WHY THE EU SHOULD TAKE THE GLOBAL LEAD IN CANCELLING AFRICA’S DEBT

[Deeq A.]

If the EU wants to live up to its recent ‘partnership of equals’ commitment to Africa, it should take the lead and urge the international community to cancel a part of Africa’s bilateral, multilateral and private debt as it faces the Covid-19 crisis. This will not only help Africa deal with the health and economic emergency caused by the pandemic, but also redress the historical power imbalance between the two continents.

The EU adopted a new EU-Africa Strategy in mid-March, which outlined a “stronger, more ambitious” partnership with Africa. In the build-up to this strategy, European Council President Charles Michel and Commission President von der Leyen called for a “partnership of equals” that would move away from the donor-recipient relationship that has long characterised EU-Africa relations. Rather, the EU-Africa Strategy aimed to pave the way for genuine peer-to-peer cooperation, beyond outdated views of the African continent and moving on from the legacies of a colonial past.

Less than two weeks after the adoption of this new strategy, Africa was facing a major economic crisis caused by the pandemic, one that is already outweighing the health emergency on the continent. Indeed, the Covid-19 crisis led to a fall in commodity prices and increasing costs of imports, while income from tourism, remittances and raw materials dropped. Developing countries are also experiencing the largest ever capital flight and a brisk withdrawal of international investment. According to the World Bank, the pandemic has already triggered the first recession in Sub-Saharan Africa in 25 years.

The EU’s global corona response: stronger, more ambitious?

In line with commitments under the new EU-Africa Strategy, High Representative Josep Borrell announced in late March that the EU would assist partners around the world in combating the virus, in particular Africa “because we want to underline that we will not forget about our sister continent when addressing this global pandemic.” This pledge became more concrete when the EU launched its ‘Team Europe’ package to support partner countries in their fight against Covid-19.

Team Europe channels €3.25 billion of existing foreign external action resources to Africa – the largest geographical portfolio under the €20 billion package. Debt relief for African countries was not addressed in this Team Europe approach, although the EU – like other G20 nations – has agreed to offer a debt moratorium for the poorest countries. This means that bilateral government creditors will suspend debt repayments for, among others, 38 African countries that request forbearance, while urging private investors to do the same. In the meantime the IMF has also announced a debt relief of six months for IMF debt obligations to 25 of the most vulnerable countries worldwide, 14 of which are in Africa.

All of this is not enough, however. In late March, African finance ministers called for $100 billion immediate emergency financing to tackle Covid-19. Some $44 billion of this would go to debt relief from multilateral, bilateral and commercial creditors alike. Africa’s total foreign debt is estimated at $417 billion and in 2018, 36% of African government external debt was owed to multilateral organisations such as the World Bank and IMF, 32% to bilateral creditors (including 20% to China) and another 32% to private lenders. Given that global economic recovery is only expected to occur within two to three years, the finance ministers urged development partners for a substantial period of debt relief. Support from the IMF, World Bank Group and the EU is needed to achieve this, they argued, to ensure that African governments have enough fiscal space to deal with the crisis.

Historical responsibility to cancel debt

This focus on debt relief on the part of African finance ministers is no surprise. Even before the corona outbreak, Africa faced a looming debt crisis, with about one in three Sub-Saharan countries classified as being in or at high risk of debt distress. While debt cancellation in itself is not a silver bullet as it does not immediately tackle internal (i.e. corruption, poor governance) or external (i.e. inequitable world order) root causes of debt accumulation, it does free developing countries to spend more on healthcare, education and tackling poverty. This is particularly relevant today, as the coronavirus means that many African governments need to decide whether they channel their diminishing government resources to their lenders to avoid default or to meeting the vital health and economic needs of their population.

Debt payments are in fact one of the reasons that Africa’s public health needs are so high in the first place: more than 30 African countries spent more on debt payment in 2019 than they did on public healthcare. The much criticised structural reforms that condition IMF and World Bank loans – some of which African governments still need to repay – have also hollowed out African healthcare institutions. Take, for example, these institutions’ structural adjustment programmes (SAPs) of the 80s and 90s. It is widely understood that the conditions that underpinned these loans led to a ‘lost decade’ for Africa, as national public services (such as healthcare) deteriorated and prevented countries from building up the necessary human and social capital to develop and to repay debts. Even though poverty reduction strategy papers (PRSP) have replaced these SAPs since 1999, the same criticism comes up regularly.

Given that European countries, together with the US and Japan, dominate the governance and agenda-setting of the IMF and the World Bank, and thus bear responsibility for its failing policies, there is surely an argument for the EU and its member states to take the lead in cancelling Africa’s debt during the Covid-19 crisis. But Europe’s historical responsibility goes back even further. In fact, Africa’s debt crisis can be traced to the colonial period when major foreign trade defects, such as high export dependence and high concentration on a few commodities, became characteristic of Africa’s economy. These defects, a legacy of European colonialism, have laid the foundations of Africa’s debt crisis. If the EU, whose initial integration was deeply intertwined with the colonial project, and EU member states are genuine about fostering a more ambitious and equal partnership with Africa, they should use this momentum to pay back some of their own direct and indirect colonial debt through a debt jubilee for Africa.

The end of debt colonialism

This would first require the EU and core member states such as France, Germany and Italy – all G20 countries – to agree among themselves on such a step. Given the faltering internal solidarity, again illustrated by the heated debates over coronabonds, this would be quite a hurdle. Yet the EU and its member states should realise the self-interest in supporting their neighbouring continent today: it is the only way to tackle the root causes of (future) migration flows and conflicts. If Africa defaults on its foreign debts due to the corona crisis and no longer manages to acquire international funding, the human, socio-economic and security consequences will undoubtedly spill over into Europe and be dire for a continent that already makes up 70% of the world’s poor people.

The next hurdle for the EU is to coordinate an international response, in line with its commitment to multilateral solutions. The upcoming IMF-World Bank spring meetings on 17-19 April are a good starting point for a new debt cancellation mechanism that should draw lessons from and improve former initiatives like the Heavily Indebted Poor Countries Initiative. The latter was launched in 1996 to cancel some of the debts of the most impoverished countries, but its stringent conditions have so far not helped African countries achieve debt sustainability over time. Neither did all creditors, such as the commercial ones, participate in this initiative.

By taking ambitious action and coordinating debt cancellation for Africa, while respecting Africa’s voice and economic sovereignty in the process, the EU can assert itself on the world stage, especially vis-à-vis China, which has itself been accused of debt colonialism towards Africa in recent years. This is the moment for the EU to reset and strengthen its relations with African countries and counter China’s growing influence there. In short, if the EU wishes to live up to its geopolitical ambitions with an EU-Africa Strategy that is both ambitious and credible, it should take the global lead and push for debt cancellation for Africa.

Source: Centre for European Policy Studies

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