+27 71 448 3496
leon@whyafrica.co.za

Africa’s inconvenient truth

Share Article
Africa is among the least responsible for the climate crisis but may pay the highest price in terms of the impacts of climate change across the continent. Image credit: Leon Louw for WhyAfrica

Africa’s inconvenient truth

A new working paper published by the Debt Relief for a Green and Inclusive (DRGR) Project finds that the region urgently needs new forms of liquidity, concessional and grant finance, as well as comprehensive debt relief to meet shared climate and development goals. 

Due to multiple external shocks since the outbreak of the Covid-19 pandemic, sub-Saharan Africa (SSA) is facing acute debt distress and new highs in the cost of foreign capital.

Concomitantly, the region needs to mobilise a stepwise level of financing to meet shared climate and development goals, under the Paris Agreement climate targets and the UN 2030 Sustainable Development Goals (SDGs).

Do SSA countries have the fiscal space necessary to achieve the Paris Agreement commitments and SDGs while also servicing their external debt?

A new working paper published by the Debt Relief for a Green and Inclusive (DRGR) Project outlines the levels of sovereign external debt and service payments between 2023-2030 for SSA countries, finding the region urgently needs new forms of liquidity, concessional and grant finance, as well as comprehensive debt relief to meet shared climate and development goals.

According to Kevin P. Gallagher, Director, Boston University Global Development Policy Center and one of the authors of the paper, Africa is among the least responsible for the climate crisis but may pay the highest price in terms of the impacts of climate change across the continent.

“At exactly the time the continent needs to mobilise a stepwise increase in financing to adapt to climate change and mount a just transition, they have fallen victim to the ‘polycrisis’ such that mobilising finance is close to impossible for an increasing number of countries. New forms of liquidity, concessional and grant finance and significant debt relief are paramount to a green and inclusive recovery in Africa,” says Gallagher.

Main findings of the report (Africa’s inconvenient truth)

  • External debt in SSA has more than tripled since 2008, with the region experiencing the largest deterioration in debt sustainability indicators across the Global South.  
  • By 2021, total SSA debt stock amounted to USD539.1-billion, of which a combined 40% is owed to bondholders and other private creditors, 28% to multilateral development banks (MDBs) and 11% to China.
  • Debt service will take a significant share of government spending in SSA, with the average SSA country spending 12% of government revenue on external debt service. Angola, Zambia, Benin and Ghana will all spend 25% or more of government revenue to service external debts.
  • SSA countries will face debt servicing costs in US dollars that are roughly the same (93%) as their climate finance needs on an annual basis. Only ten countries in the region have the borrowing space to finance those needs.
  • MDBs will need to participate in comprehensive debt relief in a manner that maintains their preferred creditor status and AAA credit ratings. Given the low cost of borrowing from MDBs, we estimate that under a fair burden sharing among SSA creditors, MDBs should provide debt relief from USD13.4 to USD34.5- billion, of which the World Bank International Development Association would account for USD2.4 to USD11.1-billion, depending on the overall debt relief efforts necessary.

An elusive goal (Africa’s inconvenient truth)

According to Marina Zucker-Marques, Post-doctoral Research Fellow, SOAS, University of London and one of the authors of the paper, debt relief is not a panacea, and SSA will need substantial additional resources in the forms of liquidity, concessional and grant finance to complement and bend down the cost of capital.

With the current macroeconomic landscape, financing a sustainable green transition for SSA countries remains an elusive goal. Apart from providing substantive debt relief, it will be imperative for advanced economies to ramp up concessional finance and aid,” says Zucker-Marques.

 About the DRGR Project: The DRGR Project is a collaboration between the Boston University Global Development Policy Center, Heinrich-Böll-Stiftung and the Centre for Sustainable Finance, SOAS, University of London that argues it is time for comprehensive debt reform. Utilizing rigorous research, the DRGR Project seeks to develop systemic approaches to both resolve the debt crisis and advance a just transition to a sustainable, low-carbon economy in partnership with policymakers, thought leaders and civil society around the world.

Dig deeper: Read the working paper.

Africa’s inconvenient truth

ADVERTISEMENT

WhyAfrica provides on the ground information and business intelligence about the sustainable utilisation and extraction of natural resources in Africa, and can assist your company through:  

  1. Membership:
  • WhyAfrica’s membership offers great business insights to you, your company, and clients.
  • Amongst many other benefits, we will publish editorial content about you or your company on the WhyAfrica online platform and on all WhyAfrica’s social media pages – the annual fee is R5,500 and you can find out more or subscribe here: https://www.whyafrica.co.za/product/membership/ 
  1. Sponsorship:
  • WhyAfrica’s Road Trip takes place annually in July and August. During our Road Trip we aim to visit more than 30 project sites. Sponsoring the Road Trip, or to be a WhyAfrica member, gives you unparalleled insight into the business environment of the countries that we travel to and the project sites we visit.
  • To be a member or sponsor allows you access to invaluable, on the ground, business intelligence and a great marketing opportunity for all companies doing business in Africa.
  • The main aim of our Road Trips is to promote Africa as an investment destination and to showcase Africa’s greatest companies, and projects to our large global audience, which includes a list of potential investors, venture capitalists and serial entrepreneurs.
  • To view the photos of this year’s Southern Africa Road Trip click on the gallery link or follow our Instagram account at why.africa https://www.whyafrica.co.za/road-trips/whyafrica-road-trips/. 
  1. Advertising:
  • We publish daily online articles on our WhyAfrica platform and post them on social media every day. Our combined online reach is more than 45,000. In-article banner ads are highly successful advertising tools as is advertising space on our website.
  • In addition to our bi-weekly newsletters, we publish two printed- and two interactive digital magazines per year. The printed magazines are distributed at major events and conferences throughout the year, and also on our WhyAfrica Road trips.
  • Digital magazines are e-mailed to all our subscribers and shared on our social media platforms. A copy of the latest edition is automatically attached to all our outgoing e-mails.
  • WhyAfrica magazines provide great marketing opportunities. There are also in-article and on-line advertising opportunities at exceptional rates. Contact me for more information on leon@whyafrica.co.za or give me a call.
  • To subscribe to WhyAfrica’s free newsletters and magazines click on the link and register: https://www.whyafrica.co.za/subscribe/  
  1. 4. Partnerships
  • Maximise your African exposure and link with our large business network through becoming one of only 10 WhyAfrica partners. We have only five prime partnership positions left for 2023, so contact me at leon@whyafrica.co.za to get the best deal.

Africa’s inconvenient truth

Share Article

Sectors

AgricultureEnvironmental Management & Climate ChangeEnergyESGInfrastructureMiningPolitical EconomyTourism and ConservationWater Management