Eight former African heads of state have thrown their weight behind a call for government leaders attending the G20 summit to support a comprehensive plan to rescue African states from crippling debt that is undermining their development.
On the sidelines of the G20 events in Cape Town this week, eight former heads of state — Olusegun Obasanjo (Nigeria), Macky Sall (Senegal), Joyce Banda (Malawi), Jakaya Mrisho Kikwete (Tanzania), Ameenah Gurib-Fakim (Mauritius), Hailemariam Desalegn (Ethiopia), Nana Akufo-Addo (Ghana) and Yemi Osinbajo (former vice-president: Nigeria) — came together to call for re-engineering of global debt markets to help Africa.
Speaking at the launch, the former governor of the Bank of Kenya, Patrick Njoroge, said given the stature of the G20, African leaders were calling for member nations to consider adopting a framework in which the global community can address issues for all debtors at the same time.
“Around [this debt relief initiative] there could be other elements. These elements include the cost of capital. All those are good financial arrangements that can support debt relief. But the biggest element in all of this is [the need for] debt relief and until that is squared away, we won’t have much traction,” he said.
We need to put our heads together for development that will yield benefits for all the world. We are going to sensitise everyone who needs to be sensitised and we are going to reach everyone who needs to be reached. We are not talking for Africa alone, we are talking for the whole developing world.
— Olusegun Obasanjo, former Nigerian president
Obasanjo said the African leaders behind the initiative were concerned about the debt levels of countries on the continent, which is taking away money that could have gone to human development, education, health and nutrition. He said the debt seems “interminable”.
“We need to put our heads together for development that will yield benefits for all the world. We are going to sensitise everyone who needs to be sensitised and we are going to reach everyone who needs to be reached. We are not talking for Africa alone, we are talking for the whole developing world,” he said.
In its Sub-Saharan Africa regional economic outlook published last October, the IMF noted that the region continued to “grapple with financing shortages, high borrowing costs, and rollover risks amid low domestic resource mobilisation”.
“Significant debt repayments are looming this year and next. The financing challenges are forcing countries to cut essential public spending and redirect development funds to debt service, thereby endangering growth prospects for future generations.”
The IMF estimated that gross external financing needs for low-income countries in sub-Saharan Africa would exceed $70bn annually (6% of GDP) over the next four years. “As concessional sources have become scarcer, governments are seeking alternative financing options, which are typically associated with higher charges, less transparency, and shorter maturities,” it said.
“In 2023 government interest payments took up 12% of its revenues (excluding grants) for the median sub-Saharan African country.”
Gurib-Fakim said African nations were experiencing their worst debt crisis in 80 years, and bold steps were required to drive development in the emerging world. She said debt relief was a prominent part of that solution.
Debt relief was used historically to revive economies after hard times, she said, pointing out that Germany got debt relief after World War 2. It was not charity but an investment in prosperity and development, Gurib-Fakim added.
The leaders signed the “Cape Town Declaration — a decisive call for urgent debt relief and fairer borrowing terms for African nations”, which called on G20 chairman President Cyril Ramaphosa “to give priority to ensuring debt stability for developing countries”.
Meanwhile, at the launch of B20, the business segment of the G20, South Africa’s trade, industry and competition minister Parks Tau called for a commission into the cost of capital extended to African nations for development.
He said the challenge of indebtedness was part of a vicious cycle that included unfavourable sovereign credit ratings that make loans even more expensive for African nations. “We are firmly putting on the table at G20 the idea of establishing a cost of capital commission so that [it] is able to work towards addressing the cost of capital and ensuring that we can create equity in relation to access to capital.”
Tau said considerable reforms were required in other areas around multilateral development finance, including how sovereign credit ratings agencies operate by adding an “African risk premium” to the cost of debt of countries on the continent and the global south.
“The cost of capital is a particular issue that we think requires attention, because in reality whilst we’re talking about countries in the global south having lower credit ratings and the economies are not strong … we pay higher interest rates than our counterparts. That exacerbates the prevalence of inequality in the world.”
Asked about the call by some African leaders for the establishment of a sovereign credit ratings agency whose methodology could be favourable to emerging economies, Nonkululeko Nyembezi, co-chair of the B20 and Standard Bank board chair, said the proposal was problematic and would subject such an agency to a credibility crisis.
“You may recall, there was a time when African governments got really upset about all of this and talked about establishing an African ratings service, which we did not believe would actually solve the problem.
“Now imagine you have S&P, Fitch, and Moody’s come out with a B- for South Africa, and this African ratings service comes out with an A+. Who are you going to believe? So, credibility-wise, it would be very difficult to get traction for that kind of approach,” she said.
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