Menu

The way out of Africa’s unsustainable debt and underdevelopment 13 Jun 2025

Africa stands at a pivotal moment in its economic history. The continent possesses extraordinary potential: according to the United Nations Economic Commission for Africa (UNECA), Africa has approximately 30% of the world's mineral reserves. The GIS estimates that the continent has 60% of the world’s uncultivated arable land. With a median age of 19 years in 2025, the continent boasts the youngest population globally. Yet, despite these considerable assets, Africa remains trapped in a debilitating cycle of debt and underdevelopment. While recent global shocks like the COVID-19 pandemic, the conflict in Ukraine, and increasingly frequent climate-related disasters have exacerbated this crisis, its roots lie much deeper, entwined with structural flaws within African economies and a global financial system that, perversely, often incentivises reckless borrowing.    

Africa's current debt crisis is not new and unfortunately mirrors patterns observed following the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI) debt relief initiatives of the early 2000s. Those initiatives offered a chance for a fresh start, wiping out $100 billion in liabilities for 36 countries. However, the relief proved temporary. By 2023, a worrying 20 African countries were once again facing debt distress. Zambia's 2020 debt default, with debts reaching a staggering 129% of its GDP, and Ghana's 2022 IMF bailout serve as stark reminders of a systemic problem: debt relief alone fails to address the underlying incentives that drive unsustainable borrowing.    

Several key drivers perpetuate this cycle of debt accumulation. In many African countries, political leaders prioritise highly visible, quick-win projects, often neglecting more crucial, long-term investments in productivity-enhancing sectors. In 2023, the African Development Bank (AfDB) found that 60% of infrastructure projects launched in election years exceeded their original budgets. These projects are often mired in corruption. For example, Nigeria’s Anchor Borrowers’ Programme (ABP), while it sounded good on paper and certainly got a lot of good press for the Buhari government among poor farmers in rural Northern Nigeria, failed to move any needle. Rice consumption in Nigeria still outpaces production. While the ABP did not directly increase external debt, it contributed to the CBN’s quasi-fiscal deficit, which ballooned to N23 trillion by 2023. Another example is Kenya’s Standard Gauge Railway (SGR), a project that ultimately cost 300% more than initially planned, reaching $3 billion.   

A fundamental weakness in many African economies is their inability to generate sufficient domestic revenue. Tax-to-GDP ratios average a paltry 16%, far below the 34% average seen in the Organisation for Economic Co-operation and Development (OECD) countries. This makes governments rely heavily on borrowing to fund essential services. Tax evasion is a significant drain on resources. In 2023, Nigeria’s national revenue service reported a loss of $15 billion to tax evasion. In the Democratic Republic of Congo (DR Congo), the problem manifests differently, with a CENADEP (Centre National d'Appui au Développement et à la Participation populaire) report indicating that the country earns more revenue from illegal mineral smuggling than from official mineral exports, highlighting governance challenges and lost potential revenue. Alarmingly, in 2024, the IMF reported that in 25 African countries, debt servicing and public sector salaries consume over 70% of national budgets.    

Disasters often push African countries further into debt. Mozambique, for example, took on $118 million in emergency loans in the aftermath of the devastating Cyclone Idai in 2019. The cyclone killed 1,593 people in Madagascar, Malawi, Mozambique, and Zimbabwe, and caused at least $773 million worth of damage in Mozambique alone. During the COVID-19 pandemic, 18 countries breached their debt ceilings as they scrambled to secure funds for essential health spending, illustrating the vulnerability of their fiscal positions.   

The nature of lending itself significantly contributes to Africa's debt burden. While concerns exist about China's $134 billion Belt and Road Initiative (BRI) loans, which sometimes involve opaque terms and conditions, for example, Angola's pledging of a substantial portion of its oil revenues (estimated at 50%) to repay approximately $25 billion in Chinese debt, and the near-seizure of Zambia's Kenneth Kaunda International Airport due to a $360 million default, it is crucial to acknowledge that issues are not limited to a single lender.   

Predatory lending practices have also been employed by Western nations and private creditors. In some instances, Western financial institutions have been criticised for promoting loans tied to structural adjustment programmes that imposed harsh austerity measures on borrowing countries, often with detrimental social consequences. Private creditors, operating in the global financial markets, frequently impose onerous terms, charging African countries significantly higher interest rates (often 5-8%) compared to rates offered to similar borrowers in other regions, a disparity that exacerbates the debt burden, according to 2024 World Bank data. Furthermore, the activities of vulture funds, which purchase distressed debt at steep discounts and then pursue aggressive legal action to extract maximum repayment, have also been a source of concern.   

Beneath the surface of the debt crisis lies a deeper, structural problem: the inherent unproductivity of many African economies. These economies often remain tethered to colonial-era models that prioritise the extraction and export of raw materials over value-added production. This dependence limits their ability to generate sustainable growth and resilience.   

Despite possessing 60% of the world's uncultivated arable land, Africa imports a staggering $65 billion worth of food annually, according to the AfDB. This paradox highlights the inefficiencies and underdevelopment within the agricultural sector. In Nigeria, rice farmers lose an estimated 40% of their harvests due to inadequate storage facilities – a problem that is solvable with appropriate investment and infrastructure. The manufacturing sector's contribution to GDP remains dismally low, at around 10%, compared to Asia's 25%. However, there are glimmers of hope. For example, Ethiopia's industrial parks have demonstrated the potential for growth, generating $1 billion in exports in 2023, a significant jump from $100 million in 2018.    

Several key constraints contribute to this productivity paradox. For one, a staggering 600 million Africans lack access to electricity, hindering industrial development and overall economic activity.  Ghana, for instance, loses an estimated 4% of its GDP annually due to persistent power cuts. Additionally, there is a significant mismatch between the skills possessed by the workforce and the demands of the modern economy. In Nigeria, a UNDP report from 2023 indicates that 70% of graduates lack the essential digital skills required for technology-related jobs.    

The lack of integrated markets hinders economies of scale and limits trade. Intra-African trade is a mere 17% of the continent’s total trade, compared to 67% within the European Union. However, the African Continental Free Trade Area (AfCFTA) holds immense potential to boost this figure by an estimated $35 billion annually by 2035, fostering regional value chains and reducing reliance on external markets.  

Breaking free from the cycle of debt and underdevelopment requires a multifaceted approach that tackles both the symptoms and the underlying structural causes. We have to borrow smarter and link our loans to productivity. Rwanda's 2024 $500 million Eurobond, used to finance geothermal power plants, exemplifies this approach. We should also look at local currency bonds, although this carries the risk of government crowding out the private sector. 

There is a need for institutional reforms to strengthen fiscal rules, have better taxation enforcement, and increase transparency, all of which need the buy-in of the population, which in turn requires political solutions that are beyond the scope of this article.

Then there is the geopolitical angle. Africa can leverage its strategic importance to secure better deals. In negotiating with foreign investors, African countries can demand technology transfer and skills development. As a step in this regard, South Africa's $8.5 billion Just Energy Transition deal requires 30% local content in renewable energy projects. Africa can move up the value chain with its vast reserves of critical minerals. Namibia's decision to ban raw lithium export, forcing battery plant development onshore, is a strategic move in this direction.    

Solutions to Africa's debt dilemma and development challenges exist, but their effective implementation hinges on political courage and a shared commitment from African leaders and their international partners.    

Leaders must be willing to prioritise long-term industrial development plans that span five to ten years, rather than focusing on short-term gains tied to election cycles. A lot can be learned from Botswana's fiscal discipline, where its sovereign wealth fund, the Pula Fund, now covers a comfortable 18 months' worth of imports, demonstrating the benefits of prudent financial management. 

Citizens also have a critical role to play in demanding accountability and transparency from their governments, and creditors must also accept a greater share of the responsibility, moving beyond purely profit-driven motives to embrace sustainable development outcomes. The critical question now is not whether Africa can escape this cycle, but whether its leaders and partners will summon the political will and make the necessary hard choices to do so.  

Cheta Nwanze is Lead Partner at SBM Intelligence.