Why Africa must look to diaspora inflows, PPPs as it reels under debt

United Nations Conference on Trade and Development has asked African leaders to shift attention to remittances and public–private partnerships (PPPs) as tax revenues fail to cover public projects.

The UN agency says tapping the potential of diaspora inflows, PPPs and cutting illicit financial flows would significantly reduce financing pressure that compel them to accumulate huge public debts.

“Borrowing can be an important part of improving the lives of African citizens but we must find a balance between the present and the future, because debt is dangerous when unsustainable,” Unctad Secretary-General Mukhisa Kituyi said as the Nairobi forum entered its fifth day.

The UN agency estimates that at least Sh60 trillion ($600 billion) will be needed each year to achieve the Sustainable Development Goals in Africa, an amount equivalent to roughly one third of the continent’s countries’ gross national income.

Although Kenya boasts a PPP legal framework and a massive diaspora remittances which hit Sh156 billion ($1.54 billion) last year, it heavily relies on tax revenues, official development aid and external debts to finance public projects.

Kenya’s public debt has risen sharply in the last two years, hitting Sh3.2 trillion at the start of the current financial year.

Out of this, external debt increased to Sh1.667 trillion by March from Sh1.646.56 trillion in February of 2016, data prepared by the Central Bank of Kenya (CBK) states.

The country has borrowed lately to finance its fiscal deficit and to build the Mombasa-Nairobi standard-gauge railway (backed by Sh327 billion loan from China) which covers the stretch from Nairobi towards the Ugandan border.

It recently raised Sh280 billon through the Eurobond and has indicated plans to issue a similar instrument with a target of raising around Sh150 billion in the next two fiscal years.

The figures cement Kenya’s position as one of the African countries groaning under the weight of public debts.

Former head of the civil service Francis Muthaura however says Kenya has taken every step to ensure that the remaining flagship infrastructure projects are financed via PPPs.

“We have been telling foreign investors that we have a PPP framework and the best company law in the region,” Mr Muthaura who chairs the board of LAPSSET Corridor Development Authority, said on the sidelines of the ongoing Unctad forum.

“The government only wants to play the role of a facilitator to ensure that the private sector operates smoothly,” he said, adding that he expects the private sector to build the remaining components of the transnational corridor once the government completes building the first three berths of Lamu port in four years.

Unctad says a decade or so of strong growth has provided many other countries on the continent with the opportunity to access international financial markets.

Between 2006 and 2009, for instance, the average African country saw its external debt stock grow 7.8 per cent per year, a figure that rose to 10 per cent per year in 2011–2013 to reach Sh44.3 trillion or 22 per cent of gross national income by 2013.

The report features Ghana, Kenya, Nigeria, Tanzania and Zambia among African states struggling with heavy debts. The report notes that in some countries, domestic debt rose from an average 11 per cent of gross domestic product in 1995, to around 19 per cent at the end of 2013, almost doubling in two decades.

“Many African countries have begun the move away from a dependence on official development aid, looking to achieve the Sustainable Development Goals with new and innovative sources of finance,” Dr Kituyi said.

Just like Dr Kituyi, The Economic Development in Africa Report on which he based his presentation argues that African countries should look for complementary sources of revenue, including remittances, which have been growing rapidly, reaching Sh6.38 trillion to Africa in 2014.
The report discusses how remittances and diaspora savings can contribute to public and development finance.

“Together with the global community, Africa must also tackle illicit financial flows, which can be as high as $50 billion per year,” the report states.

According to the report, Africa lost an estimated Sh85.4 trillion in illicit financial flows between 1970 and 2008, roughly equal to all official development assistance received by the continent during the period.

The report urges the continent to be vigilant on borrowing risks even as it notes that public–private partnerships have also started to play a more prominent role in financing development.

“In Africa, PPPs are being used especially to finance infrastructure,” the report states , adding that of the 52 countries considered during the period 1990–2014, Nigeria tops the list with Sh3.79 trillion of investment, followed by Morocco and South Africa.