As Africa struggles to provide crucial medical services and build the necessary infrastructure, it is clear that African countries will need a new approach to collectively recover from the pandemic and address the mounting debt crisis.What available mechanisms can enable Africa to provide jobs and infrastructure that helps their economies recover from the worst recession since the Great Depression? Africa Needs Its Own “New Deal”
In the midst of the global COVID-19 pandemic, Africa faces an unprecedented level of starvation, poverty and suffering that will last far beyond 2020. A lack of medical facilities and resources to offset economic losses is expected to push 37.5 million more Africans into extreme poverty this year, adding to the more than 400 million people already living on less than $1.90 a day.
Compounding these challenges, African governments are encountering a major debt crunch. Over the past 15 years, African countries have been building new infrastructure projects, from roads to football stadiums, and collectively taking on $417 billion in debt from lenders like the World Bank, the Chinese government and private investors. The pandemic has also drawn attention to the amount African governments pay in servicing these loans, where countries like Ghana spend five times on annual debt payments as on health care.
As Africa struggles to provide crucial medical services and build the necessary infrastructure, it is clear that African countries will need a new approach to collectively recover from the pandemic and address the mounting debt crisis.
Calls for Debt Relief
In response to the effects of COVID-19, African finance ministers have called for a $100-billion relief package, including $44 billion in delayed debt payments over the next two years. African countries that are unable to make debt payments risk having their credit ratings downgraded, which would limit their financing capabilities for future economic growth initiatives. Countries that default on these loans may also face nightmarish predatory vulture funds or a repeat of the 1980s debt crisis.
To alleviate immediate concerns surrounding debt repayment, the International Monetary Fund (IMF), the G20 and other multilateral institutions froze debt payments through the end of 2020 to help African governments respond to the pandemic. They are now discussing additional measures, including involving more private lenders. There is a global dialogue about redistributing IMF special drawing rights for additional resources, while questions remain how China — Africa’s largest bilateral creditor — will manage its remaining African debt, with broad debt forgiveness looking unlikely.
While these measures will each have some effect, any meaningful approach to debt relief in Africa must help countries survive today while building a foundation for future economic recovery. Therefore, investing in infrastructure and creating jobs in the short term is crucial to Africa’s economic recovery and advancement.
Infrastructure is widely viewed as a critical element for development and economic growth in Africa. Bureaucratic hurdles, lack of investment and perceived risk, however, remain key barriers to obtaining the estimated $130 to $170 billion of infrastructure funding the continent requires. Infrastructure construction in Africa is currently critical because it would expedite provision of basic services and regional trade, both necessary for alleviating economic pain from the global recession.
For example, improving regional road networks would allow countries to trade food more regionally rather than facing current shortages from reduced food imports. In addition, building power-generating facilities would increase access to electricity and the internet for students learning from home during the pandemic, power health centers and facilitate future investments.
Increasing physical infrastructure across Africa would also advance implementation of the long-awaited African Continental Free Trade Agreement (AfCFTA), which policy leaders consider an important mechanism for the continent’s economic recovery and resiliency to future shocks. Whenever the AfCFTA comes into force, having more regional infrastructure in place will only accelerate its ability to boost regional income by 7% (or $450 billion) by 2035, despite COVID-19. The faster Africa’s economies can recover and grow, the sooner countries can alleviate debt and address citizens’ needs.
How Do We Get There?
Africa requires a “New Deal” approach to debt relief and economic recovery, a mechanism to provide jobs and infrastructure that helps African economies recover from the worst recession since the Great Depression. In the 1930s, US President Franklin D. Roosevelt’s New Deal created the Works Progress Administration (WPA) on the heels of the Great Depression. The WPA alone put 8.2 million people to work and built 78,000 bridges, 800 airports and over 650,000 miles of paved roads across the United States in less than eight years.
As Roosevelt’s New Deal focused on much-needed job creation, a similar plan could be adopted in Africa. Although not a silver bullet to the continent’s high unemployment rates, jobs generated by regional infrastructure projects could reduce the number of people living in extreme poverty and provide skills training needed for future work, another oft-cited barrier to investment. Perhaps most importantly, creating more jobs in Africa during a generational recession could save lives and livelihoods.
The underlying principles of the New Deal could be applied in Africa in several ways, but creating a short-term pan-African fund for infrastructure projects could be most effective. Leaders could set up the fund as a special purpose vehicle or a designated initiative within an existing pan-African organization such as the African Union, the UN Economic Commission for Africa or the African Development Bank.
Like the New Deal’s WPA, this infrastructure fund could have a defined lifespan (five to seven years) and include appropriate financial oversight for donors like the United States, the European Union and private sector partners. The WPA was dissolved after the completion of its mandate, and adopting a similar approach for this initiative could focus efforts on critical projects, after which African leaders could choose how to address remaining infrastructure needs.
This fund should allow leaders to identify and implement infrastructure projects with the highest potential for economic recovery and regional development. Having a central entity with authority to coordinate infrastructure projects among African member states could significantly fast-track execution and reduce bureaucratic red tape that often hinders infrastructure projects. A wealth of information about African infrastructure needs and opportunities already exists to facilitate project selection.
Infrastructure in Africa has long been viewed as a national issue that individual countries must address rather than a regional challenge that requires broad international collaboration. Through a New Deal approach that incorporates collective infrastructure investment into global debt relief efforts, international partners have an opportunity to help Africa weather unprecedented challenges today and build a foundation for an accelerated economic recovery that can be sustained well into the future.
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