The continuing tragedy of Africa because the solutions don't match the problems

From Africa’s Debt Crisis Has ‘Catastrophic Implications’ for the World by Patricia Cohen.  The subheading is Crushing obligations to foreign creditors that have few precedents have sapped numerous African nations of growth and stoked social instability.

I got my degree in International Economic Development from the Georgetown University School of Foreign Service way back in the early 1980s.  I was especially interested in Africa, took a number of courses related to development in Africa, did an internship at the Africa Development Corporation (an NGO), spent a fair amount of time reading World Bank literature.

All the problems were reasonably well known then.  Most African nations had chosen some version of Socialism as they built their new nations as they came out of the colonial era in the 1960s.  Brute socialism combined with fervent nationalism was not conducive to development or progress.  None of the African nations (other than South Africa) had much in terms of State Capacity.  And owing to weak markets, weak rule of law, poor project execution and a bad habit of nationalizing things, most African nations were pariah in the global market and finance system.  The World Bank and IMF had their work cut out for them.

Everyone wanted to enable the nations to become economic successes and IMF and World Bank money poured in.  As did, episodically private investments (financial or commercial).  Later China, seeking influence, also became a major alternate lender. 

But without culture change (to values more conducive of Trust and Market and Contract and Property and Freedom and Emergent Order) and without State Capacity improvement, even then, most of the investments were dubious.  

And so it has turned out.  The predicted outcomes are what Cohen is reporting on.  Civil unrest is spreading.

Governments throughout Africa are facing the same dilemma.

The continent’s foreign debt reached more than $1.1 trillion at the end of last year. More than two dozen countries have excessive debt or are at high risk of it, according to the African Development Bank Group. And roughly 900 million people live in countries that spend more on interest payments than on health care or education.

Outsize debt has been a familiar problem in the developing world, but the current crisis is considered the worst yet because of the amounts owed as well as the huge increase in the number and type of foreign creditors. 

But is debt really the problem?  Absolutely not.  Misallocation of capital certainly is, but not debt per se.  Cohen wants to fan the flame of crisis but in doing so she inadvertently reveals the real problem.  Which is not debt.

And in Africa, a continent pulsating with potential and peril, debt overshadows nearly everything that happens.

Other than the purple prose,  she is right about one thing.  Africa has, and has always had, potential.  Economic, mineral, agricultural, even technological.  But it does also have natural challenges - little natural riverine transportation, few ocean harbors, fragile soils, etc.  And history of cultural collectivism and political socialism.  But the potential is there.

And for four decades, there has been the capital to convert that potential into success.  Capital from private lenders, form corporate investors, from China, and from NGOs like the World Bank and the IMF.  

What we are seeing now is the consequence of investing into a broken model.  Culture and State Capacity were problems in 1985 and they are still the core problem in 2024.  Capital alone cannot make the difference.

Oddly, China has been down this path before.  Back in the 1960s, under Mao, as African nations became independent, China stepped in with capital and development projects in the spirit of international socialism and brotherhood (China was then still a poor developing nation.)  They built rail lines and roads and various other infrastructure.  They provided industrial agricultural equipment (tractors and the like.)  

And all for nought.  African did not benefit from the projects because China imported Chinese laborers to do the work.  And after everything was imported and built, by the mid-1980s it was falling into ruin and abandoned.  Then along came Xi in 2013 with the Belt and Road initiative.  This time a much richer China invested in building infrastructure around the developing world (lending the capital to do it).  But once again, in Africa and elsewhere, these projects are failing and crumbling.  And the Chinese are less forgiving lenders than anyone in the West.  

So Africa is once again on the financial rocks after the splurge of the zero interest era and the open Chinese era of the past decade.

Rule of law is still weak.  Markets are still weak.  There is still poor project screening, planning and execution.  And there is still very weak State Capacity.  And culture is still only weakly compatible with individualism, freedom, property, natural rights, etc.  

Cohen is right to a small degree.  Africa is in trouble and the clearest manifestation of that trouble is the amount of capital they have consumed (debt) without making any of it productive.  But she is wrong to characterize debt as THE roblem.

Africa needs capital, the opportunities are there but the conditions in Africa still do not support the development of a market economy based on freedom and natural rights.  Debt problems are the evidence of their problem, not the problem itself.  

If nothing is done to help countries manage the financial crunch, “a wave of destabilizing debt defaults will end up severely undermining progress on the green transition, with catastrophic implications for the entire world,” warned a new report from the Finance for Development Lab at the Paris School for Economics and Columbia University’s Initiative for Policy Dialogue.

At the same time, economic stagnation in combination with government corruption and mismanagement has left many African countries more vulnerable to brutal wars, military coups and antigovernment riots.

Indeed.  As in the 1980s, economic tragedy looms over Africa.  But as in the 1980s, aid won't solve the problem because lack of capital is not the problem.  The problem is culture and State Capacity.  Between corruption, central planning and coercive governance.  

Yes, borrowing from China is increasingly obvious that is was a deal with the devil and will further exacerbate the coming catastrophe.  The West and IMF etc. will eventually become reluctant to subsidize China's financial failures.  China and investors need to eat the costs of their misallocated capital, not the governments and taxpayers of the developed nations.

The debt overhang leaves countries unable to make the kind of investments that could put their economies on stable footing, which would enable them to repay their loans.

That is not quite right.  The debt overhang illustrates that Africa has already not been able to put their economies on stable footing.  The capital was made available, it was used badly on poorly chosen projects and now the productivity that arises from good investing is obviously not there and the debts cannot be repaid.  The debt is not the problem as is implied.

The problem is, and always has been, is cultural and State Capacity.  Fix those and Africa's potential begins to become manifest.  Eliminating the debt overhang (by forgiving the loans for example) and the problem will remain.  Africa will be as poor and dysfunctional in forty years as it is now as it was forty years ago.  

NGOs and Governments and Advocacy Groups will plead for debt forgiveness because the economic mismanagement of African economies is done centrally, autocratically and badly.  Debt forgiveness is not the solution.  It is life support for corruption and bad governance models.  

Africans, tax payers of developed nations and the World community deserve better.  Find ways to foster markets and build State Capacity (not coercive central planning) and freedom and the debt will eventually take care of itself and everyone will be measurably better off.

But that is not what legacy MSM, NGOs, Advocacy groups, and national governments want.  They want to control lending and the giving away of capital.