private debt. Even Pope Francis got into it during his Easter Mass homily, followed by French President Emmanuel Macron. Even beyond the feasibility of such an operation, it is necessary to place the debt in the context of its expansion.

Debt, the fruit of a system

Each economic model has its own debt system. The one inherited from the “Washington consensus” was not the right one for Africa or for developed countries. Because in Western countries, massive public debt was fostered by the implementation of the ten “Washington Consensus Commandments” during the years when Margaret Thatcher was Prime Minister of Great Britain (1979-1990) and Ronald Reagan presided over the United States of America (1981-1989). Concretely, it was a question of liberalizing all the economies and of privatizing most of their public enterprises.

Divestment in industry and infrastructure

Arrangements to give birth to the World Trade Organization (WTO) prepared almost all countries to open up to the free movement of goods and services. As a result, many companies in the countries of the northern hemisphere have relocated to “emerging market economies”. Having let it happen, states have literally stopped investing in infrastructure, health, research and development and many other important areas such as industry, for which almost no policy has been pursued in many country…

In fact, except for the countries of northern Europe, Germany and Switzerland, which have maintained their industrial bases with a strong internalization of value chains to protect their economic labels, most Western economies have taken action. “automatic pilot” mode under the rule of national and multilateral institutions whose particularity was to be administered by bureaucrats.

The weakening of developed countries

Thus was pursued a model of globalization which, little by little, produced poverty in so-called developed countries. The explanation is simple. Western private investors themselves, having gone elsewhere to finance and set up factories to manufacture at low cost, exported technology, know-how and jobs to emerging market economies. They have helped to increase the mass of products imported to Europe, the USA and Africa. Worse, even the services got into it. This is the case with accounting which, among other services, has been relocated.