At the conclusion of the New Global Financial Pact Summit in Paris last month, President William Ruto of Kenya participated in a joint press conference with French President Emmanuel Macron and other world leaders. In his remarks, the Kenyan president made a number of proposals that have been cheered loudly by some Africans. In the view of these Africans, Ruto “told it as it is” to Macron and the other Western leaders in attendance. But that euphoria is misplaced.
Ruto mentioned, correctly, that debt levels and related service costs are so high for many African countries that they are left with little fiscal space to address the myriad socio-economic problems they face. As a solution, he proposes a restructuring of African countries’ debts into 50-year loans with a 20-year grace period on interest payments. This idea, which Ruto views as a no-brainer, may be good on paper but he completely ignores the fact that among the creditors are some of today’s retirees who rely on that interest income for their daily needs. How are those people supposed to run their lives during that period, within which many of them will probably die?
Another problem is that Ruto failed to acknowledge the real cause of the debt crisis. Yes, Africa needs to borrow to fund its development programs. But what happens after the loans are disbursed is far more important. As students who borrow to attend college know, they must ensure that they are acquiring marketable skills, and are acting with urgency. If they don’t, and fail to graduate on time or end up with degrees that are worthless in the job market, they risk saddling themselves with debt that they cannot repay. Generally, when African countries borrow, they spend the money on politicians’ pet projects that have no hope of generating the steady revenues required to repay loans. And, there is a widespread lack of urgency on the continent. These are the reasons why Africa is such a laggard relative to other continents.
Ruto complained bitterly that the interest rates African countries pay when they borrow from global financial markets are on average eight times what developed countries pay to access the same markets. In his words, “[Africans] were set up to be in debt.” It is unhelpful for a leader to convey that message to his people without context. The real reason African nations pay such high interest rates is that the country, political, currency, default, and other investment risks are so much higher there. Due to the opaque nature of government finances in many African countries, the risks are often unquantifiable. Ruto should be thankful that anyone is even willing to lend to these countries, given the risks.
Most of Africa’s long-standing socio-economic problems are rooted in slavery and colonialism. Consequently, developed countries of the West who benefited from those institutions have a duty to contribute towards Africa’s development. But it must be said that many of the continent’s current ills are results of homegrown problems. African leaders should equally recognize that fact.
One would expect that as heads of state, Ruto and his peers in Africa pay attention to what happens in other world capitals. Ruto suggested the establishment of a new global financial architecture to raise capital, through worldwide financial and other transactions taxes, to address global problems such as climate change and debt-relief for Africa. He should know that in Washington, the White House and the Republican-controlled Congress spent the last several months in a tense standoff over raising America’s debt ceiling. Despite warnings from everywhere that the stalemate was doing serious damage to the U.S. economy, both sides walked right to the edge of the precipice before each blinked and compromised. In London, the Labour and Conservative parties agree on practically nothing nowadays. In Paris, Macron recently had to use obscure constitutional powers to force through his controversial pension reforms.
Everywhere one looks in the world today, there is gridlock. Ruto will, for now, be better off focusing on what he can control. That means working feverishly to bring the discipline and urgency that are so badly needed in Africa. He should get Africans thinking like conscientious student borrowers. He should forget his wish that his proposed new global financial architecture would, unlike the World Bank and IMF, give equal say to developing countries in decision-making. That is impractical. There is no financial arrangement anywhere in the world in which the voices of majority and minority shareholders carry equal weight.
At the same press conference in Paris, the president of South Africa, Cyril Ramaphosa, appealed for funding from developed nations to help build the Inga Dam electrification project on the Congo River. If completed, the 70,000 MW project would supply electricity to an estimated 12 to 15 African countries. Similarly, Ramaphosa should first focus on fixing what is already in place in his country.
The once highly respected South African power utility, Eskom, has all but collapsed and cannot keep the lights on. South Africa’s ruling elite and their cronies have been widely accused of looting billions of dollars’ worth of the state-owned company’s assets. That is seen as a major reason for the dysfunction, but the country’s politicians have shown no ability or willingness to tackle the corruption. In light of that, why would any foreign investor be motivated to lend money for a grand, new project?
In Paris, Ruto mentioned a couple of times that it took just a few weeks for America and Western European countries to set up the Bretton Woods institutions after World War II. He thinks it should be equally easy to establish the proposed new global financial architecture. What he did not mention was that the European countries took an urgent approach in using the assistance the U.S. provided, through the Marshall Plan, to rebuild their war-ravaged economies. From past debt cancellations and various forms of developmental assistance from wealthier countries during the last several decades, many African countries have been given ample opportunities to get their economies going but there has been little to show for it. How many Marshall Plans does Africa need?
An essential requirement for being a national leader today, particularly in developing countries like Kenya and South Africa, is awareness of how the world operates. International relationships have become increasingly transactional in nature. It is important for Ruto and his peers in Africa to wake up to this fact. Constantly blaming every problem on someone else, as they do, is distracting and unhelpful.