
Extreme poverty is rising in Africa because African nations are stuck in a debt crisis that we, in the UK, can help end for free. This is because African debt is owed to private lenders and governed under English law. These lenders creditors currently have little incentive to participate in debt negotiations. We can help bring them to the table.
Hunger and extreme poverty are rising in Africa. The number of those who do not earn or produce enough to eat is over 400 million. African nations cannot afford to invest in the education, healthcare, and infrastructure they need to become more prosperous. In the UK, annual healthcare expenditure is over £4,000 per person. The Sub-Saharan average is just £62.
Even worse, these meagre government revenues available are increasingly going to creditors, because African countries are currently facing a debt crisis that they cannot negotiate their way out of. In 2024, the average African country will spend 18.5% of government revenues on paying down debts. For 32 African nations, this is more than they spend on healthcare.
Debt repayments as a share of African economies have surged since 2010
Debt repayments as a share of Gross National Income, Sub-Saharan Africa
Sources: World Bank International Debt Report
Every country uses debt to fund investment, and as Western interest rates plummeted toward zero percent after the 2008 financial crisis, private lenders moved away from investing in low-profit government debt in Europe and North America towards higher-yield, but **higher-risk, debt in Africa. Private debt rose from 25% of African debt in 2009 to over 40% in 2023.
Private debt makes up a larger proportion of debt in Africa than it did 15 years ago
Private debt as a proportion of total debt, Sub-Saharan Africa
Sources: World Bank International Debt Report, ONE Campaign
Private loans to African nations face higher interest rates – on average 6.2%. This is to account for the higher risk that African nations will be unable to pay, as they are more vulnerable to global shocks. For those who lend to them, the principle should be simple: higher risk, higher reward.
But, since 2020, three global shocks – the pandemic, Putin’s war, and the rise in interest rates – disproportionately impacted countries in Africa and created the current debt crisis. the pandemic and Putin’s invasion of Ukraine increased energy and food prices while reducing government revenues. Increased interest rates internationally increased the cost of debt. As a result, many nations were unable to repay and loan defaults surged. This debt crisis has led to a social crisis – increasing hunger, political instability, and migration of refugees, that hits us at home.
In 2020, G20 nations set up the ‘Common Framework’ – a forum to renegotiate African debt and end the debt crisis. The debt negotiations require all lenders – large international organisations such as the International Monetary Fund, individual countries, and private lenders – to get round the table and make ‘concessions’, or reductions in the amount they will be repaid.
But each private lenders, who have a fiduciary duty to gain the highest return for their funds, have little incentive to participate when doing so would mean reduced profits for them and only them. Instead, it is in their interest to wait for other lenders to make concessions, freeing up revenues so indebted countries can continue repaying private loans at exorbitant interest rates.
This creates a collective action problem. Why should other lenders make concessions and reduce the amount they are repaid, if the funds that are freed up will just go into the pockets of other (private) lenders, rather than towards reducing poverty? This is crucial: debt negotiations only work if everyone agrees to take a reduction in the amount owed.
As a result, the Common Framework process is blocked. Only four countries have applied for debt restructuring under the Framework. To fix the Common Framework and end the debt crisis, private lenders need to be incentivised to act collectively and renegotiate debt settlements.
In the UK we are in a unique position to solve this. 90% of debt contracts eligible under the Common Framework are governed under English law. We can pass legislation to mandate private lenders to abide by the outcomes of these debt negotiations – regardless of whether they participated or not.
Firstly, this would help them to cooperate in debt negotiations, providing incentives for all lenders to get round the table and work out a mutually beneficial deal. Secondly, it would also ensure that private lenders don’t continue to reap large profit margins – so they accept the risk of lending, as well as the reward. In fact, The International Monetary Fund themselves have asked the UK to pass this legislation. And, we have done this before: in 2010, when the international debt process was similarly stalled, Parliament passed the Debt Relief Act, which led to hundreds of millions in debt relief.
This government are working to ease the debt crisis. By increasing the UK’s contribution to the World Bank International Development Association by 40%, we have provided a source of cheap finance to the poorest countries. Advocacy for ‘climate resilience clauses’ to be included in loan contracts means countries at risk of climate disaster can defer loan payments. These are important measures.
But, the UK has the opportunity to do even more and restore British leadership on the world stage. We can once again lead the world on international development, at a time when emerging economies are increasingly important to the global economy. We can help to reduce extreme poverty, by allowing African governments the resources they need to serve their people. Best of all, we can do all of this at zero cost to the UK taxpayer.
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Dr Jeevun Sandher is the Labour MP for Loughborough, an Economist and Political Scientist at Kings College London
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