n the last few weeks, Africa witnessed two major events that could influence the continent’s economic landscape in the coming decades. First was the visit by British Prime Minister Theresa May and her pledge of $5.1 billion in investments continent-wide, as the UK prepares for life after Brexit. Next followed the gesture of Chinese President Xi Jinping, who offered $60 billion in loans and aid to African leaders at the Forum for China-Africa Cooperation in Beijing. These two offers ironically sum up the status of the continent: Africa is the new economic frontier that needs a tremendous amount of help – and the proper way to help is seldom understood by the West. Unfortunately, what development efforts should promise, and how they should be implemented, are questions both African leaders and their partners have gotten wrong for years. But here are a few things the world must understand about helping Africa.
1. Africa is not transparent enough for loans
Among the many questions economists find hard to answer are: What total amount of loans does the continent need? And do beneficiary countries have the structural requirements to successfully pay off debts without experiencing financial problems?
The answer is simple: The financial administrative structures across Africa are not transparent enough to allow for proper accounting of state finances.
For instance, the IMF and World Bank loan facilities in the 1980s intended for industrializing the continent were a monumental failurebecause of the lack of transparency in recipient countries. Within a short period of acquiring billions in loans, most governments could not balance their books. And instead of creditors demanding that existing loans be paid back, they gave out more loans.
Eventually, governments could neither keep up the debt service nor point to successful development projects, and creditors had to cancel the debt through the Multilateral Debt Relief Initiative in 2005.
Unfortunately, as it was then, so it is now. In fact, China is drowning the continent in more debt through its indiscriminate loans.
For instance, Nigerian President Muhammadu Buhari asked China for a $380 million loan to build a power plant just weeks after his administration announced the disbursement of $322 million. The funds had been recovered from the Swiss bank account of former military dictator Sani Abacha, who is believed to have stolen them from the treasury during his years in office. Why Buhari cannot use the recovered money to finance this project rather than redistributing it to the poor – just ahead of an election – and seeking a loan from China is a question resonating among nearly all African leaders.
2. Foreign aid is the new chain of slavery
The noble intentions of international donors has harmed both them and their African recipients gravely. They have almost destroyed the private sector, which is bedrock of the African economy, and turned the continent into an economic dumping ground. When foreign donations pour in to address a short-term crisis, the donations rarely alleviate the problem. Instead, they push local businesses out of the market through unfair competition with free goods.