The geopolitics of Africa’s debt crisis
The author is Senior Research Professor of International Economics at the Johns Hopkins University School of Advanced International Studies and Senior Fellow at the Center for International Development at Stanford University.
The United States has a population of roughly 330 million, while all Nato countries combined have about 975 million. Adding Nato’s major Asian-pacific partners – Japan, South Korea, Australia, and New Zealand – brings the total to 1.3 billion.
By contrast, Russia and China together have a population of about 1.6 billion people. The rest of the world, including India and much of Asia, Africa, the Middle East, and Latin America, is home to 5.3 billion people.
Despite representing less than 15% of the world’s population, Nnato countries account for about 31% of world GDP.
Over time, however, the rest of the world’s share of the global economy is expected to increase, and its geopolitical allegiance should not be taken for granted.
Africa, in particular, is expected to become a major contributor to global growth over the coming century.
But first, the continent must overcome several daunting challenges. While its population is projected to grow from 1.4 billion today to 3.3 billion by 2075, economic growth has been sluggish, and many African countries are currently experiencing or at high risk of debt crises.
Without robust growth, migration pressures are likely to increase, exacerbating political instability and leading to
HEIGHTENED GEOPOLITICAL TENSIONS UNDERSCORE THE URGENT NEED FOR WESTERN COUNTRIES TO HELP AFRICAN COUNTRIES TACKLE THE ONGOING DEBT CRISIS. WITHOUT WESTERN SUPPORT, POVERTY, HUNGER, AND POLITICAL INSTABILITY COULD INTENSIFY ACROSS THE CONTINENT, INCREASING THE ALLURE OF RUSSIAN AND CHINESE OVERTURES. widespread state failure.
Conversely, if African countries manage to overcome their current challenges, their growing geopolitical importance could pose a significant threat to Western interests, especially as China and Russia expand their economic footprint across the continent.
To be sure, the challenges vary from country to country. Despite its vast oil reserves, Nigeria, Africa’s largest economy and most populous country, has a poverty rate of 38.9%.
Following its second currency devaluation in eight months, and with inflation reaching 31.7% in February, a cost-of-living crisis has driven many multinational companies to exit the country.
South Africa, for its part, continues to suffer from an acute energy crisis, with rolling nationwide blackouts.
The unemployment rate increased to 34.7% in 2023, while annual GDP growth slowed to 0.1%.
Egypt’s growth has also slowed sharply, with inflation running at 36% amid a protracted foreigncurrency crisis exacerbated by the war between Israel and Hamas in Gaza and a subsequent drop in Suez Canal revenues.
A recent $8 billion loan agreement with the International Monetary Fund and a $35 billion investment deal with the United Arab Emirates could help stabilise the Egyptian economy.
But with its population growing by 1.4% annually, Egypt’s projected 2.8% growth rate for 2024, even if met, is unlikely to be enough to reduce the country’s 60% poverty rate.
Meanwhile, Sub-saharan Africa’s debt crisis shows no signs of abating. In December, Ethiopia became the third African country to default since 2020.
Zambia, which defaulted on its external debt more than three years ago, reached a restructuring deal with private bondholders only recently, having secured an agreement with its official creditors in June 2023.
Ghana, which defaulted on its external debt in December 2022 amid soaring inflation and a rapid depreciation of its currency, has yet to reach a similar agreement with its private bondholders after the IMF rejected its proposed restructuring pla.
Zimbabwe, grappling with runaway inflation triggered by unsustainable government spending, has recently introduced its third currency in a decade and is now seeking an IMF loan.
Several factors are driving Africa’s ongoing debt crisis: unsustainable debt due to underlying fiscal weaknesses, borrowing for unjustifiable and potentially reckless infrastructure investments, excessive regulation that impedes economic growth, and political pressure for increased social transfers.
The proliferation of civil conflicts is compounding these problems.
Ethiopia, for example, experienced rapid growth for more than a decade before its civil war erupted in 2020, forcing the country to seek support from the IMF.
Similarly, the ongoing civil war in Sudan has resulted in massive migration and warnings of impending famine.
To mitigate the debt crisis and resume imports of essential goods, policymakers must implement targeted reforms, supported by strategic debt restructuring and short-term financing.
Otherwise, excessive spending will persist, and economic prospects will remain bleak. But the resources and attention African countries currently require far exceed what the IMF and other international institutions can provide, and the mounting discontent over the continent’s lack of economic progress is exacerbating political instability.