By Martins Oloja
Permit me to step aside this week from contextual reporting of the terrorism of the bandits and the hypocrisy of the crisis entrepreneurs in the land. Reason for the cross-over: It is expedient for us to study the essentials of the #Africa Economic Outlook 2021: the African Development Bank (AfDB) launched virtually the other day. It appears that there are so many features in the report for the governments and people of Africa to study and learn from at this moment.
The deliverables from report and colloquium on the launch are quite didactic. The 2021 AEO highlights one of the most fundamental questions for Africa today: How can African countries regain growth after Covid-19? What hurdles must they clear to avoid debt burden? And what changes does this mean for the international debt architecture and for governance systems in Africa?
Specifically, for those who haven’t read the economic outlook highlights, the 2021 edition focuses on debt resolution, governance, and growth in Africa. The opening chapter examines Africa’s growth performance and outlook amid the COVID–19 pandemic. The chapter emphasises policy options to mitigate the effects of the pandemic in the short, medium, and long terms.
The second chapter explores the causes and consequences of Africa’s debt dynamics by showing how the changing structure and composition of debt create vulnerabilities. The third chapter takes stock of the challenges in the current global architecture for debt resolution and explores the link between governance and growth with an emphasis on proposed reforms to improve the processes of debt resolution, governance, and sustainable growth. Those managing debt and indeed duty bearers in Africa’s most populous country need to study this report very meticulously.
According to the economic outlook in focus, “Africa is projected to recover in 2021 from its worst economic recession in half a century”. It may be gratifying to read that forecast at this time in Nigeria. It will be recalled that economic activity in Africa was constrained in 2020 by an unprecedented global pandemic caused by COVID–19. Real GDP in Africa is projected to grow by 3.4% in 2021, after contracting by 2.1% in 2020. This projected recovery from the worst recession in more than half a century will be underpinned by a resumption of tourism, a rebound in commodity prices, and the rollback of pandemic-induced restrictions.
The outlook is, however, subject to great uncertainty from both external and domestic risks.
On Debt Dynamics And Consequences, the analysis signposts some paralysis as the COVID–19 pandemic has caused a surge in government financing needs in Africa. Since the COVID–19 pandemic began in early 2020, governments have announced fiscal stimulus packages ranging in cost from about 0.02% of GDP in South Sudan to about 10.4% of GDP in South Africa. The AfDB estimates that African governments need additional gross financing of about $154 billion in 2020/21 to respond to the crisis. These fiscal stimulus packages have largely had immediate, direct implications for budgetary balances, borrowing needs, and debt levels.
As reported in the third chapter, under “debt resolution and the nexus between governance and growth”, debt resolution in Africa has often been disorderly and protracted, with costly economic consequences.
In the same vein, the economic consequences of sovereign debt restructuring are less severe in countries that act pre-emptively and collaboratively and in those countries where economic governance is stronger. However, the Heavily Indebted Poor Countries (HIPC) initiative took more than a decade to be implemented, and recent debt resolution in Africa has been delayed by long-lasting litigation with private and official creditors. “The absence of orderly and successful sovereign debt resolution, especially with private creditors, makes the prospects of debt distress worrisome for African economies”, the report indicates.
So, AfDB asks countries to establish mechanism for debt restructuring. That is official from the newly named World’s Best Multilateral Financial Institution, AfDB. At the launch of the AEO-2021, the Bank (AfDB) asked governments on the continent to establish a financial stabilisation mechanism for debt restructuring plan.
Akinwumi Adesina, (PhD)president of the AfDB, made the call for the mechanism at the launch of the bank’s 2021 edition of its annual African Economic Outlook. Debt restructuring is a process that allows a private, public or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can continue its operations.
Meanwhile, a debt becomes delinquent when payment is not made by the due date or the end of the “grace period” as established in a loan or repayment agreement. I hope Abuja is reading and studying this mechanism.
Adesina notes that African governments need to consider establishing a collective mechanism, which would give Africa the fiscal space needed to deal with debts. According to Nigeria’s former Agriculture Minister, the process can be initiated by developing macroeconomic and fiscal policy reforms.
His words: “It is high time that we set up a homegrown financial stability mechanism where we work together to mutualize our funds and ensure we avoid the spillover effects that come from global pandemics or any external shock. We must start by making sure that we carry out the macroeconomic policy reforms and the fiscal policy reforms that we need to get done…Africa is not looking for a free pass. We are just looking for an equitable way in which Africa’s fiscal space gets dealt with.”
Adesina proposed a financial stabilisation mechanism as a solution that would allow African countries to agree on a set of convergent macroeconomic policies and principles and pool funds. He said this would allow Africa “deal with the cause of the illness and not always the symptoms”.
The AfDB president adds that the mechanism would allow countries to handle debt and re-engage in massive pro-growth investments that would help them to quickly recover from the COVID-19 pandemic. For instance, in a recent data, the Debt Management Office (DMO) said Nigeria expended $243 million on debt servicing alone from January to December 2020.
There is however a glimmer of hope from the AFDB: The African Development Bank is to support African countries to produce required vaccines within the continent, in the fight against the COVID-19 pandemic. Adesina, the President of the Bank, confirmed the development while speaking on Africa’s Debt and Growth in an interview with ‘CNN’ ahead of the launch of AfDB’s African Economic Outlook 2021.
The promise: “We at AfDB have therefore decided that we are going to support Africa to have quality healthcare infrastructure and also make sure that it develops its own pharmaceutical capacity and also produce vaccines in Africa; not running from pillar to post.” The AfDB President notes that the issue of vaccine was a big problem and that the Africa has so far received a mere 1 per cent of the continent’s needs. His words: “You know so far 40.6 million vaccines have been delivered in Africa and people can’t even get a shot in the arm. That 40.6 million is only 1% of what we need; talk less of having 60% of herd immunity. So we are way off the mark on that.”
The former AGRA chief emphasises the importance of Africa to have access to the vaccines and the need to have vaccine solidarity, pointing out that although those concerned are doing a great job, “the amounts are still in miniscule as far as we are concerned. We need to actually have global solidarity on this; but beyond that, there must also be vaccine justice, making sure that everybody has the vaccine.”
Dr Adesina warns against leaving Africa behind in the distribution of the vaccines. His words, “If we deal with this pandemic in one part of the world and don’t deal with other parts, we are going back to square one. So, absolutely we must make sure that we ramp up access to vaccine. Africa needs it in quantity, it needs it on time and it needs it on an affordable price.”
Already, there are challenging economic situation across the continent leading to loss of jobs, more poverty and hunger. This has the tendency of worsening social, economic and political fragility of countries.
According to the AfDB’s chief executive officer, “a lot of young people lost jobs, and so for us, it’s how do you build back, making sure you have economic resilience. Of course doing that with climate resilience; also make sure that we can secure the health of the populations with health resilience. Now the political dynamics of this is very important because when young people can’t find jobs, it can really worsen social, economic and political fragility of countries. And here is the thing, everything comes back to making sure Africa is supported at this time to meet its deficit. Adesina revealed: “We were looking for $154 billion last year – that was all.
Developed countries were spending over $9 trillion, the G20; but Africa couldn’t just get $154 billion. There needs to be a total change in that, to make sure that Africa gets the resources to expand its fiscal space; and in particular the issue of debt, because you can’t really run up the hill with a backpack that is full of sand.”
The AfDB boss also urges creditors to extend the period of debt repayment and forgiveness in such a way that the period of deferment continues to be helpful to African countries. This prescription can’t be discounted in that Covid-19 related spending has swollen many countries borrowing; and without more aid, 39 million Africans stand the risk of falling into extreme poverty this year.
More than 30 million Africans are already in the extreme poverty bracket. On the growth in Africa, Dr. Akinwunmi says, “We projected that Africa will grow back. We projected 3.4% back this year; but all that is conditional on two things: Access to vaccines and the issue of debts.
The African Economic Outlook is the African Development Bank’s flagship annual publication. It provides economic data as well as analysis and recommendations for the continent’s economies. Each edition focuses on a contemporary theme.
Our economic managers need to study the facts behind the figures – to show themselves approved at this time. Meanwhile, will the rich lenders listen to the Nobel laureate Joseph E. Stiglitz who also calls for a comprehensive global plan to help countries cope with mounting debt that has been compounded by the Covid-19 pandemic? Stiglitz, a recipient of the Nobel Memorial Prize in Economic Sciences in 2001, who was speaking at the virtual launch of the 2021 African Economic Outlook report during a conversation with Bank President Dr. Adesina notes “that’s a question I’ve been very concerned with for a long time … You need debt restructuring, and that needs to be really high on the international agenda…Every country has bankruptcy laws but there’s no bankruptcy law for international debt. Remember when there’s too much debt, it’s as much the creditor’s problem as the debtor’s problem”, said Stiglitz, a professor at Columbia University, New York.
That word is also enough for those who like to borrow for just consumption.
• Oloja is a newspaper columnist and former Editor of The Guardian.