Debt has been recognized as a major impediment to human development, especially in the third world. The debt crisis in Africa is due to the enormous debt that African countries owe to rich countries. Debt is a stumbling block to sustainable development, security, political and economic stability. Currently, most African countries are servicing loans amounting to billions every week to wealthy nations and institutions in the West such as the World Bank and International Monetary Fund (IMF).
Statistics from the World Bank indicate that Africa spends 15 billion US dollars a year on debt repayment and gets about 12.7 billion in aid during the same period (World Bank, OECD). At the moment, Africa’s debt stands at 300 US billion dollars (Nepad Secretariat). According to the World Bank, all developing countries mostly sub-Saharan Africa pay about 1 billion US dollars per day in interest on the debt (World Bank). World Bank figures indicate that for every 1 US dollar African countries receive in grants; those countries pay 13 US dollars interest( Mandel, 2006). That raises eyebrows since not many Africans can live on more than a dollar per day.
What could be the cause of Africa’s debt crisis? Most of Africa’s debt is considered illegitimate. There are a lot of debts in the world concerning who owes who between African nations and wealthy Nations of the West. Some of the causes of Africa’s debt include continuing legacy of colonialism, odious debt, mismanaged lending, the world’s poor subsidizing the rich, and globalization.
The continuing legacy of colonialism: the debt crisis in Africa is partly a result of the unjust transfer of debts from states that colonized various African countries. According to a working paper titled “effects of debts on human rights” prepared by Mr. El Hadji Guisse for the United Nations Commission on Human Rights, a sum of 59 billion US dollars were transferred to developing countries by their respective colonizing states in 1960 (third world Debt a continuing legacy of colonialism, 2004).
The debts have been accumulating interests unilaterally fixed at 14% per year. In 1960 most countries especially in Africa were gaining independence. At that time, they had not organized their economies to positions of being able to service those loans. Therefore up to the time of starting to pay, the loans had indeed accumulated due to the accrued interests.
Odious debt: odious debt is defined as unfair debt resulting from illegitimate loans. Odious loans were extended to dictatorial governments in Africa so that they could be used to oppress people for personal interests. For example in the Democratic Republic of Congo (formerly Zaire), Mobutu Seseko received a lot of aid from the US than the rest of sub-Saharan Africa combined during much of the cold war despite that Mobutu was diverting the money for their purposes some storing Swiss banks.
The people of DRC are now paying the debts for which they saw no benefits. Those types of debts have also accumulated in Iraq due to odious loans given to former dictator Saddam Hussein (Africa Action, 2004). South Africa is also paying for odious debts incurred during the apartheid era (paying twice for apartheid, Action for South Africa, May 1798). Tanzania in the course of opposing South Africa’s apartheid is now paying 800 US dollars odious debts (Africa Action, 2004).
Mismanaged lending: most debts in Africa occurred in the 1960s and 70s due to mismanaged spending and lending by western countries. For example, in 1960, the US spent more than it had and ended up printing more dollars. Oil-producing countries were affected due to the decreased value of the dollar commonly used in world markets. In so doing, oil-producing countries hiked prices. This forced many African countries to borrow more to buy essential commodities that were considered politically correct. Interest rates were also going up resulting in a quick pile-up of debts. African countries also have soft currencies, that is to say, currencies that fluctuate so much in value. Lending to them is done in hard currencies which gain value every day. As a result, they are paying more for what they did not borrow.
World’s poor subsidizing the rich: Large-scale debts in Africa are due to corruption and embezzlement of money by the elites of the continent. Those elites are normally in power and backed by powerful western countries. The elites keep the stolen money in foreign banks which are again used in lending back to Africa. The loans are usually given with conditions such as preferential exports. The long-term effect is that more come out of Africa than it is given.
That results in depressed wages to ensure more production of exports. Loans in the US for example are tied to the purchase from the creditor nations and over 80% of its foreign Aid returns through its exports (Smith, p.139-141, 1994). Such kind of trade has prevented most African countries from capitalizing. Therefore, most African countries are unable to grow so that they can develop their market economy at the same time unable to service their debts (Action Africa, 2004).
Globalization: Globalization is facilitated by international agreements and treaties made by powerful nations. Policies made by powerful nations have managed to raise standards for people in their nations while steeping into further poverty people in the developing world such as Africa. Wealth nations wherever they get into debts can use various methods to avoid getting into problems that poor nations find themselves in (Diplomatique, 2000).
In conclusion, Africa’s debt is sustainable. The continent cannot afford to pay billions of dollars while its citizens are dying from HIV/Aids, hunger, malaria, and other preventable problems. Debates in the world today are about Africa paying a debt it never created for itself. It is argued that what Africa is paying is what was used to suppress and even kill them. Therefore the dilemma is whether Africa’s debts should be canceled.
Works Cited
Africa’s Debt and Iraq’s Debt-Washington’s Double standards. Talking point Africa Action (2004). Web.
Diplomatique L., M., (2000): Has globalization made nations redundant? The states we are still in. Web.
Mandel, S., (2006): Odious lending: debt relief as if morals mattered, new Economics Foundation. Web.
Smith, J., W., (1994): The world’s wasted wealth 2 (Institute for Economic Democracy) pp. 139-141. Web.
Third World Debt Continuing Legacy of colonialism, South Centre, Bulletin 85 (2004). Web.