“The ugly reality is that, most poor people in most poor countries most of the time never receive or even make contact with aid in any tangible shape or form: whether it is present or absent, increased or decreased…multi-billion-dollar financial flows—are skimmed off by dishonest commission agents, and stolen by corrupt Ministers and Presidents, there is really very little left to go around.”
Graham Hancock, Lords of Poverty
“Aid must at least do no harm; and right now, that is what it is doing…Aid can help, in the form of our new Marshall Plan” by empowering and enabling local enterprises and entrepreneurs to produce and employ.
Glenn Hubbard and William Duggan, The Aid Trap
Foreign aid and debt are co-related. If governments and civil society are not bold enough to address the pros and cons of aid, debt relief, bribery, theft, corruption and illicit out flow of capital, African nations will remain largely poor, corruption ridden, dependent and backward. Aid must empower.
Here I totally share the passion and call of the Ghanaian Economist George Ayittey who unleased his anger and frustration appropriately at a World Bank event on the retarding impacts of bribery, corruption and massive illicit outflow of African wealth on the poor and urged for a “Cheetah generation” of youth-led Africa transformation by taking back the continent.
Africa’s future fate and its sustained and equitable development reside in their hands; and not in the aid community or in the plethora of foreign non-governmental organizations that dot Africa. Nor do I believe that African governments can transform economies unless they are led by competent, technocratic, patriotic and democratic governments with strong institutions. Community is central in my view.
I have argued using evidence that bilateral and multilateral aid has done very little to empower local and indigenous African businesses. In my own homeland Ethiopia, there is hardly any evidence that the poor on whose behalf bilateral and multilateral agencies gave in excess of $50 billion in Official Development Assistance (ODA) since the Tigray People’s Liberation Front led government took power in 1991 gained measurable benefits. By most Human Development Indices, Ethiopia is still one of the poorest countries in the world. A prime example is small holder agriculture. Farming tools remain Biblical. Aid did not empower farmers to make Ethiopia food secure. Who took the money? Who inherited the debt?
This commentary series that is devoted to aid cancellation, will focus on the effects of the Pandemic on the economies of African nations. My thesis is that the Pandemic will aggravate existing African massive debt level. I see a dual problem. Most African nations will face significant challenges in meeting the basic human needs of their citizens—the provision of health services, foods and nutrition, safe drinking water and the like; and at the same time the inevitable demand to pay outstanding foreign debts. This is a tough choice under normal conditions for any nation. This tough choice is made tougher by the Pandemic.
The pandemic is projected to pose a disastrous effect on emerging Africa not only through the loss of lives; but also decline in growth compounded by servicing public debt. It was therefore appropriate for two hundred former heads of state, renowned academics, scholars and scientists to have assembled and written a letter urging the G-20 to suspend debt repayments across the board, including an estimated $44 billion owed by African nations to global multilateral and bilateral lenders. This is barely adequate.
In light of this stingy approach, I was elated to learn of the global aid cancellation campaign led by U.S. Senator Bernie Sanders and U.S. Representative Ilhan Omar, both Democrats. On May 13, 2020, “Sanders, Omar Lead 300+ Global Lawmakers in Call to Protect Developing Countries from Economic Ruin” became a sensational and captivating headline new across the social media.
They involved “300 international lawmakers across two dozen countries in a letter to the leadership of the World Bank and the International Monetary Fund (IMF)” and urged the two Bretton Woods multilateral lending institutions “to cancel low-income countries’ debt in response to the global COVID-19 crisis and provide a major infusion of financial support to avert a global economic meltdown.” In my view, this is a timely, ethical, appropriate and moral call. It is much more responsive than postponement or deferment.
Their justification for debt cancellation in contrast to debt postponement proposed by the G-20 is compelling. Senator Sanders said this. “What this crisis shows us is that we have got to act as a global community—we truly are all in this together. That means protecting the most vulnerable amongst us…In the face of a horrific pandemic and a worldwide recession, we cannot allow poor countries to dedicate money that should be going towards protecting the health and safety of their people to pay off unsustainable debts. We cannot allow these countries to be deprived of the resources they need to purchase food, medicine, protective gear, and medical equipment. The steps that our international coalition of lawmakers is proposing are not radical. It is the very least that these financial institutions should do to prevent an unimaginable increase in poverty, hunger, and disease that threatens hundreds of millions of people.”
I share this call and should you; and should millions of others who care about humanity and human worth.
Representative Ilhan Omar, one of the most progressive voices in the U.S. Congress echoed a similar view. “This is a global economic and public health crisis unlike any we have seen in our lifetimes…. We as a global community must seize this opportunity to get relief to those who are suffering by cancelling debt for nations who cannot afford it. As the largest contributor to the IMF and the leading force behind the establishment of the World Bank, the United States should take the lead in this effort. I am humbled by the broad show of support for this policy on all six continents—including former heads of state. We are all globally connected and must act as a collective to get us out of this crisis.”
This is a big deal if the world community, especially wealthy nations and multilateral lenders that they primarily own and direct to lend wish to manage and mitigate the huge ripple effects of the Pandemic and the financial crisis emanating from it. Major think-tanks such as Brookings Institution that I quoted in my previous commentaries on the subject as well as U.N specialized agencies predict that COVID-19 could increase global poverty and impact half a billion people or almost 8 percent of the world’s population. The majority of the world’s poorest people live in Sub-Saharan Africa, among them is Ethiopia. The impact of the Pandemic on the availability food and nutrition is especially worrisome.
The World Food Program advised in early May, 2020 that “Even before coronavirus swept across the globe, 135 million people in 55 countries faced acute hunger, mainly because of conflict, climate change and economic crises, the WFP estimated. If the pandemic is taken into account, that number nearly doubles to 265 million.” Against this, imagine what debt services would mean for low income countries. Developing nations together “hold roughly $11 trillion in external debt, with $3.9 trillion of debt service due this year. Sixty-four countries currently pay more on debt servicing than on health care.”
Economic growth will also be stunted by the Pandemic. It is estimated that in China, the second largest economy in the world, half a million companies declared bankruptcy. In the U.S., the largest economy in the world, more than 40 million Americans have lost their jobs. Would Africa be insulated?
In part two, I identified the sectors and sources of foreign exchange in Africa that will be affected adversely by COVID-19. Given lack of growth and foreign exchange earnings, low income nations in Africa will not be in any position to repay debt at this time in any case. The letter from Senator Sanders and Rep. Omar also endorsed by 300 lawmakers across the globe makes it clearer than I can that temporary freeze and or deferment for one year or two of debt repayment will not do.
“The temporary suspension and deferment of debt will not be sufficient to help these countries fully prioritize the prompt and sustainable management of the crisis at hand.” Their urgent call to the Heads and the Executive Board of Directors of both the World Bank and the IMF to exercise “strong “leadership to provide extensive debt relief and financial assistance for all impoverished nations most at risk of the devastating human costs and the lasting economic injuries of COVID-19” is the right thing to do.
In the long-term it is in the business interests of the World Bank and the IMF to cancel all debt for low income and poor nations than to provide “temporary suspension and deferment.” I can cite numerous examples why this is so. Poor nations are not stable or safe; they invite terrorism. Weak and poor nations cannot participate in the global economy; rich ones can. Rich nations cannot sell their products or services to them. Poor nations cannot provide jobs to millions. It is inevitable that the poor will seek job opportunities in other nations including the West. Poor nations cannot be democratic. Poor nations cannot be custodians of the environment.
I suggest that, if multilaterals are genuinely committed to global prosperity, safety, security and stability, they must demonstrate this commitment by cancelling all debt; and not postponing it for another day. They also possess “trillions of dollars” in liquidity, especially the IMF, to pump tens of billions of dollars in soft loans and or grants to relieve hunger, debilitating diseases, massive youth unemployment and other forms of abject poverty in poor and low-income nations in Africa, if they choose.
Productivity and employment generation for Africa’s massive youth is hardly altruistic. It makes business sense. The Pandemic taught me that our planet is integrated and is inseparable. Equally, the solutions to global problems are inseparable. A secure, safe and prosperous Africa is therefore in the interest of the global community. In this regard, one can learn a great deal about successful economies in East Asia and the Pacific; and how they are better equipped to deal with the Pandemic than Africa or Latin America.
Accountability and Transparency
I am not suggesting that Africa’s low-income nations deserve debt cancellation without preconditions. It is a two-way preposition. The precondition that I am suggesting is for countries that receive debt cancellation to also do the right thing, namely, to adopt good, transparent and accountable governance. The elimination of bribery, corruption and illicit outflow of wealth should no longer be tolerated.
In fact, these cancerous attributes must be criminalized in each and every African nation. Further, the hundreds of billions of dollars of African wealth siphoned off from the African poor by State and private thieves; and that is still hidden in Western, Middle Eastern, South and East Asian, North American, Caribbean, Panamanian and other banks and properties under fake names and phantom companies must be retrieved without delay.
Anyone who has read the Panama papers and the myriad of networks to hide ill-gotten riches can and will appreciate why transparency, accountability and retrieval of assets is vital. Cancelling all debt for low-income and poor countries makes immense sense as long as these countries also do their own part by cleansing their financial and monetary systems. It makes immense sense as long as these nations use financial capital to boost domestic productivity and employment.
A Marshall Plan without competent, patriotic and corruption free captains or generals of ships of state will not work.
How much does Sub-Saharan Africa (SSA) owe the world anyway?
According to World Bank data, the total external debt for sub-Saharan Africa jumped nearly 150% to $583 billion in 2018 from $236 billion 10 years earlier. This is more than half a trillion dollars. For this reason, experts agree that Africa’s “debt load is becoming unsustainable as the average public debt increased from 2010-2018 by 40% to 59% of GDP.”
I agree; so, do Senator Sanders and Rep. Omar. A moratorium on debt is not the answer at all. Take Ethiopia’s case and consider what debt repayment would mean. Ethiopia’s debt burden is 60 percent of GDP in 2020. Latest statistics show that the national debt of Ethiopia has been increasing from 2014 to 2018, with projections up until 2024. In 2018, the national amounted to around 43.97 billion U.S. dollars. This is huge and unsustainable.
It is generally true that Ethiopia does not really have much productivity gains to demonstrate how it used this huge public burden that is largely unaccounted for. The question I keep asking is this. Who stole the billions of dollars? Who lost? Who carries the burden and why? And why should generations of Ethiopians be punished for monies stolen and or squandered by governing elites and by thieves of state and their cronies?
This leads me to the question of accountability among African governments and elites. In order for African leaders and elites to assert the moral high ground for debt cancellation that I believe is compelling, they also need to, at the same time, demonstrate accountability for their own behaviors and misdeeds. They need to establish robust legal provisions and institutions that will go after culprits, plutocrats and corrupt officials at all levels of state and government as well as the private sector. Remittances should be part of this legal platform. Civil society must be part of the solution.
It is true that Sub-Saharan Africa alone owes more than half a trillion dollars in debt. A 2020 study by the highly regarded, credible and independent organization, Global Financial Integrity, shows that between 1980 and 2018, Sub-Saharan Africa received $2 trillion in Foreign Direct Investment and Official Development Assistance (ODA). At the same time, SSA lost a whopping $1.3 trillion in illicit outflow.
The top four culprits or emitters of this horrendous theft and graft are I) the Democratic Republic of the Congo (the DRC); II) the Republic of South Africa; III) Ethiopia; and IV) Nigeria. These corruption and illicit outflow ridden nations account for 50 percent of stolen wealth from SSA. Thefts and illicit outflow were conducted through illegal tools including export and import mis- invoicing and mispricing, misreporting and other underhanded mechanisms. In numerous cases commissions are paid to officials in order to cover these illegal activities.
In addition to the usual hiding places in the West, other destinations of these illicit outflows include the Middle East and rapidly developing East and South Asian countries, Caribbean islands and Panama.
A famous case in illicit outflow widely reported across the globe and with traction on the ground includes the case of petroleum rich Angola. The daughter of the former President of Angola, Eduardo Dos Santos, and the richest woman in Africa, is accused of stealing billions of dollars from Angola’s public treasury and its sovereign fund. On the other side of the African continent, Nigeria went after its former President, General Sani Abachi and retrieved $300 million. Over decades of theft, graft and illicit outflow, Nigeria lost tens of billions of dollars. Nigeria is a good example in going after thieves of state and government.
SSA suffers from its own rulers. Theft, graft and illicit outflow persist to this day. It is unlikely that COVID-19 will change this phenomenon. Botswana is the exception to the rule. It is therefore high time for the rest of SSA to follow suit; and cleanse itself from this dreadful mal-practice in governance.
The world community has begun to respond, albeit modestly, to the plight of SSA countries. I am not yet convinced that most African nations have done their own part though. For example, the International Monetary Fund (IMF) “approved six months of debt service relief for 25 low-income countries, including 19 in Africa. The suspension of the IMF’s debt service is through the institution’s Catastrophe Containment and Relief Trust and can be extended for up to two years. The IMF also approved additional funding support for several African countries, including Chad, Ghana and Senegal. This is minuscule.
- It needs repeating over and over again that Africa’s debt level is unsustainable even under normal circumstances. The African Union estimates that the region’s resource gap next year will exceed $200, far shorter than the G-20 repayment moratorium concession. However, this extension or deferment misses the point entirely. African nations, especially the poorest and least developed SSA countries will be in the same situation after two years. This is not a solution.
- In this regard, Prime Minister Dr. Aby Ahmed’s OPED in the New York Times presented a compelling argument that Ethiopia will be forced to choose between two tough options: a) save innocent lives by investing its limited resources on public health and mitigate COVID-19 or b) spend meager financial resources to service external public debt. Imagine that for one minute and decide which of these two governments policy options is fair, just and judicious?
I suggest that the priority for Ethiopia is to provide health care to its citizens; and to prevent deaths from the Pandemic.
- In this regard, Ethiopia is not an exception. It is estimated that Africa as a whole would have to spend 20 percent of government revenue on public health. I then ask the question, “How justifiable is it for creditors including the World Bank, the IMF, regional banks and other lenders to demand and or to expect that poor African nations service external public debts to predators instead of saving lives?
- In line with the proposal by Senator Sanders, Rep. Omar and global cosponsors the international community must do all it can to relieve Africa and especially the poorest and least developed nations such as Ethiopia, by cancelling all external public debt burden
- The primary reason for cancelling debt is this. Crippling debt punishes the poorest of the poor the most. It also penalizes generations of African youth whose governments failed them in the first place. In either case, the poor and youth in prosperous nations have better safety nets than those in poor and low-income countries, including Ethiopia.