DEBT RELIEF FOR AFRICA

 

DEBT RELIEF FOR AFRICA

 

By George B.N. Ayittey, Ph.D.

 

 

(Testimony before the U.S. House Sub-Committee on Africa on April 13, 1999).

 

 

Mr. Chairman, Ladies and Gentlemen. Thank you for inviting me to speak

to you on debt relief for Africa. I must commend you for holding this

hearing to tackle this important issue. As you already know, Africa is a

sad and tragic story -- economically and politically.

 

The statistics on Africa's postcolonial development record are

horrifying. In 1985 more than 100 million of Africa's 700 million people

lived in abject poverty. This number rose to 216 million in 1990 and is

projected to reach 304 million by the year 2000. Recently there has been

a slight improvement in Africa's economic performance over the 2 percent

growth rate in the early 1990s. In 1996, for example, Africa's gross

domestic product did register a 5 percent rate of growth. However,

subtract an average population growth rate of 3 percent and that leaves

miserly rates of growth of less than 2 percent in GDP per capita. This

rate would not be sufficient to reduce Africa's average poverty rates,

which are among the highest in the world. In fact, a recent report from

the International Labor Organization estimates that in Sub-Saharan

Africa, the proportion of the population living in poverty will increase

to over 50% by the year 2000.

 

Efforts to improve Africa's economic performance have been crippled by

a crushing foreign debt burden. Additionally, the debt overhang

seriously impairs Africa&rsquos ability to carry out reform. Total African

foreign debt has risen 24-fold since 1970 to a staggering $320 billion

in 1996 which was equal to its yearly GNP), making the region the most

heavily indebted in the world. (Latin America's debt amounted to

approximately 60 percent of its GNP.) Currently debt service obligations

absorb about 40 percent of export revenue, leaving scant foreign

exchange for the importation of capital goods, essential spare parts,

and medical supplies. Only about half of the outstanding debts are

actually being paid while on the other half, arrearages are continually

being rescheduled.

 

A large chunk of Africa&rsquos foreign debt - about 80 percent - is owed to

Western governments and multi-lateral financial and development

institutions such as the World Bank, the IMF and the UNDP. The loans

were extended to African governments under various foreign aid programs

at concessional rates (below market interest rates with a grace period

and a longer term to maturity) to finance development projects and to

fund Structural Adjustment Programs, SAPs, (economic restructuring) and

democratization programs in Africa. The general consensus among African

development analysts is that foreign aid to Africa has not been

effective. For example, between 1980 and 1988, sub-Saharan Africa

received $83 billion in aid. Yet all that aid failed to spur economic

growth, arrest Africa&rsquos economic atrophy, or promote democracy. The

continent is littered with a multitude of "black elephants&rdquo (basilicas,

grandiose monuments, grand conference halls, and show airports) amid

institutional decay, crumbling infrastructure and environmental

degradation.

 

Nor has "adjustment lending&rdquo by the World Bank and the IMF made much

impact on poverty reduction in Africa. In fact, the World Bank&rsquos own

Report, Adjustment Lending in Africa released in March 1994 confirmed

this. The World Bank evaluated the performance of 29 African countries

it had provided more than $20 billion in funding to sponsor Structural

Adjustment Programs (SAPs) over a ten-year period, 1981-1991, and

concluded that, only six African countries had performed well: The

Gambia, Burkina Faso, Ghana, Nigeria, Tanzania, and Zimbabwe. Six out of

29 gives a failure rate in excess of 80 percent. More distressing, the

World Bank concluded, "no African country has achieved a sound

macro-economic policy stance.&rdquo Since then, the World Bank&rsquos list of

"success stories&rdquo has shrunk. The Gambia, Nigeria and Zimbabwe are no

longer on the list and even on Ghana, the World Bank&rsquos own Operations

Evaluation Department noted in its December 1995 Report that, "although

Ghana has been projected as a success story, prospects for satisfactory

growth rates and poverty reduction are uncertain.&rdquo

 

It is generally agreed that mistakes were made on both the donor and

recipient sides. On the donor side, the allocation of foreign aid was

often determined more by ideological considerations: To support Cold-War

allies (the late Mobutu Sese Seko of Zaire; the late General Samuel Doe

of Liberia; the late General Siad Barre of Somalia), and to woo various

Marxist leaders from the Soviet bloc (Flt./Lte. Jerry Rawlings of Ghana;

Chissano of Mozambique; dos Santos of Angola).

 

Second, much Western aid to Africa was tied, thereby reducing its

effectiveness. A 1995 Foreign Aid study was conducted by the Freedom

Support Coalition, chaired by former Congressman Dave Nagle noted that

"80 percent of U.S. foreign aid is spent in the United States buying

food, equipment, expertise and services&rdquo (The Washington Times, 13

October, 1995; A17). Even then, U.S. AID was plagued with cronyism:

"Ninety-five percent of procurement went to a few firms that only did

business with AID. They were inside-the-Beltway firms that employed

former AID staffers, said Larry Bryne, the assistant administrator for

management&rdquo (The Washington Times, 19 August 1995; A8). Similarly, "an

estimated 80 percent of French aid to Africa comes back to France in

salaries, orders, and profits&rdquo (Biddlecombe, 1994).

 

Third, Western governments and development agencies failed to exercise

prudence in the grant of aid and loans to African governments. Much

Western aid to Africa was used to finance grandiose projects of little

economic value and to underwrite economically ruinous policies. There

are many horrifying blunders. In Senegal, the U.S. built silos in 1983

and placed them in locations peasant farmers never visited. In the

1980s, Canada funded a fully-automated modern bakery in Tanzania but

there was no flour to bake bread. In Somalia, the Italian funded a

banana-boxing plant but the production capacity needed to make the plant

break even exceeded the country&rsquos entire output of bananas. And in

northern Kenya, Norwegian aid officials built fish-freezing plant to

help the Turkana people. The only problem was the Turkana people do not

fish; they raise goats.

 

Fourth, foreign aid allocations were often cocooned in bureaucratic red

tape and shrouded in secrecy. The programs lacked transparency and the

people being helped were seldom consulted. In this way, the donors set

themselves up to be duped. As Reps. Benjamin Gilman and Lee H. Hamilton

wrote in a letter to Secretary of State Warren Christopher in July 1995,

"Zaire under Mobutu represents perhaps the most egregious example of the

misuse of U.S. assistance resources. The U.S. has given Mobutu nearly

$1.5 billion in various forms of aid since Mobutu came to power in 1965.

Mobutu claims that during the Cold War he and his fellow African

autocrats were concerned with fighting Soviet influence and were unable

to concentrate on creating viable economic and political systems. The

reality is that during this time, Mr. Mobutu was becoming on the of

world&rsquos wealthiest individuals while the people of Zaire, a once-wealthy

country, were pauperized&rdquo (The Washington Times, 6 July 1995; A18).

 

More maddening, the West knew that billions of dollars were being

transferred to Swiss and foreign banks by greedy African leaders and

elites. "Every franc we give impoverished Africa comes back to France or

is smuggled into Switzerland and even Japan,&rdquo wrote the Paris daily, Le

Monde in March 1990. In an interview, Edward Jaycox, the former World

Bank&rsquos Vice President for Africa, complained bitterly: "How many African

governments put a top priority on alleviating poverty? I can&rsquot even

think of three. When has the military given up its toys? When has a

diplomatic mission been closed in the interests of poverty alleviation?

When has the role of women been enhanced in any of these African

countries, without outside interference?&rdquo (African Recovery,

April-September 1994; 9).

 

Fifth and finally, SAPs or "adjustment lending&rdquo failed because of

design flaws, sequencing, pedagogical inanities, and other factors. The

commitment to reform has demonstrably been weak in Africa. Even when

reform - both economic and political -- is accepted, it is poorly

implemented. While implementation problems cannot be blamed on the World

Bank or the donors, the programs sponsored by the donors were themselves

fraught with design flaws. In many cases, SAPs amounted to reorganizing

a bankrupt company and placing it, together with massive infusion of new

loans or capital, in the hands of the same incompetent managers who

ruined it in the first place. Additionally, SAPs assumed development

occurred in a vacuum. That civil wars, environmental degradation,

infrastructural deterioration and general state of terror and violence

in Africa have no effect on economic development. Accordingly, the World

Bank lent billions to various African countries to restructure their

economies that were being ravaged by civil war: Algeria, Angola,

Burundi, Ethiopia, Mozambique, and others.

 

More serious perhaps was the belief by the World Bank that economic

restructuring alone was sufficient to lift Africa out of poverty. It is

clear to most by now that the economic and political systems in Africa

are fused. Therefore, economic reform without a concomitant political

reform is an exercise in futility. It was only after the collapse of the

Soviet Union in 1989 that democratization was added as a new political

conditionality for receipt of Western aid. Even then, sequencing is

critical in this regard since reform is needed in many areas as well:

governance, establishing transparency in government procurement,

professionalism in the armed and security forces, estabilishing the rule

of law (institutional reform) and promoting intellectual freedom

(respect for freedom of expression and of thought) and reducing

government control of the media and facilitate the free flow of

information, etc.

 

I believe that the critical first step in reforming a state-controlled

society must begin with intellectual freedom. That is, the removal of

restrictions on the flow of information by privatizing state-owned or

controlled media (newspapers, radio, and television), lifting of

censorship rules and the banishment of criminal libel suits, which have

now become the choice weapon of African autocrats to gag the press. The

importance of intellectual freedom can be recognized by the fact that,

ultimately, it is Africans who must devise their own "African solutions

for their African problems" but cannot do so in an environment of brutal

repression, where criticism of government policies result in a jail or

even death. More importantly, reform which is internally generated is

far more sustainable than that imposed from without. Africans need an

intellectually free environment to expose, debate and find their own

solutions. Once they have this freedom, Africans themselves will

determine the typed of democratic and economic systems best suited for

them. Currently, a free press exists in only 10 African countries. But

tragically, intellectual reform or freedom has scarcely captured the

attention of Western donors who still focus on economic and political

liberalization and, thus, put the cart before the horse.

 

On the recipient side, so many blunders were committed by African

governments. The cardinal principle of borrowing requires that the loan

be used productively to generate a net income over and above that

required for debt repayment or amortization. But in case after case in

Africa, foreign loans were squandered, flouting this principle. Some of

the external loans were used to finance reckless government spending; to

establish grandiose loss-making state enterprises and other "black

elephants"; to purchase weapons to slaughter the African people; while

the rest was simply squandered.

 

How Foreign Loans Were Squandered

 

A "debt crisis" simply means inability to meet service obligations on

an existing debt; that is, paying interest and principal on time.

Africa's debt crisis or "problem loans" originate from three basic

missteps. First, many of the loans were simply "consumed" and therefore,

did not generate the returns neded to repay the loan. Second, in many

other cases, the loans were indeed "invested" in projects but they

turned out to be hopelessly unproductive. Third, some of the foreign

loans that were contracted were of a "questionable nature."

 

(i) Consumption Loans

 

"Consumption" loans are three in nature. The first is borrowing from

abroad to finance a budget deficit on the current account. Such a loan

simply finances recurrent expenditures; for example, paying civil

servants' salaries. The use of the loan produces no foreign exchange. If

the loan is used to finance a deficit on the capital account, such as a

new office building or telephone system, it must produce or save enough

foreign exchange to service the loan. But in general, this is difficult

to achieve and explains why such countries as Tanzania, which borrowed

to finance budget deficits, have repayment problems.

 

A second type of consumption loan is borrowing abroad to finance

imports of consumer goods (corned beef, sardines, Mercedes Benzes, TV

sets, etc.). In this case, the loan is simply consumed and there will be

nothing to show for it; no foreign exchange saved or earned. Ghana,

Nigeria and Cameroon borrowed much abroad to buy consumer goods. In the

early 1980s, for example, more than half of Tanzania's imports were

financed by loans from foreign governments.

 

The third type of consumption loan is that taken to purchase arms and

ammunition -- perhaps the most pernicious and destructive use, given

Africa's never-ending cycles of violence and war. No income generated to

repay the loan. Ethiopia, Angola, Mozambique, Libya, Chad, Somalia and

Uganda all borrowed heavily to purchase weapons to wage various civil

wars. Currently, Ethiopia and Eritrea are purchasing huge amounts of

weapons to prosecute their border war. If conflicts can be settled

through dialogue and negotiation at very little cost, then there is

little point in having a poor nation to borrow heavy amounts and wage

military conflicts. What Africa spends on arms, much of which is bought

with foreign loans, in the teeth of its famine crisis, defies common

sense.

 

(ii) Unproductive Investments

 

The other general mis-step was the investment of loan proceeds in

projects, mostly state-owned enterprises, that turned out to be towering

black elephants. Africa has more than 3,000 state enterprises (SEs) but

their performance has been nothing short of the scandalous. These

enterprises, set up with foreign loans, were supposed to earn or save

the foreign exchange needed to service or pay back the loan. Instead,

they racked up losses upon losses, used up more foreign exchange and

compounded the debt crisis. The state enterprises could not fill the

shortfall in production. Inevitably, the results were greater

inefficiency, excess capacity, and economic retrogression. In Ghana, for

example:

 

The State Meat Factory at Bolgatanga was closed for nine months; yet

employees were paid in full for the entire period" (West Africa, 1981;

p.2884).

 

For 14 months, from November 1978 to January 1980, the State Jute Bag

Factory was closed due to a shortage of raw materials. Yet, the 1,000

workers received full pay for the entire period of closure [Punch, 14-20

August 1981, p.4].

 

The Boatyard Division of GIHOC at Mumford Village in the Apam District

(Central Region) has launched only 6 vessels with a workforce of 40

employees since its establishment 9 years ago" (Daily Graphic, 14

August, 1981; p.8).

 

The pre-fab factory started by the Russians in 1962 has not produced a

single home. Yet, 500 Ghanaian workers and 13 Soviet experts were

drawing salaries for a period of 6 years [Graphic, 6 December 1978,

p.5].

 

The picture elsewhere in Africa was pretty much the same:

 

In Nigeria, most state enterprises are triumphs of towering

inefficiency. Consider the rate of capacity utilization of a random

selection from the Central Bank's 1992 Annual Report: Nigerian Machine

Tools: 8 percent; Nigerian Paper Mill, Jebba: 12.1 percent; Nigerian

Newsprint Manufacturing Company: 13.3 percent; Jukura Mable Plant: 1

percent; the Nigerian Sugar Company: an impressive 72 percent. The

Nigerian National Paper Manufacturing Company did not make anything at

all: "construction work which started in 1977 was yet to be completed

due to lack of funds" (The Economist, Aug 21, 1993; Survey p.9).

 

The Tunisian Government runs the airline, the steel mill, the phosphate

mines and 150 factories employing a third of Tunisian workers. Mr. Ben

Ali doesn't want them jobless, hanging around mosques. Before 1990, 35

companies were sold off; fewer than 20 have sold since.

Private businessman Afif Kilani bought one called Comfort, a

featherbed for 1,200 workers who built 15,000 refrigerators a year. Mr.

Kilani paid $3.3 million for the place in 1990. Now it has 600 workers

and makes 200,000 refrigerators a year. "Like all state companies, its

point was to support the maximum number of jobs," he says from behind a

big glass desk. "It was social work. A sort of welfare." (The Wall

Street Journal, June 22, 1995; p.A11).

 

Tanzania's state-owned Morongo Shoe Company (MSC) was financed by the

World Bank. Based on abundant supplies of hides and skins, the project

was supposed to be a low-technology, economies of scale activity that

would expand the country's exports. About 80 percent of the shoes were

to be shipped to Europe. But when the plant became operational in the

1980s, "MSC achieved just over 5 percent capacity utilization . . . By

1986, the figure was below 3 percent. Most of the machines were never

used, quality and design were absymal, and unit costs were very high and

the factory was eventually abandoned" (Luke, 1995; p.154).

 

A tin can manufacturing plant in Kenya had such high production costs

that cans full of vegetables could be imported from Asian competitors

cheaper than this Kenyan company's cost for the cans alone. The Kenya

government estimated that over $1.4 billion had been invested in state

enterprises by the early 1980s. Yet, their annual average return had

been 0.2 percent (Goldman, The Backgrounder, p.10). As Mr. E.A. Sai,

member-Secretary of Ghana's Committee of Secretaries, observed:

Apart from a few success stories in the management of public

enterprises in Africa, such as in the Kenya Tea Development Authority,

Botswana's Meat Commission, Tanzania's Electricity Company, The Guma

Valley Water Company of Sierra Leone and Ghana's Volta River Authority,

the record of state enterprises had been poor" (West Africa, 16 May,

1988; p.897).

 

(iii) Corruption, Fraud and Shady Deals

 

Considerable evidence exists to suggest that many foreign loans were

contracted under rather dubious and corrupt circumstances. Nigeria, for

example, does not know if its foreign debt is really $35 billion or not.

Back in 1990, Chief Olu Falae, Secretary to the Federal military

government, announced after a debt verification exercise that "over 30

billion naira (or $4.5 billion) of Nigeria's external debt was

discovered to be `fraudulent and spurious'" (West Africa, Sept 25 - Oct

1, 1990; p.1614). And while the country sank deep into debt, Nigeria's

former military rulers amassed huge personal fortunes -- former General

Ibrahim Babangida with an estimated fortune of $8 billion and even the

late General Sani Abacha who massed $5 billion after only 4 years in

office.

 

In 1995, Ghana's foreign debt stood at $5 billion with a population of

17 million. To finance its industrialization drive, Nkrumah borrowed

heavily from abroad under supplier&rsquos credit. In a supplier's credit

arrangment, a fast-talking equipment pedlar would sell Glana an

equipment over a period of time, generally 4 to 6 years. The pedlar then

would obtain credit from private banks and have it guaranteed by his own

country's governmental export credit insurance organization. After this

arrangement, any future dealings will be between Ghana and the export

credit organization; not with the pedlar. He was paid and gone.

 

Indeed, under supplier's credit arrangements, Ghana bought in many

cases obsolete equipment at inflated prices and contracted a huge

foreign debt between 1961 and 1966. For example, the expensive 3

Illyushin jets Ghana bought from the Soviets, at a time when Ghana

Airways was having difficulty filling its planes, turned out to be old

jets that had been repainted. The British firm, Parkinson-Howard, sold

Ghana a huge dry dock which laid idle for 9 years after it was

commissioned in 1969. The German "equipment-monger", Stahlunion, build a

sheet glass plant with a capacity of nearly 3 times the size of the

local market. The plant was never brought in operation and later had to

be converted at an extra cost of 2.5 million cedis for bottle-making.

When that was completed too, the same government imported large

quantities of bottles from Czechoslovakia and China to make it difficult

for the factory to sell its bottles. A Parliamentary Report suspected

that the plant supplied Ghana's Vegetable Oil Mills "was of pre-war

manufacture and had been lying idle for more than 30 years before being

shipped to Ghana" (Public Accounts Committee, 1965; p.9).

 

A Ghana Government investigation (Apaloo Commission, 1967) reported

Parkinson-Howard, which built the Accra-Tema Motorway; Tema Harbor

extension; the dry docks and steelworks, paid a total of $680,000 in

bribes between 1958 and 1963 in three installments to certain ministers.

In most cases, the bribes were 5 to 10 percent of the value of the

contract.

 

In recent years, there have been persistent allegations of corruption

and fraud in the use of aid to Ghana: "The British environmental group,

Friends of the Earth, says millions of dollars in overseas aid -- going

to Ghana's timber sector -- have been diverted by local and foreign

logging firms which got development aid from the British Overseas

Development Administration and the World Bank" (The African Letter,

March 16-31, 1992; p.1). Even refugee aid was not spared. Mattresses,

rations and other relief supplies to Liberian refugees encamped at

Budunburam in Ghana were regularly pilfered by the authorities. When a

Liberian refugee by name of Oscar complained, "the Ghanaian soldiers

beat him" (Index on Censorship, April 1996).

 

External loans contracted privately on behalf of Ghana was subject to

much abuse and fraud, according to Mary Stella Ankomah, MP for Wassa

Mpohor in the Fourth Republic:

" A member of parliament for the Wassa-Mpohor constituency, has

disclosed that the government pays agency fees on loans it contracts.

Miss Ankomah also said that the government pays what it terms

"exposure fees" before loans are granted to the country.

The MP explained that the government claims it pays middlemen, who

lead Ghana to negotiate loans on its behalf, a certain percentage that these

agents demand.

She said when the minority MPs smelt some fishy deals in the whole

exercise, they invited the Deputy Minister of Finance, Mr. Victor Selormey,

to explain the term "agent and exposure fees" to the House.

According to Miss Ankomah, the Minister said there are some

benevolent Ghanaians in the United States who negotiate loans for the

country under the condition that they are paid a certain percentage.

Under one of such conditions, the MP said the government paid out 27

percent of an $8 million loan recently given to the country by an

European country.

The MP wondered how a country with a Minister of Finance and an

economic team which oversees the economic performance of the country should

contact an agent in contractual bids. She described the Minister's

explanation as a big farce (The Independent, Aug 28 - Sept 4, 1996; p.1).

 

The worse part is much of the funds embezzled by Africa's kleptocrats

are siphoned out to overseas banks. An estimated $20 billion--more than

what Africa receives in foreign aid -- flees the continent annually. In

1988, for example, France sent $2,591 million in aid to Africa, but in

the same year, according to the Independent, "[n]early CFA 3.5

billion--47 percent of the total issue--was exchanged in Europe by the

Bank of France, some of it exported in suitcases" (June 19, 1990). "One

Nigerian banker guesses that Nigerian [kleptocrats] have at least $25

billion in foreign bank accounts. A recent World Bank survey reckoned

that capital flight during the 1980s may have reached $50 billion (The

Economist, 21 August 1993, Survey, 10). "A Nigerian man and a banker

accompanying him were arrested at the Lagos airport after trying to

board a London-bound jet with $800 million in cash. Customs officials

said the seizure was the biggest recorded in Nigeria. The banker

accompanied the other man apparently so that customs officials would not

ask questions. The money has since been deposited in the Central Bank of

Nigeria" (The Washington Times, 29 July 1995, A7).

 

In Kenya, "critics of the Moi government say that many of the people in

government have the biggest accounts in foreign banks and that there is

more money from Kenyans in foreign banks than the entire Kenyan foreign

debt, which is about $8 billion" (The Washington Times, August 3, 1995;

p.A18). According to one United Nations estimate, "$200 billion or 90

percent of the sub-Saharan part of the continent's gross domestic

product (much of it illicitly earned), was shipped to foreign banks in

1991 alone" (The New York Times, 4 February 1996; page 4). Note that the

huge amount involved was more than half of Africa's total foreign debt.

 

RECOMMENDATIONS

 

Mr. Chairman, Ladies and Gentlemen, it is clear that mistakes were made

by both donors (creditors) and recipients (borrowers) and therefore

corrective action must be taken by both sides. Since the loans cannot be

repaid and some debt relied is needed. The dilemma, then, is how to

provide this debt relief without at the same time rewarding reckless and

incompetent management. On the donor (creditor) side, greater

transparency and more input by the African people -- not only their

governments -- are required. Clearly, those on whose behalf loans are

being contracted must have a say on the terms of the loans and the uses

to which these loans are put.

 

On the recipient (African borrowers) side, debt relief without a

concomitant fundamental change in errant debt-producing behavior would

be meaningless. If someone is deeply in consumer credit card debt, you

just don't wipe off their debt and grant them the same access to their

credit cards without counselling. Therefore, I am opposed to outright

debt relief without conditionalities. I believe the following conditions

should be attached to the African Debt Relief Bill.

 

A full public accounting of external loans must be made before any debt

relief is offered. The reason for this should be obvious. The people of

Africa want to know what the external loans contracted on their behalf

were used for. There must be some accountability to prevent reckless

behavior and debt mismanagement in the future.

 

In fact, angry Africans are already demanding accountability and

threatening to repudiate foreign debts contracted without their consent

and from which they derived no benefit whatsoever. Consider the case of

the Somali people for example. Their country is thoroughly destroyed;

yet the Somali people are said to owe some $4 billion in foreign debt.

The Democratic Republic of the Congo (formerly Zaire) is another

example. When Mobutu Sese Seko fled Zaire in May 1997, he left behind a

$9.6 billion foreign debt. The people of Congo now have to start from

scratch -- 32 years of their sovereign existence have gone down the

drain. And they must be saddled with a debt from which they derived no

benefit -- none whatsoever?

 

While Zairians -- among the poorest in the world -- were struggling to

meet their basic needs, Mobutu, who himself bragged to be among the

richest -- built mansions and hotels in France, Spain, South Africa,

Morocco, Senegal, Togo, Ivory Coast and stashed billions of dollars in

the Swiss bank. His personal fortune was variously estimated to be

between $10 - $15 billion, more than enough to pay off Zaire's entire

foreign debt. In his 32 years in power, he ran Zaire like his personal

fiefdom, without any regard whatsoever for the 45 million citizens of

the country. The looting of the country's resources by Mobutu was known

around the world. Yet, foreign creditors continued to loan money to him.

Why should the people of Congo be held responsible for the loans taken

by Mobutu? The Congolese people feel that their country's $9.6 billion

national debt should be treated as Mobutu's personal debt. Foreign

creditors should hold Mobutu's estate liable and go after his assets.

The Congolese people did not give Mobutu any authorization to contract

any foreign loan on their behalf. As such, they cannot be held liable

for it.

 

1. It would be most helpful to Africa if debt relief can be linked to

the repatriation of the loot the ruling elites have hoarded in foreign

banks abroad. Most Africans know that if this loot were repatriated to

their respective countries, it would wipe out their countries foreign

debts. Indeed, this may be the case for such countries as Algeria,

Angola, Cote d'Ivoire, Kenya, Nigeria, and Zimbabwe.

 

2. Debt relief should be restricted to newly-democratized African

countries. The democratization process in Africa has stalled and

therefore any measure that rekindles this process would be welcome. In

1990, only 4 out of the 54 African countries were democratic. The number

increased to 15 in 1995 but has slipped back to 13. These 13 countries

are: Benin, Botswana, Cape Verde Islands, Madagascar, Malawi, Mali,

Mauritius, Namibia, Sao Tome & Principe, Senegal, Seychelles, South

Africa and Zambia. In the rest of the African countries, political

tyranny and repression remain the order of the day. So we should be

extremely careful when we say we are helping "Africans." If a democratic

criterion cannot be used then debt relief should not be extended to any

African country, whose leader has been in power for more than 10 years.

After more than ten years in office, these leaders lose touch with the

people and tend to regard their countries as their own personal

property.

 

3. Debt relief can be tied to the promotion of economic growth with the

creation of "Debt-Free Zones." At their Toronto meeting in 1992, the

Group-7 countries decided to write off half of the debts of the

"poorest" African nations. Since then, Ghana and Zambia have been

rewarded with partial debt cancellation for progress on economic and

political reform. However if they really want to help the people, there

is a better way to take care of the debt problem by creating free debt

zones.

 

In this scenario, a debtor African nation meets a consortium of

creditor governments (Paris Club) and designates an area of its country

-- say 100 square miles -- as an free industrial zone, in which

companies from the creditor nation can operate freely for the next 20

years. Companies operating in this zone would enjoy certain benefits,

such as zero profit tax, waivers on import, and custom duties. The

management of this zone would be in the hands of the creditor

governments, with observer status granted the debtor government to

ensure compliance with domestic industrial regulations for, say, the

protection of the environment and child labor. The zone may choose to

establish its own judicial, security, electrical, or water supply

systems, if domestic supplies are felt to be unreliable. It also may

choose to set its own wages, provided these are not below the domestic

level. Disputes with the domestic government shall be subject to

international mediation. The zone shall not engage in political

activity. The exact terms, of course, would be negotiated between the

debtor nation and the creditors. Participation in such a zone would be

open to the nationals of creditor governments and exiles of the African

country. Once a final agreement has been reached, the country's entire

foreign debt would be canceled.

 

Such an arrangement confers enormous benefits on both parties. For the

creditor nation, say the United States or Britain, it opens up markets

and investment opportunities. Foreign companies are guaranteed

repatriation of profits and minimal government interference. The debtor

nation, through this arrangement, may gain not only the cancellation of

its debt but also more foreign investment, technology transfer, and

employment opportunities for its citizens. Furthermore, the more

efficient management of the free debt zone would serve as a

demonstration model for the government and the rest of the economy.

 

The debt-free zone also could serve as a "magnet" and attract

entrepreneurs, skilled labor and resources, thereby forcing an

intransigent African government to match the incentives provided by the

zone or face an exodus of domestic firms to it. Even more important, it

could encourage the return of African exiles abroad. Most would like to

return to their home countries and run their own private businesses but

are wary of government assurances that their businesses would be safe.

However, they may feel safe in a private industrial zone.

 

The World Bank, USAID and other donor agencies should encourage the

establishment not only of debt-free zones but also of private industrial

zones. Thank you.

 

REFERENCES

 

Achebe, Chinua (1985). The Trouble With Nigeria. Enugu, Nigeria: Fourth

Dimension Publishing.

 

Ayittey, George B.N. (1992). Africa Betrayed. New York: St. Martin's

Press.

 

-------------------- (1998). Africa In Chaos. New York: St. Martin's

Press.

 

Biddlecome, Peter (1994). French Lessons In Africa. London: Abacus.

 

Chazan, Naomi, Robert Mortimer, John Ravenhill, and Donald Rothchild

(1992). Politics and Society In Contemporary Africa. Boulder, CO: Lynne

Riener Publishers.

 

Fieldhouse, D. K. (1986). Black Africa 1945-80. London: Allen & Unwin.

 

Luke, David Fashole (1995). "Building Indigenous Entrepreneurial

Capacity: Trends and Issues,&rdquo in Development Management in Africa:

Toward Dynamism, Empowerment and Entrepreneurship, ed. Sadig Rasheed and

David Fashole. Boulder, CO: Westview Press.

 

George B.N. Ayittey is Associate Professor, Department of Economics, American University, Washington, DC

and President of the Free Africa Foundation.

 

Africa Economic Analysis welcomes comments on this articles. Please send a copy of your response to the author at

ayittey@american.edu

 

 

 

 

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