Inside Africa’s debt crisis

Money was borrowed for infrastructure such as roads, power dams, and airports but there are few signs of economic benefit. PHOTO / FILE

What you need to know:

  • As most of us focus on general elections and by-elections and on the corridors of power, not enough is written or discussed about this debt crisis and especially our individual contribution to it by our lifestyle.

When you buy a car, you feel nice, especially when it’s your first one. You feel successful, vibrant, and ready to take on the world.

For most of us, it is one of life’s milestones, our first car.

If you are in Africa, however, this means you have just added to your country’s international debt, and this debt is spiralling out of control.

At least 43 sub-Saharan African countries are currently faced with a debt-to-GDP ratio that stands at 55 percent and over.

Money was borrowed for infrastructure (roads, power dams, airports) but which show few signs of economic benefit.

As most of us focus on general elections and by-elections and on the corridors of power, not enough is written or discussed about this debt crisis and especially our individual contribution to it by our lifestyle.

It is at the root of our present economic crisis.

Think of yourself as a country.

If you were, say, Uganda or Sudan, and bought that Japanese Toyota, Japan would have added one sale in GDP.

From an international trade point of view, what would you as the citizen of Sudan or Uganda have exported to Japan for the trade between your two countries to balance out?

If every car owner in Uganda or Africa could answer this question, we would better understand why we see an increasing number of cars on our roads, but at the same time also hear a growing cry of desperation over unemployment, underemployment, and poverty.

The fact of the matter is that the average car owner exports nothing to Japan to balance out this bilateral trade.

What does the individual, university-educated, white-collar office worker contribute to Uganda’s trade with Japan? Next to zero.

We get our life’s savings or office loans, buy cars mostly in order to feel good about owning one, and that’s it.

From a strictly economical, cash flow, balance sheet point of view, whenever a Ugandan buys a car, Uganda loses.

It might not seem so, but that is what happens at the macro-economic level.

Multiply this across the economy, to our smartphones, fridges, clothing, TVs, cookers, we are buying consumer goods beyond our economic means.

Our governments, in good faith, acted on the old orthodox supply-side economic theory that when infrastructure is put in place, economic activity follows.

When the municipal roads in Gulu, Masaka, Lira, Fort Portal, Entebbe, Mbale, Soroti, and Mbarara are worked on, when new central markets are built in the 10 main towns, when the highways linking all the major towns are built or upgraded, economic growth will follow.

Traders have discovered that this is not so. Those who took up stalls in the newly-built town central markets found that their sales were not enough to recover the rent, and soon gave up.

The vehicle traffic in these upcountry towns that were recently re-baptised “cities” has remained as low as always and in some areas the main role of the new highways is used to help dry cassava.

It sounds encouraging that journeys from Kampala to Arua or Kampala to Kisoro that once took 10 hours have now been reduced to six hours.

Unfortunately, though, it is of little real value economically.

Lorries full of beer, soda, plastics or pick-up trucks with newspaper copies will take a shorter time to get to the distant towns, but these towns are still stuck with the same low purchasing power by the local population.

Even when Uganda eventually has three main hydropower dams, Owen Falls, Isimba, and Karuma, sure, towns like Arua could do with getting onto the national power grid and businesses certainly need reliable mains electricity.

Yet again, however, we return to the question of purchasing power.

All this factory output needs a market and the Ugandan consumer market is not large enough or strong enough to absorb factory goods.

It leads us back to the problem the government’s proposed Parish Development Model will face, even if all money is well-invested and accounted for.

Where will the surplus beans, maize, tomatoes, potatoes, mangoes, onions, and cassava go, when every rural homestead is producing the same items?

If the answer is the East African Community market, Uganda’s neighbours produce roughly the same low-value agricultural crops as we do, meaning there will be an inevitable glut of produce - and an addition to government’s debt pile.

If it were only our governments that incur international debt through investing in the new airports, bridges, roads, and central markets, it would console us to vote them out of power.

The problem is that we the population, especially the town-dwelling population, contribute to the international debt crisis by our lifestyle, as just indicated.

Last month, August 2022, China announced that it is to forgive loans owed by 17 of Africa’s least developed countries.

“The World Bank and the IMF and others need to play a much more aggressive role in addressing the debt crisis [in Africa] because these countries will sink economically without that support,” said the US Ambassador to the United Nations, Linda Thomas-Greenfield, on August 25.

We’ve been through this before, when 20 years ago, Western countries forgave the debt of the Heavily Indebted Poor Countries (HIPIC).

Celebration and relief all around. Soon, though, the debt starts to mount again, is forgiven, and the cycle is repeated, this time by China.

This perennial external debt crisis, in my opinion, should be the focus of every political debate, general election campaign, put at the centre of news reporting, and research by economists.

Every aspect of national life, every government programme, should focus on this. The education system must rethink its content to address this crisis.

A drastic and ruthless cutback in luxury or wasteful purchases must be embarked upon.

When weak, underdeveloped economies are forever stuck in debt 60 years after independence, something about their very statehood should be called into question.

Something is not right.

It will have to start at the personal level, by every family reducing its extravagance and aiming to develop some level of cash savings as a buffer against distress.