Is debt ever going to get lower in Africa?

By: Lim Shi Jie Josiah, Tan Chok Geow

Research Head: Tan Chok Geow

Editor: Sakshi Sanganeria

Illustration by Ng Jia Ying

Abstract Africa’s debt woes started early in the 1960s- soon after gaining political independence. This was because the expectations of post-independence economic growth were let down by poor performances- causing Africa to plunge into a debt crisis. Since then, debt levels in Africa have been fluctuating unpredictably. Collectively, data provided by educational institutions and the World Bank suggest that Africa appears to be heading towards another debt crisis. Therefore, this article explores the potential economic, political and social factors that may influence debt levels in Africa. Factors explored include commodity price changes, changing debt composition, high levels of infrastructure spending and the presence of leveraged corruption. While we suggest that these factors do influence debt levels in Africa, we also qualify that their influence is limited given increasing global economic uncertainty, which may yet prove more significant.

Africa’s debt woes surfaced early in the 1960s as Africa’s initial growth in the mid-1960s turned out to be short lived. This was due to several unfavourable events which included accelerating ecological degradation, unsustainable economic growth, sluggish growth in exports and the decline in the terms of trade. As the demand for education, infrastructure, health and social services could not keep up, Africa started plunging into an endless sequence of debt crises. Africa’s debt level peaked between 1982 and 1990, as illustrated below.

From a debt stock of US$140 billion1, this amount had skyrocketed to US$271.9 billion by 1990. Alternatively, the ratio of debt outstanding to Gross National Product increased from 45.3 in 1982 to 94.6 in 1990. African debt was approximately 19% of the total outstanding debt of all developing countries. Following this, the Heavily Indebted Poor Countries Initiative (HIPC) was introduced in 1996 to provide debt relief. The debt ratio has fluctuated around 45 between 1999 and 2008. 1Diagram Source:

As of 2019, half 2of the African low-income countries are either in debt distress or at high risk of being so. This suggests that these countries are highly vulnerable to economic changes as their governments have a reduced ability to provide support in the event of a recession. Four potential factors for this development are discussed. They are commodity price changes, changing debt composition, high levels of infrastructure spending and the presence of leveraged corruption. 1. Commodity Price Changes Commodity price changes occur when prices for commodities change sharply in a short span of time. Reduction in prices of oil, gold, diamonds, timber, and copper have hurt African economies. As Kingsley Ighobor, the writer for the United Nations, notes, ‘the fall in commodity prices represents a significant shock for the region as fuels, ore, and metals account for more than 60% of exports’. Furthermore, the recent rise in African debt levels, with 13 countries at risk of debt distress, was clearly associated with the fall in commodity prices starting in 2014 as Africa’s terms of trade fell by 20 percent between 2014 and 2015. In addition, evidence from the World Bank show a general decrease in oil export prices in South Africa from $85.1/mt to $71.9mt from 2017 to 2019. 2. Changing Debt Composition African debt is increasingly on commercial terms with higher interest rates, shorter maturities, and more unpredictable lenders. This changing debt composition was seen alongside a significant increase in the proportion of loans issued by China. According to Jevans Nyabiage of the South China Morning Post, China’s loan reached a total of $143 billion between 2000 and 2017. Interest paid to China already accounts for more than 20 percent of revenue in Angola, Ghana, Zambia, and Nigeria. 2Diagram Source: -debt-crisis-what-are-the-solutions/

The lack of opacity of the costs and information on loan terms makes it difficult for these low - income countries to know just how risky the loans are. 3. High Levels of Infrastructure Spending Estimates provided by the African Development Bank reveal a large financing gap: African infrastructure needs far outstrip the region’s ability to finance it. East African countries, in particular, are relying on high levels of infrastructure spending to fuel economic growth, resulting in year-on-year increases in infrastructure spending which has led to persistent fiscal deficits. In Djibouti and Tanzania, for example, plans to develop the nations into logistics hubs have translated into significant spending on transport and energy resources. While such policies have contributed to real GDP growth, debt has continued to rise faster than GDP, which has led to the increase in public debt-to-GDP ratio. Of the funds invested in infrastructure development, the Infrastructure Consortium for Africa indicates that up to 23.8% of the $81.6 billion committed in 2017 came from China. This is indicative of a larger trend in China’s Belt and Road Initiative (China finances more than 3000 ongoing as well as completed infrastructure projects in Africa and provided commercial loans averaging about $6 billion a year between 2000 and 2014). China is now the region’s largest creditor- accounting for 14% of the total debt stock. This is particularly alarming because China has been known to take a “hands-off” approach to loan issues as opposed to traditional Western institutions which are often interventionist. Thus, lesser accountability is demanded from financed projects and this has led some African nations to take on unsustainable levels of debt - the future political ramifications of which could involve the loss of strategic assets and sovereignty. 4. Leveraged Corruption More than just enabling higher levels of debt, opaque loans have enabled high levels of leveraged corruption which present a serious challenge to fiscal sustainability. China is not solely to blame as African countries borrow increasingly from commercial markets which demand far less transparency as to how the money is spent. These opaque loans have facilitated corruption and reckless spending which have led to gaping holes in budgets-which then leads to more borrowing. Ghana and Mozambique are known offenders. In a study done on 39 African countries between 1970 to 2000, it was revealed that up to 63 cents per dollar was siphoned out of the continent in the span of 5 years. While it may seem troubling, this could present a partial solution to Africa’s debt woes. Indeed, Rozenberg and Fay (2019) have shown that with stronger institutions, the cost of infrastructure services could drop from 8.2% of GDP to 4.5%, suggesting that policy and governance changes in Africa can be of primary importance to close the fiscal and financing gap- if sufficient political will exists. 5. Conclusion Despite the above trends, we qualify that it is still too early to conclude whether Africa is heading towards another debt crisis. However, given China’s increasing involvement and contribution to Africa’s rising debt levels, a complete analysis cannot discount China’s role. Indeed, as the Belt and

Road Initiative progresses, commentators are aware that Africa’s fate has become deeply intertwined with that of China. Regardless, the possibility of “debt-trap diplomacy” and its geopolitical implications for control of strategic and natural resources warrants further investigation. For now, Africa remains in a precarious balance.


1. Africa Renewal (2017). Commodity price crashes hit Africa. United Nations.

Retrieved from: 2017/commodity-prices-crash-hits-africa

2. Anzetse Were (2018). Debt Trap? Chinese loans and Africa’s development options. South Africa Institute of International Affairs. Retrieved from:

3. David Herbling (2019). Africa’s fastest-growing region banks on more spending for growth. Bloomberg. Retrieved from: growing-african-region-banks-on-more-spending-for-growth

4. Jaime Atienza (2019). Is Africa facing its second debt crisis? What are the solutions? Oxfam Intermon. Retrieved from: what-are-the-solutions/

5. Jan-Pieter Laleman (2018). East Africa: Strong infrastructure investments push up public and external debt levels. Credendo. Retrieved from: africa-strong-infrastructure-investments-push-public-and-external-debt-levels

6. Linus Mofor (2019). African has $100 billion infrastructure problem. What’s missing? Brink. Retrieved from: whats-missing/

7. Shanta Devarajan, Indermit Gill, Kenan Karakulah (2019). Avoiding a debt crisis in Africa. Brookings. Retrieved from: development/2019/07/11/avoiding-a-debt-crisis-in-africa/

8. Uka Ezenwe (1993). The African Debt Crisis and the challenge of development. Econstor Retrieved from:

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