Global Policy Forum

Debt Relief is Only a Small Step for Poor Africa


By Ed Stoddard

February 8, 2005


Malawi is $2.9 billion in debt but the cash that was borrowed hasn't done Simao Aloni or his home village of Chiromo any good. Campaigners for debt relief argue that as a result, the people of dirt-poor Malawi shouldn't be burdened with it.

The Group of Seven wealthy nations pledged on Saturday to help to rid the world's poorest countries of their weighty debt, launching a programme that fell short of the immediate action demanded by Africa. The compromise deal pledged only that the G7 would look at cancelling up to 100 percent of the debts owed to international institutions by the poorest countries on an individual basis.

The misery of places like Chiromo highlight the urgency of the task but also underscore a brutal fact: debt relief will be only one small step towards filling the chasm that exists between Africa and the rich world. "If people see electric lights here, it's a novelty," said Aloni as he washed dishes for his employer, a city businessman in Aloni's home village of Chiromo on a camping trip. His meagre wages in the commercial capital Blantyre help to support his family in Chiromo who, like almost everybody else here, eke out an existence from fishing or subsistence farming.

Malawi's accumulated foreign debt -- which is equal to about 154 percent of its gross domestic product (GDP) -- has certainly not been spent here. Once a bustling trading town across the Ruo river from neighbouring Mozambique, Chiromo has sunk into squalid poverty.

The former police station is now a roofless shell. Inside, it is overgrown with a riot of wild vegetation. Roads that were once paved are now sand-tracks full of potholes. Villagers living in simple brick or mud huts on the river banks have no electricity. Most are clothed in rags. Hand-hewn wooden canoes are the main mode of transport. People who bathe or wash clothes in the river because they have no running water run the risk of being eaten by crocodiles. These are scenes that can be repeated endlessly throughout the world's poorest continent, where much of the money that has been borrowed -- or simply thrown at governments as aid -- has been squandered or stolen.

Huge Gap

Despite decades of aid and borrowing, Africa has grown steadily poorer, the income gap between places like Chiromo and the rest of the world steadily wider. The United Nations Development Programme (UNDP) says that sub-Saharan Africa's per capita GDP -- the economy's annual output divided by the number of people -- was $469 in 2002 compared with $22,987 for the affluent members of the Organisation for Economic Cooperation and Development.

According to the World Bank, in 2003, gross national income in Malawi, a sun-drenched and fertile land that is once again confronted with food shortages, was only $160. Malawi's foreign debt is crippling and any relief would be welcome. But much more than that needs to be done. "The most powerful tool toward closing the disparities between Africa and the rest of the world is market access. These countries must grow their export base," said Robert Bunyi, Africa economist at South Africa's Standard Bank.

Boosting exports is easier said than done. Malawi's government has made cotton and textiles the lynchpin of its development plan as it attempts to diversify an economy heavily dependent on tobacco and sugar exports. The fact that it is pinning its hopes on a cotton-driven industrial revolution, over two centuries after Britain's began, throws its state of underdevelopment into sharp relief. And the debt relief initiative coincides with an end to a curb on clothing imports from developing nations to rich countries which is expected to hit African textile producers hardest as they face stiff competition from Asia.

American economist Jeffrey Sachs has recently argued that more -- but well-targeted -- aid is needed to pull Africa out of its "poverty trap". Africa's extreme poverty, he argues, has led to low savings rates. As a result, level of capital is so small that it falls below the threshold needed to start modern production processes. In Chiromo, the people have nothing to save. And they are unable to pay off debts incurred over decades that were squandered elsewhere.



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