New Deal for Africa: is the idea new and will it solve the debt/poverty problems?

Le Président Macron vient d’annoncer une initiative d’un New Deal pour l’Afrique. Il y a lieu de tirer des enseignements des initiatives antérieures (allègement de la dette) et des schémas similaires récents (pandémie), si l’on veut accroître les chances de succès de telles initiatives (co-auteurs : Leny van Oijen et Christian Penda Ekoka)

New Deal for Africa

A few weeks ago, President Macron announced a new initiative to address the problems faced by African countries, exacerbated by the Covid-19 pandemic and its effects on their economies. Carrying the ambitious title New Deal and aiming to be innovative, the proposed plan is expected to facilitate the mobilization of more external financing for Africa. To this end, President Macron invited ten African leaders to the Paris Summit on Financing African Economies (18 May 2021). This event is to discuss strategies to deal with the debt burden of African countries including reforms to foster investment and private sector development. Of the ten African countries invited to participate, four are classified as Least Developed Countries (LDCs) and one will graduate from the LDC list in 2024.[1]

The New Deal plan is focused uniquely on Sub-Sahara Africa (SSA). It implies that low-income countries from regions other than SSA are per definition excluded from the New Deal, whereas no doubt also affected by the current crisis.[2] These poor countries elsewhere must be sometimes a bit envious of the ones in SSA, to the extent international focus tends to be on Africa. To illustrate, France will very soon organize another big event, namely the 28th Africa-France Summit (Montpellier, July 2021). Another major event targeting the discussion of debt and economic growth challenges faced by Africa will be the Financial Times Africa Summit planned for October 2021.

Earlier grand plans

The New Deal announcement reminds us of earlier grand plans of the past, particularly Tony Blair’s Initiative of 2005. His Commission for Africa envisaged a Marshall Plan type of effort for Africa that brought together leaders from both Africa and developed countries. At the time, the Commission took a fresh look at the past, present and future of Africa and came up with a plan to set up an International Finance Facility (IFF). The latter did not materialize but fostered an increase in development aid as well as debt forgiveness concerning poorest countries. The 2005 Multilateral Debt Relief Initiative (MDRI) engaged regional financial institutions and complemented earlier debt relief efforts through the Heavily Indebted Poor Countries (HIPC) Initiative launched in 1996 by the WB and the IMF and involving also other multilateral, bilateral and commercial creditors. Of the 37 HIPC countries that benefitted from full or partial debt relief (subject to implementing certain economic and social reforms), 31 were in Africa.

Need to learn from the performance of previous and ongoing initiatives

The indebtedness of Africa came again high on the agenda in recent years, given the growing debt burden over the past decade. As discussed in our earlier article “Consider the quality of debt” (D+C, 2020[3]), the Covid-19 pandemic changed the tone, with the WB, the IMF and others engaging in fresh lending through rapid-disbursing emergency facilities and other support on concessional terms for low-income countries. This was complemented by a time-bound debt moratorium by the G20 group of traditional and emerging donor countries (Paris Club and non-Paris Club members including China) for all countries eligible for WB concessional financing. Moreover, as discussed at the recent IMF Spring Meetings (April 2021), a new major flow of financial support is under preparation, based on the principle to allocate new Special Drawing Rights (SDR) to low-income countries that are affected by the pandemic (without adding to their indebtedness).

What is the expected outcome of the May Summit in Paris? The proposed New Deal appears to be part of the chain of subsequent initiatives, but it is not clear how President’s Macron New Deal is planned to be positioned in the wider financial support framework. The latter was already strengthened in 2020 to assist countries in dealing with the pandemic and its effects, complemented by the envisaged new SDRs. Moreover, earlier debt cancellation rounds did not fulfil their promises in terms of improving competitiveness and fostering inclusive economic growth. In fact, there has been a surge in country indebtedness that reached worrying levels in subsequent years…. How could this happen? “Money” is needed but is certainly not expected to solve the fundamental problems of low-income countries to get out of their debt and poverty traps. This requires structural reforms and, above all, good governance, in order to obtain the required effectiveness and efficiency in money utilization to achieve the aimed developmental goals.

Concluding, for any new initiative to be relevant and have likely results, it is crucial to draw lessons based on a thorough performance analysis of past debt relief initiatives and efforts to facilitate more financing for Africa. Hence our call for more attention to the quality of debt, looking at the effectiveness and efficiency of the use of loans and not just the size of country indebtedness (cf. our article in D+C, 2020). If the deliberations during next week’s Paris Summit result in the renewal of calls for debt cancellation (already made in 2020 by President Macron), lessons from past debt relief rounds would regretfully be ignored. Worse, if debts of countries that misuse(d) external lending are suggested to be cancelled, this would give the wrong incentive. If the Summit suggests reforms to promote investment and private sector development, this would be a déjà vu recommendation that has not been rigorously implemented in many countries (including some of the countries represented in the May 2021 Summit).

 

 [1]  Angola, Congo, Côte d’Ivoire, DR Congo, Guinea, Kenya, Nigeria, Rwanda, Senegal, South Africa.

[2]  The current list (UN) of LDCs includes 13 countries in regions other than countries in SSA.

[3] Development lending - Consider the quality of debt, Development and Cooperation (D+C), Vol. 47, 09/10/2020

 

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