“The rich man is the one who has no debt,” says a chinese proverb. With the coronavirus, the african debt has again invited in the debates. It had not disappeared. One is reminded of recent comments and concerns sometimes related to a read-rigid, static, and uniform of the debt in Africa. The debt is a funding modality among others. And Africa need funding to develop. According to the african development Bank, our continent needs to invest between 130 and 170 billion us dollars per year in infrastructure. For my country, Guinea, the investment needs were estimated in 2016 to nearly a billion us dollars per year to promote double-digit growth over the next decade. In this context, the debt remains an option. However, the current debates, revived by the pandemic of the Covid-19, recall that there are aspects of the essential basic that it needs to be ensured.
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For Malado Kaba, the process of debt requires taking into account a number of requirements to make the debt virtuous. © ABBAS MAKKE
In terms of debt, the subject matter and the way matter
When we speak of debt, it is essential to consider what you finance as much as the way in which we finance. The quality of what we fund, what are the nature of the projects, the costs and the effects of training possible. The projects must be productive in order to create the conditions necessary for the refund. These projects, from technical studies, is accurate, should foster the creation of wealth and jobs, and not be ” white elephants “. This, therefore, refers to their method of selection, based on objective criteria and rigorous, and should allow to choose the best projects.
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The cost is another essential element which refers to the process and the transparency of tenders. Costs excessively high are often the reflection of corrupt practices based on a lack of recourse to the competition and opacity in the negotiation of agreements that contribute to a debt that is ultimately more important. However, it also remains true that the absence of recourse to open tendering may be related to certain financing non-traditional, which include the obligation to conclude contracts with companies from the lending country. For all that, this shall not prevent the detailed negotiations to get the best price, nor exempt of the necessary checks on the technical and financial capacity of the contractors, a guarantee of quality and sustainability of implemented projects.
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Integrate the impact of local content
to Promote local content, in the context of capital infrastructure projects financed by borrowing, is a way of promoting the effects of training necessary to densify the fabric of our economic and initiating a process of industrialization. For example, it is possible to include in the contracts with the foreign firms the obligation to allocate a percentage of the amount of contracts to go to local sub-contractors. In Guinea, for some major investments, up to almost 40 % of the amount of the contracts to which these projects have been allocated to local sub-contractors. The impact can be fourfold : to share the wealth generated by the investments in the implementation phase of the projects, create jobs, transfer technology and contribute to the increased mobilization of domestic resources. To mobilize these internal revenues, broadening the tax base and reduce the pressure on budgetary resources are often limited, which would be devoted to the service of the debt, in competition with other spending priorities, such as health or education. The local content may also allow you to better control the cost of projects, and participate to enhance the capacity of our local SMES.
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the importance of ensuring the terms of the debt
The way in which we finance the projects, what are the terms of the debt (currency of the loan, interest rate, duration and grace period). These terms contribute to the weight on the same basis as the nature and cost of the projects. The terms must be discussed with the greatest care because of their impact on our public finances in the medium and long terms. This requires negotiation skills and significant expertise in structuring financings. In particular, the experience of financial markets, regional, continental and international, now seems to be a “must” for the staff responsible for these issues. In 2017, a partnership with SESSIONS-titles had allowed executives guinean Treasury and the Debt of the benefit of their immersion program to strengthen their capacities and foster sharing of experience in the sub-region. These exchanges of experience are useful and could in the future contribute to integrate our financial markets.
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A fundamental fact : knowing how to anticipate
Manage the debt requires of anticipation, something that’s sometimes difficult in a context marked by the short-sightedness imposed by our environments. It is a dynamic operation that opens up the possibility to restructure the loans taking into account the internal and external environment. Debt, especially that which is intended to finance the investment needs in Africa, is more for the long term and constitutes an important element of national budgets. It requires, therefore, to improve the transparency, especially vis-à-vis the citizens, through regular communication, simple and clear, particularly through digital media. In Guinea, between 2016 and 2018, the ministry of Economy and Finance has initiated the regular publication of information on the indebtedness of the country through bulletins and annual reports published on the website of the ministry. This novel method can be improved and enhanced to meet the ever increasing demand of transparency of taxpayers.
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Undo, yes, but…
The Covid-19 has rekindled the debate on debt cancellation in Africa, with the recession, becomes a factor of increased risk to our budgets. This cancellation is necessary, but it calls for a better governance of the projects as well as the strengthening of the transparency of the debt vis-à-vis our fellow citizens. The pandemic of sars coronavirus, by its lightning, and its impact on our fragile macroeconomic balances, we need a crisis at the top so that the continent quickly find a path to growth because of an emerging Africa and prosperous is essential to the rest of the world.
* today at the head of Faleme Council, strategic consulting and economic analysis, Malado Kaba, 25 years of experience in international development, presides from 2019 on the Board of the regulatory authority for public services of electricity and potable water in Guinea. The board of directors of several organizations, including the African Women Leadership Fund, and International Budget Partnership, she was the first woman minister of Economy and Finance of Guinea (2016 to 2018). She has also been country director in Guinea for the foundation Tony Blair Institute for Global Change, after several years at the european Commission as an economist.
writing will advise you
african Debt : where the Covid-19 will still hurt Papa Demba Thiam : “How to build the Africa with less debt,” african Debt : the chinese share of 40 %, myth or reality ? “On the debt, we can’t treat the african countries in a homogeneous way “, Christian de Boissieu : “Africa needs to promote the development of a more endogenous’ Wilfrid Lauriano do Rego : “It is necessary to renew the narrative through listening and dialogue “
