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Impact of Foreign Borrowing in Africa

July 25, 2016 at 08:30 am | Uncategorized

Fredrick Ngugi

Fredrick Ngugi | Contributor

July 25, 2016 at 08:30 am | Uncategorized

Nigerian President Muhammadu Buhari (l) arriving in France. Photo (Bella Naija)

Although many African countries are enjoying decades of independence and sovereignty, they are unable to free themselves from the chains of foreign borrowing and aid. They are still counting on the West and other foreign lenders for funds to sustain their economy.

The unfortunate thing is that instead of using the money acquired from foreign lenders to develop, most African governments spend the larger portion of it on wasteful expenses and bloated bureaucracies.

A good example is South Africa, where President Jacob Zuma was recently found guilty of spending millions of public funds to renovate his private residence, and before he could even repay the embezzled funds, his security minister confirmed that he spent millions more of public money to buy luxury vehicles for Zuma’s wives.

While foreign borrowing may have helped some parts of Africa to develop, the negative impact of it has been too big to ignore.

According to the Wall Street Journal, foreign aid to Africa has left the poor poorer and the overall economic growth of the continent slower.

“The insidious aid culture has left African countries more debt-laden, more inflation-prone, more vulnerable to the vagaries of the currency markets, and more unattractive to higher-quality investment,” the Wall Street Journal claims.

Foreign aid has been cited as one of the major causes of incessant civil conflicts and unrest in many parts of Africa, especially since more than 60 percent of sub-Saharan Africa’s population is below 24 years of age and economic prospects are not so promising.

Foreign loans and donations are an unmitigated political, economic, and humanitarian disaster for Africa.

“This kind of aid can provide Band-Aid solutions to alleviate immediate suffering, but by its very nature cannot be the platform for long-term sustainable growth,” writer Dambisa Moyo says.

Despite its unrelenting debt-relief campaigns, African countries still spend more than $20 billion every year on debt repayments, a blunt reminder that aid is, after all, not free.

The unfortunate thing is that these debts are repaid at the expense of education, health, and general economic development in Africa.

Because most African governments are resigned to the fact that the only way they can fund their economies is through foreign borrowing, they see no need to find better ways of generating revenue for development.

“The aid system encourages poor country governments to pick up the phone and ask the donor agencies for next capital infusion. It is no wonder that across Africa, over 70 percent of public purse comes from foreign aid,” Moyo adds.

It’s time Africans focused on increasing trade with their foreign partners and encourage direct foreign investments through transparent tax structures and a favorable business environment.

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