Debt Relief For African Countries

Rising levels of government debt in African countries are a source of concern—in 2015, Africa’s sovereign debt levels rose to 44% of GDP, a 10% increase over debt levels five years ago, when Africa’s debt-to-GDP ratio stood at 34%.

Structural adjustment austerity programmes—an initial focus

In the 1970s and 1980s, the focus of the World Bank and the International Monetary Fund (IMF) was on stabilising African economies through structural adjustment austerity programmes. Eventually, debt relief programmes like the Heavily Indebted Poor Countries Initiative (HIPC), in 1996, and the Multilateral Debt Relief Initiative (MDRI), in 2005, wrote off their existing debts in exchange for economic reforms.

Many African countries have sought to finance expensive infrastructure projects by seeking loans in international markets—they have accumulated a lot of debt—that is becoming difficult to service due to the high costs of borrowing. Despite the plunge in commodity prices, which has affected most African countries, countries like Ghana and Zambia have also had to face the challenges of the slowdown in the Chinese economy, depreciating currencies, power crises and fiscal pressures.

How African countries can avoid slipping into further debt

Razia Khan, head of Africa research at Standard Chartered Bank, said that improving growth and managing existing government revenue better—by prioritising government spending—are the two ways in which African countries could avoid slipping into further debt.

“Returning to basics is going to be crucial. Ultimately, governments need to spend better” she said […]. ”We need to sustain Africa’s growth, but for that we need fiscal discipline. The winners will be the countries that implement reforms and tighten up their belts speedily, and the losers will be those countries that have to borrow more when they’re already highly indebted,” said Khan.

There can be no genuine independence or sustainable development while financial obligations to international lending institutions are escalating.

Innovative Financing for Development—a priority

There is another option which would enable African countries to continue to support socio-economic projects while not increasing already-existing foreign aid debt or needing to borrow more money. This is through the Innovative Financing for Development approach, which has become a priority for many countries seeking to establish new and sustainable sources of revenue to finance their development without incurring additional debt.

LSL World Initiative (LSL) is a global organisation founded by Laurent Lamothe and working in the socio-economic-empowerment-of-emerging-countries space and which seeks to do just that. The organisation helps governments in emerging/developing countries to identify new sources of revenue based on their own resources, while also providing assistance in managing, leveraging and protecting these revenues through a multi-partner approach. This is important in these countries, in many of which poverty is rife, because here the government cannot simply raise these amounts through taxation. The governments are empowered to take their own decisions with regard to their socio-economic priorities and the revenues generated can be ploughed back into the local economy.

Four broad categories of innovative finance mechanisms can be identified:

• micro-contributions, dues or other obligatory charges on globalised activities such as mobile telecommunications
• voluntary solidarity contributions such as the donation of a small sum to international development at the point of a product purchase, e.g. an on-line hotel reservation
• frontloading and debt-based instruments, such as diaspora bonds
• State guarantees, public-private incentives, insurance and other market-based mechanisms

These are all opportunities—but not even the only opportunities—which can be leveraged—and in some cases, are being leveraged, creatively—to generate revenue and unlock significant additional value from these flows. The revenue can be used to fund a wide variety of sustainable development projects: inter alia, health, education, infrastructure, security, nutrition and vaccination programmes.

Innovative revenues are locked into technology, human capital and innovation

Laurent Lamothe, participating in the panel discussion entitled “Money seeks ideas—we have found the money” and using his home country, Haiti, as an example, indicated how the funds are locked into technology, human capital and innovation. “They are there in telephone calls and remittances from the Diaspora to Haiti,” he said and illustrated LSL’s Innovative Financing for Development approach. He explained how a government Education Fund fed by a micro-contribution of 5 centimes on every inbound international call to Haiti and a contribution of US$1.50 on each international transfer of funds to the country has sent approximately 1.4 million children to school free of charge through the Universal Free and Compulsory School Attendance Programme (PSUGO).

However, to be successful, the Innovative Financing for Development process must be properly implemented through its three phases: resource mobilisation revenue assurance and revenue utilisation.

Innovative Financing for Development consists in examining the different private sector industries: travel and tourism, energy, mining and minerals, mobile telecommunications and other economic activities to be able to replicate the innovative financing mechanism initiated by Philippe Douste-Blazy, Special Advisor on Innovative Financing for Development to the United Nations Secretary-General. Historically, this resulted in the launch of MASSIVEGOOD, a humanitarian programme to support the fight against HIV|AIDS in Africa, using a micro-contribution (from €1 upwards) to the umbrella organisation, Unitaid, when travellers made on-line airline or other transport bookings.

LSL, as a private company focusing on social and economic impacts and transformation, works with governments to provide solutions for them to implement their own funding mechanisms to:

• achieve economic self-sufficiency
• be able to respond to their own specific development needs
• revitalise economic development
• achieve sustainable development

Razia Khan, head of Africa research, Standard Chartered Bank, presentation at the Ernst & Young Strategic Growth Forum on Africa, Johannesburg, November 4, 2015

Finance mechanisms that might mobilise, govern, or distribute funds beyond traditional donor-country assistance (ODA)—McKinsey 2013

“Transform Africa 2015” Rwanda October 2015.

Finding new sources of revenue
Collecting and protecting those revenues in a transparent and efficient manner. This involves complex data collection and data processing systems, incorporating fraud management systems.

Through LSL’s innovative financing for development approach, governments are assisted to achieve their development goals in line with their own specific national priorities and needs.