Increasing G20 cooperation on debt and investment in Africa - Hindustan Times
close_game
close_game

Increasing G20 cooperation on debt and investment in Africa

ByORF
Aug 02, 2023 10:46 AM IST

This article is authored by Miguel Otero Iglesias and others from ORF.

Africa’s long-standing and difficult history with international capital can be attributed to a complex set of factors, including historical legacies, structural adjustment programmes and, most recently, Chinese investment. In many ways, external finance has helped African countries create jobs, increase productivity, and improve competitiveness, with recent achievements even in knowledge-intensive sectors such as business services and fintech. However, the region is currently facing its most severe phase of debt and fiscal distress in this century, precisely when it needs to mobilise resources to meet development objectives and climate commitments. While Africa’s hard-won credit market access had been hailed as the key to boosting the region’s growth and development, countries now face significant challenges in their relationship with international capital, with profound economic, political and social implications. Despite tensions, China and the West share a common interest in helping African nations address their mounting debt problems and will need to step up their efforts to find a mutual understanding. The G20 must aid this process by supporting debt relief initiatives, coordinating debt restructuring efforts and working with the African Union to address underlying issues.

G20 (Twitter/PIBKohima)
G20 (Twitter/PIBKohima)

In recent years, many analysts have pointed to China’s capital expansion in Africa to explain the region’s growing economic challenges, arguing that its “debt-trap diplomacy” has pushed countries towards insolvency. However, the reality is that African nations have long had a complicated history with international capital, as evidenced by their difficult relationships with traditional institutional lenders such as the International Monetary Fund (IMF) and the World Bank (WB), as well as with private international creditors.

Unlock exclusive access to the story of India's general elections, only on the HT App. Download Now!

For example, during the 1980s and 1990s, the IMF and the WB provided conditional lending to many African nations in the form of structural adjustment programmes (SAPs), which offered debt relief in exchange for economic policy adjustments. At the time, these were hailed as the key to restructuring the region’s productive capacity, with huge potential to “increase efficiency and restore growth” across the continent. However, while SAPs initially aimed to address the challenges facing these emerging economies and contribute to Africa’s sustainable development, the academic literature generally agrees upon the ultimate ineffectiveness of these programmes, which have been widely condemned for their negative impacts on social welfare and economic growth.

Consequently, many African economies started to turn to China for international finance, which generally offered loans with fewer strings attached and was willing to lend to authoritarian governments that the West frowned upon. Beginning in the early 2000s, Chinese lending in resource-rich African countries expanded rapidly, with oil- and other mineral-backed infrastructure projects spreading across the region, particularly within the framework of the country’s global infrastructure development programme, the Belt and Road Initiative (BRI). The lack of transparency in these arrangements, however, makes it hard to assess the extent of economic development enabled by Chinese capital, though widespread concerns about large-scale corruption and mismanagement seem to point to a missed opportunity.

Hence, while traditional institutional lenders have been criticised for their focus on fiscal austerity and economic liberalisation, China’s approach to lending in Africa has been condemned for its lack of transparency and accountability, as well as for its support for corrupt and authoritarian regimes. Both China and the West, have an important role in promoting Africa’s sustainable development, but there is a dire need for greater cooperation and coordination. The United States (US) and China are currently engaged in a debt standoff that will only hurt poor nations in the long run, so differences stemming from geopolitical tensions should be put aside for the emergence of effective solutions. But how did the continent find itself in its current conundrum? And, more importantly, what can G20 countries do about it?

The paper can be accessed by clicking here.

This article is authored by Miguel Otero Iglesias and others from ORF.

SHARE THIS ARTICLE ON
Share this article
SHARE
Story Saved
Live Score
OPEN APP
Saved Articles
Following
My Reads
Sign out
New Delhi 0C
Monday, April 15, 2024
Start 14 Days Free Trial Subscribe Now
Follow Us On