Since the first half of 2020, a new coronavirus (COVID-19) has been spreading around the world and causing various effects. Its impact has even reached the economies of Africa. African countries have long had serious poverty problems, and their debt repayments have reached a critical point. The new coronavirus has exacerbated this already difficult situation. In March, African countries, led by Ethiopia, submitted a document calling for debt reduction and restructuring.announcementThe company did not have a plan to make it a reality. In response to this,G20has granted 76 of the poorest countries, including many in Africa, a one-year deferral of debt repayment.decisionThe first time, the company was in a position to do so.
The IMF's Africa Consultative Group (Photo:IMF / Flickr [CC BY-NC-ND 2.0])
But is this really the only way to solve Africa's debt problems? Why have they become so deeply in debt in the first place, and why are they struggling to repay their debts? This article explores these questions.
Table of Contents
The events and causes leading up to the current debt crisis
African countries gained independence one after another in the 1960s and were showing economic growth, but the oil shock that occurred in 1970 brought about a sudden change in African economies. the oil shock, triggered by the 1973 Middle east war, caused a sharp rise in oil prices, which placed a heavy burden on businesses and consumers who needed oil. This was a major burden on businesses and consumers who needed oil, and it dealt a blow to the economies of African countries. The recession in high-income countries brought on by the oil shocks also reduced demand for natural resources produced in Africa, which in turn hurt African economies. These factors reduced the revenues of African governments. Furthermore, Middle Eastern countries and other countries that profited from the rise in oil prices deposited huge sums of money in banks in high-income countries, prompting those banks to take out more and more loans. At the time, the Cold War was in full swing, and the governments of high-income countries, eager to win African countries over to their side, guaranteed the loans to their own banks, which then sent the loans to the African dictatorships, regardless of whether they could repay the loans or not.Large volume lendingThe first time this happened, the government of Africa was in a state of crisis. African governments, troubled by declining revenues due to the oil shocks, borrowed money as urged, resulting in huge debts.
Gold mining underground in Mali (Photo:Dave Dyet/Flickr [CC BY-NC 2.0])
Then, in the 1980s, the U.S. policy of high interest rates triggered a global rise in interest rates, plunging one African country after another into a debt crisis. NGO tackling the world's debt problems,Jubilee Debt CampaignAccording to thedebt crisismeans "to cause a situation where debt takes precedence over human life itself or human rights are denied. In response to the current situation of excessive debt in Africa, the World Bank and the "International Monetary Fund (IMFThe term "Structural Adjustment Programs" is used to refer to the Structural Adjustment Programs (SAPs): SAPsThe government implemented a policy of "austerity. This policy imposed severe fiscal austerity, trade liberalization, and the promotion of privatization of state enterprises as conditions for new loans or lower interest rates. However, this policy was criticized by the UN Economic Commission for Africa (ECA) for leading to a slump in domestic investment, increased unemployment among civil servants, and the cutting off of the poor, and an alternative plan wasannouncementThe government has been working hard to reduce spending on education and health. In fact, austerity cuts in spending on education and health have resulted inimpoverishmentwas to be facilitated.
In response to the failure of these structural adjustment programs, in 1996 the World Bank and IMF launched the Heavily Indebted Poor Countries Initiative (HIPC Initiative(*1)" to provide debt relief and reduce debt repayment in low-income countries. In 2005, the "Multi-Debt Relief Initiative (MDRI(*2)" was launched by the HIPC Initiative and MDRI in 37 countries, including many African countries.Approx. 100 billion dollarsThe above liabilities were resolved.
In addition, the G8 Summit held in the same year put the issue of debt in low-income countries on the agenda. In conjunction with this summit,Jubilee Debt CampaignCitizen movements gained momentum in several countries, including. For example, marches calling for debt cancellation, etc. in the summit host cities during the period, and Live8 concerts held in eight cities around the world calling for the cancellation of African debt, etc. The upsurge in these citizen movements also put pressure on the G8, resulting in the 100% waiver of the debt owed by 14 heavily indebted African countries to the IMF, World Bank, and African Development Bank at the G8.approvalThe first time the company was founded, it was a small company.
People walking with "debt relief" signs in front of the U.S. Treasury Department in 2005 (Photo:Friends of the Earth International［CC BY-NC-ND 2.0])
Why African Debt is Critical Again
Looking at the progress to date, various measures have been taken to deal with African debt, and at first glance the problem seems to be on its way to a solution. Why, then, are African countries once again plagued by debt?
causeThere are several reasons for this: the first is the financial crisis triggered by the bankruptcy of Lehman Brothers in 2008. The sharp economic decline that began in the U.S. spread to other parts of the world and brought recession to Africa. And demand for African exports, direct investment, tourism, remittances by migrant workers, and development assistance declined. In addition, lending from high-income countries to African countries increased. In response to the financial crisis, banks in high-income countries cut interest rates, plus the U.S. Federal Reserve'squantitative easing policywas implemented, which further lowered interest rates. Lower interest rates made it easier for borrowers to borrow money, and as a result, African countries' borrowing increased. In addition, in order to overcome the financial crisis, African governmentsIncreased government spendingThe debt problems of African countries were exacerbated by the fact that the U.S. government had already approved a debt ceiling for the first time in the year 2000.
The second cause is that African countries areSignificant investment in infrastructureThis is because of the fact that the Due to the long period of colonial rule, African countries have historically had very low levels of infrastructure compared to high-income countries, creating an infrastructure gap. In order to fill this infrastructure gap, African governments have been increasing investment for the purpose of infrastructure development. The increased investment was financed by debt.
A civil engineer building a road in Nigeria (Photo:Stanley 2321/Wikimedia [enCC BY-SA 4.0])
The third cause is that since 2014, raw material quotes and prices worldwide have beendeclineThis was due to the The slowdown of the Chinese economy and the shale gas revolution in the U.S. have caused prices of raw materials such as oil and industrial metals to fall. And this drop in prices reduced the revenues of countries that export raw materials. In addition, the exchange rate fell sharply, causing the debt owed in foreign currency to swell sharply.
Then, the 2020 pandemic of the new coronavirus resulted in a worsening of the debt problem. The virus pandemic has led to a significant decline in economic activity within the African continent. And the funds being invested in health care and economic measures have ballooned enormously, leading to further debt. The decline in oil prices due to the virus epidemic also exacerbated the debt problem. Leading oil-producing countries such as Nigeria, Angola, Gabon, and Algeria have been particularly affected. Among them, Nigeria, where crude oil sales account for about 901 TP3T of exports and about one-third of government revenue, has seen a sharp cut in the national budget and the currency, thedevaluation of the nairawas conducted.
Specifics of African Debt
How much money do African countries currently owe to whom?
As of 2017, the total external debt of African governments wasUS$417 billionIt is estimated that the of debt to GDP for African countries.ratioas of 2019, countries such as Eritrea (184.71 TP3T), Cape Verde (132.41 TP3T), Angola (132.21 TP3T), Mozambique (125.41 TP3T), Republic of Congo (119.91 TP3T), and Zambia (109.81 TP3T) were particularly high. In addition, the amount of debt as a percentage of the budgets of African governments, as of 2017, was12%about 61 TP3T, which is double the 2010 figure of 61 TP3T. Furthermore, in many African countries, these investments in debt repayment are greater than those in public health, and in 2020, the budget allocated to debt repayment exceeds that allocated to health care in African countries by32 countriesIt exists. This is a true indication of a debt crisis situation.
So to whom is this debt owed? Africa's external debt tobreakdownAs for the 36%, multilateral organizations such as the World Bank and IMF (mainly in high-income countries)investmentby the government), 32% is composed of bilateral creditors (of which 20% is China), and another 32% is composed of private creditors.
Specifically some African countries with a possible debt crisis.Debt compositionLet's take a look at the following. Chad owes private creditors 49%, multilateral organizations 24%, and China 8%, about half of its debt to private creditors. Djibouti owes China 68%, 20% to multilateral organizations, and 0% to private creditors, a significant proportion of its debt to China. In contrast, The Gambia borrows mostly from multilateral organizations, 71%, 6% from private creditors, and 0% from China. It appears that the parties with whom the region is indebted vary widely.
Debt Problem Resolution
What measures are available and how effective are they expected to be in solving Africa's debt problems?
One possible measure to address the debt problem is the deferral of debt repayment decided by the G20 in April 2020. This measure will allow heavily indebted countries to focus on rebuilding their economies by temporarily eliminating the need to allocate budgets for debt repayment. Another option is to stimulate the economy by injecting funds into heavily indebted countries. However, these are only temporary solutions, and it is unclear how much time and money will be needed to rebuild the economies of countries that have fallen into debt crises, and they will not lead to fundamental solutions. Furthermore, they are only effective for the G20 and are not enforceable against banks or private companies. Also, the means of debt forgiveness or cancellation exist, but this would lead to a loss of confidence in the country, since it would mean that the country is unable to repay its debts. If the country loses its credibility, it will naturally not be able to borrow funds the next time around. In addition, as an active obstacle to rescission, there are malicious attempts to obtain more money from a defaulting country by purchasing bonds that are unlikely to be repaid at a low price and pursuing full repayment of the debt.vulture fundand others also exist.
For a long-term, fundamental solution to Africa's debt problem, it is necessary to eliminate the mechanism by which Africa must borrow money, i.e., the international gap. Currently, trade, investment, debt and debt repayment, remittances by migrant workers, and government development assistance areinflow and outflowAll together, more money is going out of Africa than all the money that is coming into the country. This is due to the avoidance of taxes on imports and exports through tax havens.illegal capital outflowand for African countries.unfair tradeThe presence of the "Mere Old Man" is significant. It is also essential to resolve these issues.
Also,Climate Change IssuesThere are also The climate change that is currently occurring is mainly caused by greenhouse gases emitted by high-income countries. Nevertheless, low-income countries such as Africa are greatly affected by natural disasters caused by climate change. This is called "climate apartheid(*3)", causing the gap between the rich and poor to widen and debt to worsen.
The current debt is not an equitable situation and is ethically problematic in that repayment is prioritized over human life. Refusing to repay the debt in order to invest funds in medical care and health care is an option that can besuggestionThe company has been
It is not easy to solve these structural problems that have caused African countries to suffer from huge debts right now. However, since the debt is based on the prospect of repayment, not only the "borrower" but also the "lender" is responsible. Therefore, for a fundamental solution, both countries should proactively confront this issue. Instead of ending the response with temporary measures that are already in place, countries around the world, both public and private, must search for more drastic solutions, or the deeply rooted debt problem in African countries will not be solved.
1 Initiative for Heavily Indebted Poor Countries. Under this program, Heavily Indebted Poor Countries that are struggling to repay their debts can receive debt relief if they meet certain conditions, commit to policy changes to reduce poverty, and demonstrate a track record of implementation. Currently 40 countries are eligible or potentially eligible for assistance.
2 The Multilateral Debt Relief Initiative, a program that provides full debt relief to qualifying countries within the HIPC framework.
3 A phenomenon in which the ability of the rich and the poor to cope with the various problems caused by climate change differs, resulting in the widening of the current gap between the rich and the poor.
Writer: Hisahiro Furukawa
Graphic: Hisahiro Furukawa
Although it may be an idealistic view, I hoped that the world would become a place where it is normal to act in accordance with the minimum human rights in order to eliminate the negative cycle in African countries.
I didn't know about Live8, what is a concert?
Perhaps it is best to call it a continuation of the famous Live Aid concert in the 1980s, which called for aid to the Ethiopian famine, with an "8" added to it as a call to action for the G8. During the concert, slogans like "Cancel the debt!" slogans were also played on electronic billboards during the concert to raise awareness. The concert was attended by many famous bands and singers (over 1,000) from several cities in the U.S. and Europe (including Johannesburg) and can be seen on Youtube: https://www.youtube.com/channel/UCckKR1kDbRKXJArtGYh6 drQ/videos
Three questions.
❶Why is it that China is the only entity that lends more to African countries than any other country?
In addition, looking at the debt composition, it seems that the percentage of loans that are predominantly from countries other than China is very small. So, the g20 deferral does not seem to be that effective, as was mentioned in the text.
therefore
Is there any way to resolve this issue with respect to claims held by ❷ multilateral organizations or private creditors?
I have also heard that if you waive ❸ debt, it will affect your credit and you will not be able to borrow in the future, but is it not a bad thing to borrow from outside of the country itself?
Sorry for the sidebar.
(1) There are both borrowers' and lenders' reasons behind China's increasing prominence as a lending entity. For the borrower, China has many lower interest rates than other countries and organizations, and the waiting and screening period before a loan is granted is shorter. On the lender's side, China considers Africa important both as a source of natural resources and as a destination for exporting manufactured goods, and it may also aim to create friendly relations and increase its allies in international politics.
Regarding the G20 deferment, the G20 includes the major members of the IMF and World Bank (Europe, US, Japan, etc.) as well as China, so most loans other than those from private creditors should be covered. Temporary forbearance is not a fundamental solution to the problem, though.
As mentioned in the answer to 1), the multilateral organizations (IMF and World Bank) are included in the G20 decision, so the key point is the private creditors. It would be very difficult to solve this problem, since some of them include so-called vulture funds, etc. If the G20 countries decided to guarantee the loans of their respective private companies and banks belonging to their countries, it would be possible, but it is unclear whether this is possible as a practical matter, and whether the G20 countries would go that far.
(3) Borrowing from outside the country itself is not a bad idea, is it? In fact, if funds are needed for infrastructure, etc. and cannot be raised domestically, it would be possible to seek them from outside the country. It could conceivably be useful for development. However, there are also issues such as the ability to repay the loan and whether the interest rate is low enough. But at the end of the day, as I said at the end of the article, unless the world economic system, which is very disadvantageous to Africa in many ways, is changed, this issue will be a recurring one.
When I heard the term "debt crisis," I had only taken it to mean "being in debt," so I was surprised to learn that it means "causing a situation where debt takes precedence over human life itself or human rights are denied," and at the same time I was satisfied with the reality of the situation.
We also wondered how much the countries and banks that had lent money to African countries would be negatively affected by the implementation of the measures to provide forbearance or eliminate debt, and vice versa.
I thought that disparities may have been created among African countries, such as in the abundance of domestic resources. It made me think about what kind of actions we can take to actually protect human lives and human rights.
The ratio of debt to GDP exceeded 1001 TP3T, which showed the seriousness of the situation.
Of course, the lender is responsible for the problem, and furthermore, the root cause is something that has a long way to go to resolve: international disparities, so it seems difficult to solve the problem.
We felt that if we do not first stop the exploitation of low-income countries by high-income countries and the illegal capital outflow, the debt problem will continue indefinitely.
I thought that we Japanese must recognize that we, too, are living comfortably by taking advantage of the "poverty" of people in low-income countries, and that this current situation is part of the result of that.
I was surprised to see that the percentage of debtor countries was totally different from country to country, and that on average across the three countries, there was not much difference in the percentage of multilateral organizations, private companies, and China. I had a strong image of debt from China.