Debt-Led Development in Africa: A Folly That Hinders True Progress

Depending on your perspective, debt for development can be viewed as either beneficial or detrimental. Keynesian economists assert that borrowing can boost aggregate demand, create jobs, enhance production, and promote long-term economic growth. Neoclassical economists also support this, arguing that public borrowing can help address the challenges of capital and infrastructure gaps faced by countries. Scholars like Carmen Reinhart and Kenneth Rogoff caution that the positive effects of debt tend to diminish once a country exceeds a certain borrowing threshold beyond which excessive debt crowds out private investment, raises taxes, reduces disposable income, and stalls growth. 

In a nuanced study, I. Kelikume and A. Otonne suggest that the relationship between debt and growth depends on a country’s productive structure. Specifically, for sub-Saharan African countries, which face declining exports and increasing debt, strengthening their productive capacity can lessen the negative impact of debt on growth. The study recommends that African policymakers focus on enhancing their economies’ productive capabilities to leverage the positive effects of debt and promote sustainable growth.  

For African countries, the experience of debt for development has mixed results. Two decades since the largest debt relief in the continent between 1996 and 2015, when 31 African countries had a significant portion of their bilateral and multilateral debt cancelled through the Highly Indebted Poor Country (HIPC) and Multilateral Debt Relief initiative (MDRI), Africa’s debt stock is at its highest at over US$1.8 trillion. Between 2007 and 2017, almost a dozen African countries, including Kenya, Ghana, and Nigeria, issued sovereign bonds floated in the International (Eurobond) market, raising around US$35 billion in commercial loans for infrastructure projects. China emerged as a key lender, providing an estimated 1,306 loans worth a combined US$182.28 billion to 49 African countries and seven regional borrowers. 

Between 2000 and 2023, these loans were primarily channelled to finance Africa’s large infrastructure sectors, such as the energy sector (US$62.72 billion), transportation (US$52.65 billion), information and communication technology (US$15.67 billion), and the financial sector (US$11.98 billion). Private creditors (bondholders and commercial banks) now account for up to 43 per cent of Africa’s debt stock, up from 30 per cent in 2010. Several factors are attributed to African governments shifting to non-official Paris Club creditors such as China, the UAE, and private creditors, including declining official development assistance over the past decade, limited concessional funding as several African countries graduate from low-income to middle-income status, and easy access to the international markets. 

The push for private sector-led development has partially contributed to the rising sovereign debt owed to private creditors.

Additionally, the push for private sector-led development has partially contributed to the rising sovereign debt owed to private creditors, mainly used to fund infrastructure projects. Public-private partnerships have been popularised as the panacea for financing Africa’s massive infrastructure gaps. In fact, private sector participation in infrastructure investment in the region has increased from US$2.083 billion in the first half of 2018 to US$19 billion in 2020, the highest proportion of private sector investment in Africa. 

While infrastructure development has been overwhelmingly welcomed in promoting economic efficiency within economic development, this has come with its share of challenges, especially for the ordinary citizens who have had to carry the burden of paying off the contractual debts through the payment of service fees such as toll fees, water rates, and health and education levies from their own pockets. Citizens in Kenya, for example, are still waiting to witness the social benefits of the debt-financed and contentious Standard Gauge Railway, a multi-billion dollar project that is failing to self-sustain, while the government has been hit with fines for missed repayments, increasing the loan value.

The idea of private-led financing for infrastructure development is a narrative long spawned by multilateral development banks.

The idea of private-led financing for infrastructure development is a narrative long spawned by multilateral development banks, led by the World Bank, major donors, and multilateral institutions that have, in fact, developed guidelines and frameworks that incentivise the use of public-private partnerships (PPPs) by developing economies. A growing body of evidence warns against the use of PPPs which are often expensive, have mixed development outcomes, and lack transparency and accountability. PPPs have become socialised while the profits are privatised, contradicting the rationale behind them, which is for the public and private sectors to share risk. In an analysis of the performance of PPPs in developing countries, James Leigland highlights that the over-reliance of PPPs and their overpromotion will not solve a country’s infrastructure gap.

In all instances, whether it’s Chinese loans, commercial loans, or public-private partnerships, most megaprojects in Africa are largely brokered by political elites. In the case of Chinese loans, there is a correlation between the high volume of Chinese-based projects and increased corruption experiences in Africa. As Paul Nantulya observes, “China-Africa relations thrive on interpersonal ties of mutual dependence, obligations, and reciprocity that African elites tend to skew to their benefit at the expense of the public interest.” In his assessment, while China-Africa relations may be deemed mutually beneficial, in the absence of oversight and political ethics, benefits accrue to the individuals involved and not to the public they represent. 

Equally, Eurobonds have not only become the main cause of Africa’s debt crisis, as rightly predicted by Joseph Stiglitz, they have also become a means for European banks to engage selfishly in the search for big payouts in fees and commissions while colluding with corrupt officials of the issuing African governments, saddling their citizens with expensive dollar-denominated debt. 

Sadly, besides the mixed outcomes for the economic growth expectations of large infrastructure projects on the continent, spending on social sectors such as health and education has deteriorated across several African countries as they prioritise debt servicing. Currently, 25 African countries are spending more on debt than on education, and 32 African countries are spending more on debt than on healthcare. As at 2024, African countries had paid a total external debt service amounting to US$163 billion – up from US$61 billion in 2010 – due to increased interest rates, according to the African Development Bank. Angola, which at 66 per cent has the highest percentage of revenue allocated to debt repayments, has seen a decline in health and education by more than 55 per cent since 2015. Angola also ranks top with regard to the percentage of Chinese loans in its overall debt stock.

People first, not profits 

Overcoming the debt-led development logic of financing large infrastructure projects with the expectation of a high economic growth rate demands a paradigm shift by African countries. Unlike mega-infrastructure projects, investments in key sectors such as health, education, and agriculture yield broad-based, long-term dividends by enhancing human capital and reducing inequality. By investing in social sectors, Africa can develop a sustainable, fair, and less debt-dependent growth strategy. This requires challenging the political economy of mega-infrastructure and confronting elite capture and foreign influence. Civil society organisations can play a central role in advocating for people-centred alternatives. By amplifying voices from the public, they can push governments and international lenders to align financing with social justice priorities rather than status projects. 

African countries must strengthen their domestic resource mobilisation efforts through progressive taxation, curbing illicit financial flows, and leveraging local capital markets. Debt audits and transparency reforms are also needed to prevent opaque deals and ensure accountability, as outlined in the African Borrowing Charter.

The views and analyses expressed in this article are those of the author and do not necessarily reflect the positions of the Heinrich Böll Foundation.