The Human Cost of Africa's Odious Debt
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The Human Cost of Africa's Odious Debt


Léonce Ndikumana and James K. Boyce: The cost of servicing external odious debt leads to tragic underspending on health care and education -   October 3, 14
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Bio

Léonce Ndikumana is a Professor of economics at the University of Massachusetts, Amherst. He served as Director of Operational Policies and Director of Research at the African Development Bank, Chief of Macroeconomic Analysis at the United Nations Economic Commission for Africa (UNECA), and visiting Professor at the University of Cape Town. He is an Honorary Professor of economics at the University of Stellenbosch. He has contributed to various areas of research and policy analysis on African countries, including the issues of external debt and capital flight, financial markets and growth, macroeconomic policies for growth and employment, and the economics of conflict and civil wars in Africa. He is co-author of Africa’s Odious Debt: How Foreign Loans and Capital Flight Bled a Continent, in addition to dozens of academic articles and book chapters on African development and Macroeconomics. He is a graduate of the University of Burundi and received his doctorate from Washington University in St. Louis, Missouri. James K. Boyce teaches economics at the University of Massachusetts, Amherst, where he directs the development, peacebuilding and environment program at the Political Economy Research Institute. His most recent book is Africa's Odious Debts: How Foreign Loans and Capital Flight Bled a Continent (Zed Books, 2011), co-authored with Leonce Ndikumana.

Transcript

The Human Cost of Africa's Odious DebtPAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. This is the second part of our series of interviews based on the book Africa's Odious Debts: How Foreign Loans and Capital Flight Bled a Continent. One of the things the book points out is that Africa spends more on servicing its external debt than it does on health care. Now joining us to talk about the human cost of Africa's odious debt are the authors of the book. Professor Leonce Ndikumana. He's--teaches economics at the University of Massachusetts Amherst. He's a research associate at the PERI institute. And Professor James K. Boyce. He's director of the program on Development, Peace Building and Environment at PERI institute in Amherst. Thank you both for joining us again.

JAMES K. BOYCE, DEVELOPMENT, PEACEKEEPING AND ENVIRONMENT PROGRAM, PERI: Thanks, Paul.

LEONCE NDIKUMANA, PROF. ECONOMICS, UMASS AMHERST: Thank you.

JAY: So, Leonce, talk a little bit about the issue of the human cost of Africa's debt.

NDIKUMANA: Thank you very much. Again, we would not be spending this much time analyzing the issue of external borrowing and capital flight if it didn't have any impact on people. And, unfortunately, the impact of irresponsible external borrowing and misuse of externally borrowed money and capital flight is dramatic. The simple logic is government--governments are entrusted to provide basic services to their populations, including education and health care, whereas African countries have made substantial progress in providing access to health services. The problem is it's still limited. It's--in many countries this objective is not going to be reached by the MDG target. And as--when you look across the country, you--across the continent, you find many countries which are endowed a substantial amount of resources that could finance basic services such as education and health and--but at the same time, you find a large majority of the population with no access to these services. Countries like Equatorial Guinea, country that's like the Republic of Congo, are countries where you find stories of hospitals which have no medicine, which have no equipment. There is a story in our book where we talk about a hospital in the Republic of Congo where the elevators don't work, so people have to carry the sick people across the stairs on their backs. And the only part of the hospital--in that hospital that works at full capacity is the morgue, because people are not being treated. So you have a situation where resources, national resources are being used for private purposes, for spending purposes, where at the same time children are not immunized, hospitals don't have the supplies. And in our simple calculation, we find that Africa is spending as much money on servicing the debt as on health care.

JAY: Right. One of the examples you give in your book is the son of the president of Equatorial Guinea spends $35 million on a mansion in Malibu, while the country's--has twice the average African rate of malaria deaths, and most kids don't have mosquito nets to sleep with, which seems kind of ridiculous.

NDIKUMANA: Yes. And that example is very, very, important, because countries that have focused their resources on combating malaria with simple means as mosquito--anti-mosquito nets, we have seen a dramatic decline in mortality due to malaria. So countries like Equatorial Guinea which have the resources could make huge impact on health outcomes by spending more money on public services.

JAY: James, this--Equatorial Guinea is kind of a particular example of the corruption of that regime. But the more systemic problem across Africa is this servicing of the external debt. What are the numbers on that?

BOYCE: Well, Paul, if you think about the impact of foreign loans being partially diverted into capital flight, which we talked about in the first segment of this series, you would still have some money that remains in Africa initially, unless 100 percent of the money turns around and goes back out the door, which doesn't usually happen. Something's left in Africa. So one might look at that and say, well, at least Africa's getting, you know, $0.40 on the dollar or something like that; isn't that a good thing? And the problem is that these are loans and that the loans have to be repaid. In fact, they have to be repaid with interest. And so the real net drain on Africa happens when that interest is paid. We make the following calculation. We go through it in our book. First we estimate, as we said before, that over half of the money that enters Africa as foreign borrowing exits in the same year. So there's more than half of the debt service being paid on those loans is servicing debt that fueled capital flight. Next we look at the relationship between debt service payments and public health expenditures and Africa. We don't assume that if it weren't for the debt service payment all of that money would go into public health. What we do is we simply look at the observed relationship from the observed behavior of African governments and estimate statistically what's the relationship between how much a country's spending in debt service and how much it spends on public health. As you'd imagine, there's a negative relationship; there's a crowding out. If you're spending money on debt service, it's not available to spend on other things. And what we estimate is that for every dollar of debt service paid by sub-Saharan African governments, those governments reduce their public health expenditure by $0.29. So there's a pretty big crowding out effect; it's not a marginal one, it's a big one, in terms of impacts on public health expenditure. Next we look at the relationship between spending on public health and infant mortality as one way to look at the actual human costs of this process, and we find that an additional $40,000 worth of public health expenditure in Africa is associated with one less infant death. So if you put these pieces of the puzzle together and look at the total amount of money flowing out in debt service, the fraction of that that fueled capital flight, the resulting diminution of public health expenditure, and the resulting loss of lives through infant mortality linked to that reduced health expenditure, we estimate that about 75,000 infant deaths a year in sub-Saharan Africa can be explained by the debt service payments on borrowing that fueled capital flight. So this gives a new meaning to the phrase "blood money", Paul. We're talking about serious human costs imposed on people who were in no way, shape, or form complicit in the financial chicanery that resulted in these odious debts.

JAY: Leonce, you--in the book, you found--you tracked the relationship between these loans and capital flight. How did you do that, and what conclusion did you come to?

NDIKUMANA: We--in fact, as you said, because of the magnitude of these outflows, we naturally wanted to understand what is the factors behind these outflows and [started] looking at the different factors that could cause capital flight. And one of the one--one of the factors we focused on was external borrowing itself. So the analysis is a very simple analysis where we look at how the inflows of external borrowing are associated with outflows of capital flight. And we find that for every dollar that comes into the continent, about $0.60 goes out of the country--out of the continent the same year. And in the subsequent years, more money flees the continent, about $0.04 in the subsequent years.

BOYCE: Per year.

NDIKUMANA: Per year in the subsequent years. So this is what gives you this accumulation of capital flight over the years that we noted.

JAY: Right. I mean, one of the important things, I guess, about this is that the capital flight isn't primarily, like, people who made money doing legitimate businesses in Africa and then want to park their money in a safer place. This is skimming loans and leaving the country.

BOYCE: Yeah. I think, Paul, you know, it's difficult to say exactly what the proportions are, but clearly the fact that there's such a strong correlation between inflows of foreign borrowing and outflows of capital flight, year-to-year correlation, suggests that the skimming of foreign loans through kickbacks, through padded procurement contracts, sometimes through simply the transfer of money from public accounts into private accounts, all of those sorts of skimming operations are an important part of the story. Now, to be sure, there are some legitimate businessman who may move their money abroad as well for fear that, you know, the regime is going to steal their money. There [is] also, as Leonce mentioned, a lot of capital flight that takes place through trade mis-invoicing, often conducted by multinational corporations. So money that should be received by African governments in taxes and royalties instead gets parked offshore in tax-secrecy jurisdictions, where--tax havens, where the money's not available to Africa. So you've got a combination of a number of different sources of the looted funds or the capital flight. But certainly criminality is a major piece of the story, outright criminality and actions that are in that gray area between what's legitimate and what's illegal.

JAY: So in the final analysis, the IMF, the World Bank, Wall Street private banks, European banks loan all this money, and they know that when they loaned it they were loaning it primarily to dictators, to kleptoccrats. They knew that it was going to be to a large extent used not just for personal wealth but to buy arms to repress the people of these African countries. So the question is: then why the heck should the people of Africa repay such, quote, odious loans? And it turns out in international law there is some precedent for the African peoples to say, we won't pay back these loans. And in the next part of our series of interviews we're going to dig into the whole issue of law and the odious debts of Africa. Thanks for joining us. And join us for part three on The Real News Network.

End of Transcript

DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


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