“Africa's Odious Debts - How Foreign Loans and Capital Flight Bled a Continent.” By Léonce Ndikumana and James K. Boyce
The newly-published book was discussed during a side event at the sixth African Economic Conference on Wednesday in Addis-Ababa. The book, jointly authored by two University of Massachusetts at Amherst Professors – Léonce Ndikumana and James K. Boyce–attracted researchers, policy makers and civil society representatives, who had in-depth discussions on the various themes and messages it conveys.
“The book is relevant in support to African research,” African Development Research Department Director and chair of the meeting, Désiré Vencantachellum, said.
External borrowing by African countries imposes a double burden on these nations. Public funds that could be used to provide social services, such as health care and education, are diverted to servicing debts some of which fueled capital flight; and the heavy debt burden makes these countries ineligible for external financing to support national development initiatives.
Mr. Ndikumana said that contrary to the popular perception of sub-Saharan Africa as a heavily indebted region, the subcontinent was actually a “net creditor” to the rest of the world. He said: “The region’s foreign assets exceed its foreign liabilities. But while these assets are in the hands of private Africans, the liabilities are public and owed by the African people at large through their governments”. He also stressed that accumulated capital flight from sub-Saharan Africa from the 1970s estimated at $700 billion in real terms (and over $900 with imputed interest earnings), vastly exceeded the sub-continent’s overall debt stock.
Another key message in the book is that, capital flight and external borrowings are intertwined phenomena. Also, external borrowing fuels capital flight, and capital flight induces further external borrowings. “We estimate that over half of the money borrowed every year is siphoned out of Africa as capital flight,” Ndikumana noted, adding that: Often money returns to the same institutions that made the official lending – but this time in private accounts of the same officials that were entrusted with borrowing for their countries. He further said: This revolving door creates a corrosive incentive structure whereby the lender turns a blind eye on illicit wealth accumulation by corrupt leaders, while the latter are encouraged to pursue illicit enrichment with the comfort of banking secrecy laws.
The authors also stressed that the costs of these irresponsible lending-borrowing practices were not just financial; human lives were actually lost due to the lack of financing for health care. It is estimated that an additional dollar of debt service means 29 fewer cents spent on public health. In turn, a reduction in public health spending increases the risks of poor health and child mortality, and that a $40,000 reduction in health spending translates into one additional infant death. “Put together, these results imply that debt-service payments on loans that fuelled capital flight from Africa translate into more than 75,000 extra infant deaths each year in the continent,” Ndikumana further observed.
Overall, the book proposes a strategy of selective repudiation of public external debts whereby African countries would repudiate debts for which it cannot be established that they were used for bona fide development purposes. The book provides detailed argument for this proposition, based on both historical precedents as well as international and national laws, according to authors.
“We argue that this strategy will benefit both Africans (the borrowers) and their creditors as it would lead to a more transparent financial system, minimize default risk, and maximize the developmental impact of international financing,” Ndikumana concluded.