Why the West is hesitant about Africa's crusade to reform IMF, World Bank

President William Ruto with his counterparts during pose for group photo the opening session of the International Development Association (IDA21) Replenishment Summit at Kenyatta International Convention Centre (KICC), Nairobi County. [PCS]

President William Ruto and two of his fellow East African leaders – Yoweri Museveni of Uganda and Paul Kagame of Rwanda – as well as the African Development Bank have expressed their displeasure with the archaic structure of international financial institutions.

The leaders have called for urgent reforms to tackle the continent’s decades-old underdevelopment and worsening debt crisis. They have demanded a robust role in the Western-dominated institutions’ decision-making to unlock more resources for Africa to fast-track its economic transformation.
 The call was part of an extensive reform proposal that – if implemented – could secure for the continent $169.4 billion a year in development financing, or about 42 percent of estimated annual financing gap of $402.2 billion.

“There’s tremendous urgency in developing and implementing transformative interventions to turn things around for our continent, our countries and our people,“ said President Ruto during the African Development Bank’s meeting last month in Nairobi to celebrate its 60th anniversary.

Ruto talked about some of the challenges facing Africa, such as its less than three percent global GDP share, the low intra-Africa trade and exporting raw materials and unprocessed goods.

“Not surprisingly,” he said, “the rates of poverty and unemployment are still high on our continent. The vulnerabilities arising from this situation undoubtedly contribute significantly to conflict, economic refugees, and in this age of frequent extreme climate shocks, climate refugees.”

The African Development Bank was blunter in its 2024 report.

It warned that Africa was at risk of not meeting its national and global development goals, including the Sustainable Development Goals (SDGs) and the African Union’s Agenda 2063 because the current global financial architecture, or GFA, and system of multilateralism are “not delivering adequate resources in a timely manner and at the scale needed.” 

It said: “Neither the public nor private sector as currently constituted has been able to channel enough resources to address the development financing needs of Africa,” where an estimated 34 percent of the population lives in extreme poverty and debt vulnerabilities are increasing. 

About $1.3 trillion will be required annually to meet Africa’s sustainable development needs by 2030 and $234.5 billion–$250 billion to finance climate actions, according to an estimate from the African Development Bank and the United Nations.

African leaders’ renewed crusade was mainly driven by the mounting realisation that the continent’s debilitating debt of more than $1.51 trillion is stunting its future growth. In a decade, Africa’s average debt ratio has almost doubled from 30 percent of its GDP in 2013 to nearly 60 percent in 2022, about four times the ratio in advanced economies. 

More than 40 years after the debt crisis of the 1980s and the implementation of the Heavily Indebted Poor Countries, or HIPC, initiative, the African Development Bank said nearly half of African countries face sovereign debt problems. 

“Addressing Africa’s debt conundrum requires reforms of the global debt and financial architecture to make it more accessible, nimble, and relevant, by facilitating restructuring of the existing stock of debt and reduction of Africa’s debt premium to avoid the further buildup of unsustainable debt, which would drive countries deeper into debt distress,” bank said.

Nevertheless, African leaders’ call for action to reform international financial institutions is likely to crash into the stark reality of global geopolitics and interests of big powers, which are the main shareholders of the institutions.

While campaigning for fairer financial institutions is a morally noble endeavour, expecting a quick change that would take into account the continent’s real need of urgent development is, realistically, being overly optimistic.

With their disparate governance systems and international alliances, African countries are barely well placed to effect radical changes on the international stage.

Fourteen countries in West and Central Africa still use a currency, Franc, that is controlled by France because those countries have to deposit 50 percent of their foreign exchange reserves into the French treasury.

The US and Europe, which are known for their spirited defence of their economic edge, are unlikely to be enthusiastic about an economically powerful Africa, as that would mean the loss of cheap raw materials that partly power their economies. 

The trade war between the US and China and the intensive scramble for Africa, where all sides are attempting to steal a march on one another, are vivid examples of how big powers resist changes and fear of losing their economic advantage.

In fact, the West’s economic development owes, in large part, to its exploitation of other countries and to the legacy of the colonization that still inhibits Africa’s rise decades after countries gained independence from European colonialists.

Still, African leaders have to try to help create a better world that offers their continent a fair shot at development. There’s widespread belief in Africa that the status quo can’t continue.

National governments across Africa are struggling to feed their own people and the money that should have been channeled toward the drivers of developments — such as cheap electricity, reliable roads and railways as well as mega-ports and manufacturing — are either in short supply or nonexistent. 

“Between 2010 and 2019, average public expenditure on education in Africa was 3.6 percent of GDP, below the world average of 4.2 percent of GDP. Public spending on health in Africa was even lower at 1.8 percent of GDP, compared with 4.5 percent for Asia and the Pacific and 3.9 percent in Latin America and below the global average of 5.8 percent,” the African Development Bank said.

Africa’s 2063 Agenda, which aspires to make Africa peaceful and prosperous, has only had a 39 percent success rate in 2023.

Africa is also far from peaceful. 

Around 85 percent of the continent’s 1.4 billion people either live in or share land borders with a conflict-affected country, and key drivers of fragility—abject poverty, youth unemployment, and adverse climate change effects—are increasing across the continent, said the bank’s 2024 report.

“Africa’s journey toward structural transformation demands heavy and well-thought-out investment in infrastructure, human capital, climate action, and productivity-enhancing technology to put the continent back on the path of higher and sustained growth,” said the report.

In a fair world, Africa, which is rich in many natural resources, has a large number of young population and enough arable land to be very wealthy. But, the current international financial institutions gave a head start to the victors of World War II who helped establish them.  Self-professed Economic Hit Man John Perkins, who wrote a book about his confession, talked of how expensive loans were used to under-develop countries and, in some instances, leaders who refused to take them were either liquidated or deposed.

President Ruto said Africa must get long-term financing of up to 40 years and a grace period of ten years, low interest rates, concessional financing, including grants, financing at scale and flexible financing that is responsive to shocks and climatic change.

“We need something short of a revolution to have a good organisation for ourselves,” Ruto said.
African leaders’ concern about the future of their continent is born out by data that offers both a ray of hope, if the envisioned reforms were implemented, and a dire warning if the current situation remained unchanged. 

According to the African Development Banks, a fairer global credit rating could help Africa save up to $74 billion a year in interest payments. Financing for Africa could also increase by about $46.2 billion a year over the next 10 years if Special Drawing Rights - an IMF-created international reserve asset aimed at supplementing its member countries’ official reserves to provide them with liquidity - are channeled through the Multilateral Development Banks, which helps stabilise the global economy. Reforming the Multilateral Development Banks’ Capital Adequacy Framework could increase financing for Africa by another $5.2 billion a year.

Last April, the President of the UN General Assembly, Dennis Francis, expressed dismay that “nearly half of humanity – or 3.3 billion people – live in countries that spend more on interest payments than on education or health.” He wondered: “How do we expect countries to thrive under these conditions?”

“No nation – I repeat, no nation – should be forced to gamble with their future,” he said in his speech at the Economic and Social Council Youth Forum on Financing for Development.

In Africa, countries pay an estimated 500 percent more in interest costs when borrowing from international capital markets than when borrowing from the World Bank or other multilateral development banks such as the African Development Bank, according to the African Development’s 2024 report.

“In 2021, African sovereign eurobonds were issued with yields above 5 percent and, in 40 percent of the cases, yields exceeded 8 percent,” said the bank’s report. “In contrast, the average sovereign bond yield for advanced economies was 1.1 percent and for emerging market economies, 4.9 percent,” said the report.

During the bank’s meeting in Nairobi last month, President Paul Kagame urged African countries to work together and make their voices “loud, clear and effective.” 

“We know in this world - people, countries - work for interest, their own interest. Africa’s interest, the countries of our continent’s interests, must be taken care of, beginning with ourselves,” he said.

He said “everybody understands” what is wrong and what needs to be done, but the problem was how to reach an “understanding and compromise.”

“We don’t lose anything by having everybody benefit,” Kagame said at a panel discussion.

The aim behind Africa’s call for action, he said, was “how do we disrupt” the current architecture of international financial institutions “so that it includes significantly and visibly the interests of our continent.”

“Africa can’t wait to be handed this opportunity by anybody else. We, therefore, must be on the frontline, really fighting for this right,” he said.

Africans and others have been talking about the negative impact the international aid has had in Africa, with President Museveni once saying: “They say the European countries are aiding Africa, but in fact it’s Africa which is aiding Europe.”

Several years ago, the Netherlands-based scholar Howard Nicholas, who’s a senior lecturer in economics at Erasmus University’s International Institute of Social Studies in Rotterdam, said that Africa was “fundamental” to the advanced countries’ prosperity as a raw material producer.  

“We need Africa to be impoverished because we need those raw materials - and we need them dodgy,” Nicholas, who was born in Sri Lanka, said in a lecture that was widely shared in the continent. 

He said that the West would not allow sub-Saharan Africa “to scape” from its current state and that it will “do everything” to keep it impoverished. 

 “All the economic structures, all the global institutions and the economics we teach everyone are all designed to keep Africa exactly where it is,” he said, terming the West’s mantra of transparency and democracy as just “bullshit.”

“If Africa does do something different I assure you, [the] living standard of all those in Europe and North America and Asia is going to fall. . And that’s a big price to pay. I assure you that the West is not going to allow that without a big fight,” Nicholas said.

President Kagame acknowledged that perhaps “the ways the institutions are set up” benefit some parts of the world and the beneficiaries are not interested in a change or are slow in allowing a change to happen “because it gives them control. It gives them, say, (control) over other people’s resources.”

“So it’s not that the people don’t understand....it serves them very well,” he said.

Ruto said African leaders’ call for reform was initially “dismissed,” but now the West is listening. 

But, the pickle is, the West, devoid of many of the resources abundant in Africa, has indeed been listening to African leaders’ griping for decades without yielding to their demands.

In 2012, Ethiopia’s late Prime Minister Meles Zenawi voiced an urgency similar to Ruto’s.

“Yes, we’re impatient because we’re in a deep hole and every minute in that deep hole hurts — not psychologically, (but) physically. People die of hunger.

‘‘So we need to move fast,” Meles said at a panel discussion during the World Economic Forum on Africa in Addis Ababa in 2012.

Meles warned that if Africans “don’t care, they will be taken for a ride and dropped when the time comes.

‘‘If we don’t choose this window of opportunity to transform our economies, then we will be lost,” Meles said. 
 He said without manufacturing, Africa’s economies couldn’t be transformed.