Debt in Africa

Jim Shannon Excerpts

Tuesday 21st November 2023 Westminster Hall

[Jim Shannon (Strangford) (DUP)]

It is a pleasure to serve under your chairmanship, Mr Vickers, and to speak in today’s debate. I thank the hon. Member for Slough (Mr Dhesi) for leading the debate. We are all here because we have a passion for foreign affairs, and it is great to support him today and I congratulate him on how he has set the scene. It is also a real pleasure to follow the hon. Member for Putney (Fleur Anderson) for the second time in recent days, as she spoke before me in the COP28 debate last Thursday. I recognise that she has a deep interest and passion, shown through her work with Christian Aid, CAFOD and WaterAid and some of her other projects. I am pleased to follow her in particular because with all that depth of knowledge comes a contribution that makes the debate even more salient and interesting for us. I thank her for that as well.

There is no doubt that the covid pandemic had a profoundly negative impact on Africa’s sovereign debt situation. It has been stated that some 22 countries are either in debt distress or at high risk. That has meant that African Governments are struggling more to pay the debt incurred. Countries such as Mozambique and Zimbabwe were already in debt—and indeed, Malawi. The hon. Member for Glasgow North (Patrick Grady), who will shortly speak for the SNP, has over the years that I have known him always spoken about Malawi and the strong relationships that he and his constituency have with that country. Those things are important when we discuss the matters under consideration today.

Research has shown that as of August 2022, countries in Africa owed the UK a total of £2,758 million, which accounts for 56% of all debts owed to the UK, with Sudan’s the highest. It is important to note that debt is not necessarily a bad thing in itself and can help with economic development. I say that because the increase in debt in the early 2000s was accompanied by a higher level of economic development in Africa. There is a history and I say that because I want to have it on record that it is not all doom and gloom. If we look back through history, we will see that countries were able to address the debt issue and grow accordingly. Sometimes, we have a duty to try and encourage those countries and work with them to get them out of a bad patch.

I was talking to the hon. Member for Glasgow North, and as I sat listening to the hon. Member for Slough’s contribution, I was reminded of the story in Matthew 25 where the master travels into a far-off country. Mr Vickers, you will know the story and probably everybody in the Chamber will know it. The master gives his three servants five talents, two talents and one talent. He comes back and the guy who had the five talents has made them into 10, the guy who had two has made them into four and we know the story of the one who did not invest his money and work hard.

The reason why I tell the story is because that is the Africa of the 2000s. Today, I believe that we in the western world have a duty to try to get them out of these bad times, to give them the advice and assistance they need, and to give them experience. We cannot just —I say this genuinely—pursue somebody and say, “We must get your debt” because that will lead to more debt for them and even higher levels of poverty, so I use the biblical story of Matthew 25 to illustrate in a small way, and hopefully in a strong way, what it means to help others.

According to the World Bank’s debt sustainability analysis, nine African countries were in debt distress and unable to fulfil their repayment requirements as of the end of September 2023. A further 15 African countries were at high risk of debt distress, with another 14 at moderate risk. If it were up to me—I am not the person to do it, so I look to the Minister and the Government to take on this task—I would speak to each of those countries individually. There has to be a two-way dialogue, whereby we can discuss how we manage debt repayments and help countries to grow at the same time.

None of us is a stranger to the impact that Russia’s invasion of Ukraine has had on our ability to afford things and get our debt under control. I have constituents —indeed, I expect all Members do—who are still coping with the effects and struggling to regain control of their finances, especially when it comes to paying for gas, oil and electricity. The conflict between Russia and Ukraine is causing a rise in the price of commodities, particularly food and gas, and the war is also disrupting food supply chains, which especially affects people in Africa.

Between 2010 and 2021, external debt servicing payments in Africa more than quadrupled, growing at over 60 times the pace of average fiscal revenues. In discussing how much debt, and by what rate, it should be paid back, we must show compassion for a country’s social and financial situation. There has to be realism about how much money can be paid back and the rate of repayment. Regardless of whether that means restructuring loans or helping them to balance or grow their economy, we should be trying to do it. For example, there must be repayment options for countries with negative human rights and social considerations.

Strengthening debt management policies to deal with repayment issues through Governments is one of the best ways to enable the stable payback of debts. If paying back will ultimately plunge a state into further demise and poverty, I do not believe that is the right way to do it. We have to find a better solution. I am not just saying that for the sake of it; if we want to recoup debts, we have to work with countries to make that happen.

The economic consequences of the covid-19 pandemic and Russia’s invasion of Ukraine have undermined the ability of many African nations to service their sovereign debt. Consideration must be given to that, to human rights abuses and to a nation’s ability to pay back its debt. I look forward to the Minister’s comments, and we as a nation should continue to be supportive to all those struggling, especially through aid. I know the Minister is compassionate and understands what we are asking for, but when it comes to dealing with the debt of African nations and others, there has to be a sense of realism and real compassion in order to try to get them out the other side. By doing so, we will help them contribute to their future. At the end of the day, it is surely about their future. Let us get it right.

[Tony Lloyd]

rose—

--- Later in debate ---

[Tony Lloyd]

Thank you. I congratulate my hon. Friend the Member for Slough (Mr Dhesi) on introducing this debate. It is timely. I think we all know that the crisis in Africa is real. We—as a world, not simply as a country—need now to address that. I would like to start quite a long time ago, rather like my hon. Friend the Member for Putney (Fleur Anderson). When we look back over the history of the debate around indebtedness—to “break the chains” and all those phrases that used to trip off our tongues about the need for change—I believed that the world would be very different.

I want to relate something from around 30 years ago. I went to the funeral of a very young child in Mozambique. The baby died because the mother simply could not feed that baby. It was shocking at the time to see a baby denied the nutrition that I would expect for my own grandchildren, for my constituents and for our world. At the time, I would have said, “It will change.” I would have said that we would move down the path of debt relief. Had we had this debate 30 years ago—we probably did have it—we would have been told, “Don’t worry: with a combination of looking carefully and kindly at debt management, at the transmission of technical aid and assistance and at the growth of trade, the world will be very different.”

Well, the world is very different: it is worse for those in Africa. In practical terms, the little baby from all those years back, whom I talked about, is now replicated by many others. Debt is an enslavement of the generation to come, and that is, of itself, something that we ought to rail against. How can a child be born into the enslavement that debt causes? My hon Friends have given different accounts of debt, and we can probably argue about the figures. The hon. Member for Leicester East (Claudia Webbe) used a particular figure, but the figure I have about the GDP-to-debt ratio is that debt will now be something of the order of 60% of GDP across sub-Saharan Africa. Whether that is exactly right or wrong almost does not matter. It matters in general terms—we can talk trillions or billions of dollars or pounds—but debt impinges on the quality, the reality and the possibility of life of millions of people across the African continent. It is at the human level that debt matters.

If we look at the battle against poverty, the battle against poor health, the battle for education, the battle to create the health services and the battle around climate change, we are losing those battles. We are losing them in this generation—at the moment—and we have to change. We have to change in a particular way, because, at some point, we have to make our minds up and say whether we are prepared to create a very different relationship: the indebted no longer as clients of those who hold the debt but, instead, as partners. My hon. Friend the Member for Slough made some very profound points about this.

If we are not a partner to African nations and the people of Africa, we lose battles such as climate change, which is our common battle together. It would be remarkable for Africans to know that we are losing it together, because they make so little contribution to the problems that we have all caused around climate change. African nations as a whole are insignificant at the moment, although an Africa of the future, if not helped through transition to those climate change-consistent policies, will potentially be a major producer of greenhouse gases. We should therefore be partners, but if we are going to be partners, we have to be meaningful about what debt really means.

Those who were in the Chamber earlier heard the international development Minister, the right hon. Member for Sutton Coldfield (Mr Mitchell) make a very good series of statements on the White Paper. I welcome that White Paper, but there is a challenge that the Minister of State, Foreign, Commonwealth and Development Office, the right hon. Member for Berwick-upon-Tweed (Anne-Marie Trevelyan) has to take back to the Prime Minister and others. It is not enough to print the words in the White Paper; we need the political will to translate that into national action in the UK and international action. On national action in the UK, when I looked into our history of debt relief, the only figures I could come up with showed that the UK’s spending on debt over the last 10 years or so has been £44 million. That is absolutely insignificant against the scale of the problem. We have to do more by way of debt forgiveness, but not simply on our own. We have to be a part of that global coalition that challenges debt and looks at debt restructuring in a real and rational way.

We have to look, for example, at Zambia and the number of people who have evidenced the situation there. Zambia could not come to an agreement, partly because it was the private debtholders who caused the crisis there. Zambia then offered to pay them some 73 cents on the dollar, compared with 55 cents on the dollar for intergovernmental loans. That was a massively bigger rate of return for the private investors, even though they charged massively higher interest rates on their debt. Bear in the mind that the reason for charging higher interest rates is relevant to risk. They put the risk premium in, but having put the risk premium in, they then wanted to be paid a superabundant return on their investment. The reason that failed is that it was inconsistent with the G20 common framework, which said that there had to be a rough equivalence between Government and private debtholders. That is right; there should be that kind of equivalence. We have to be in this together.

A challenge for the Minister is this: are this Government prepared? As a lot of that debt is operated through UK law, it is in our capacity to ensure that that debt, which is factored through the City of London and so on, is managed in a way that says to private debtholders that they have to pay their fair share of debt forgiveness and debt relief, if we are genuinely going to restructure on these issues.

We can make a change. I may not have been able to give hope to the mother of the child I talked about before, as I do not think I would have been so bold as even to say to her that something could be better at that stage of her life. Perhaps I would have said to other people that the world can change, and it can change for the better. Let us ensure that we can do it in this generation. Let us ensure that now is the time.

This has to be a political priority, and I believe my party will take this on board. I hope that in a year’s time or thereabouts we will be sat around having this debate again, and we will be sat on different sides of this little horseshoe. It will be about political will. As I have said to the Minister, the challenge is whether the political will is there from the Prime Minister. Is there the political will to say that the decision to cut the development assistance in the way this nation did took us in the wrong direction? Is the political will there to raise those very powerful points, as my hon. Friend the Member for Leicester East did, about the history of post-colonial Africa?

Even now, we subsidise, for example, Rwanda and Uganda in terms of their education and health service. That is the right thing to do. In turn, however, the armies of those two countries have been part of the exploitation of the mineral wealth of the Democratic Republic of the Congo, which of course is then shipped over to the west, where it is paid not at a value-added rate, but at the market rate. Who controls the market? It is not the producers of those rare earth minerals that we take from African soil.

We need to think not simply about debt relief, but about the bigger picture and how we alter the terms and conditions of trade and exploitation, which our system is part of. I do not say that in any sense of whipping myself; I say it rationally, because if we are going to make that change, we have to think about that.

I say to the hon. Member for Strangford (Jim Shannon) that I have always been puzzled by the parable of the stewards. I always felt it was little unkind on the perhaps slightly less competent steward with his one talent. I never quite understood why he should be treated so badly, because clearly there was a steward who thought he was doing the best—he buried the talent in the ground, and that talent did not lose any value in that process.

[Jim Shannon]

rose—

[Tony Lloyd]

I ask the hon. Gentleman to just let me finish. He thought he was being a good steward. What he lacked was the technical awareness that would have allowed him to invest in whatever—perhaps rare earths or, in those days, fine wine for weddings. In that sense, if we are going to face the challenges together, we have to take that stewardship process. Technical assistance matters enormously.

[Jim Shannon]

I am not smarter than anyone else, biblically, physically or emotionally. I think the story of the parable is about those who use their talents wisely, and the steward who received five talents used them wisely. The comparison I made was with the economic decisions made by African countries back in 2000. When they did it wisely, their economies grew. Use talents wisely—the five and the two—and the economy will grow. Those who do not use their talents and hide them are not being fair to themselves, their families, or indeed their countries. The point I am trying to make, very gently, is that they could do better.

[Tony Lloyd]

I agree. Perhaps I should not have picked up on the parable. It is just that I do rail a little bit against the prosperity gospel. It is not my style of Christianity. Compassion is part of what we should be about, and it has to be a part of what we are talking about here today.

I will finish with this. Part of that compassion is that we need to restructure debt and increase trade, but we also need to recognise the capacity to ensure that the steward with the single talent really did need assistance to do the things that the hon. Member for Strangford is talking about, to invest wisely. We need to invest in education and in the technologies that can allow us to challenge climate change in Africa as well as here in the UK, in Europe, in China, and even possibly in the post-Trumpian United States of America—who knows? We have to work together, because in the end this is not about simply asking us all to be kind to each other. It is about a common interest of what kind of world we want to live in. Yes, this is a tremendously important debate we are having today. I hope the Minister will begin to respond in a positive way to the issues that my hon. Friend the Member for Slough and others have raised.

--- Later in debate ---

[The Minister of State, Foreign, Commonwealth and Development Office (Anne-Marie Trevelyan)]

I apologise for my slightly tardy arrival earlier, Mr Vickers; it is a real pleasure to be here. I am grateful to the hon. Member for Slough (Mr Dhesi) for securing this timely debate, and I pay tribute to his work as vice-chair of the all-party parliamentary group on extreme poverty. This is such an important area, and I am also grateful for the thoughtful contributions from all hon. Members. I will try my best to respond to all the points raised, but I will ensure that officials write if I miss any or do not have the full information at my fingertips.

The Minister for Development and Africa, my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell), wanted to be here, but his responsibilities meant that he had to make a statement in the main Chamber on the White Paper today, as colleagues have mentioned, so it is a pleasure for me to respond on his behalf.

I want to pull out a couple of points that the Minister made in that statement. When speaking about the important role that development has played in transforming the lives of billions of people, he said:

“The UK can be immensely proud of our distinct contribution to this incredible success story. Two centuries ago, three quarters of the world lived in extreme poverty. When I was born, around half still did. By 2015, when the world met the millennium development goals, the proportion of a much larger global population had fallen to just 12%.”

Development does work, but as we all see, and as thoughtful contributions from hon. Members today have highlighted, after decades of hard-won, persistent progress, we are now living in a world facing a daunting set of new challenges. We are seeing rising poverty, and the UN sustainable development goals are nearly all off track for 2030. We are all cognisant of the challenges, and this timely debate, which focuses on a potential enabler of successful development if the world can make more progress on these debt issues, is an important one.

As colleagues have set out, debt is a major concern for many developing countries, not least those in Africa. I spend most of my time speaking as the Minister for the Indo-Pacific, and some of the big challenges are also clearly seen there. Recent trends paint a sobering picture. Debt levels in Africa are at their highest since the early 2000s, with debt repayments due in 2024 estimated to be six times greater than they were in 2021. Twenty-one of the continent’s 38 low-income countries are now either in debt distress or at high risk of entering debt distress in the next few years. Low-income countries are also increasingly exposed to a wider range of creditors. For example, Chinese debt accounted for 18% of their external debt in 2020, up from only 2% in 2006.

The debt burden of African countries rose over the decade leading up to the pandemic, and it was stoked significantly by the challenges of covid and the impact of Putin’s illegal invasion of Ukraine, disrupting prices for oil, grain and fertiliser. That has led to greater demands for borrowing, rising interest rates and huge pressures on spending and services. According to the UN, between 2019 and 2021, 25 African countries—nearly half the continent—spent more on interest payments than on health.

As colleagues have set out, successive UK Governments, regardless of political colour, have played an important leadership role on international debt over recent decades, from the work done to establish the heavily indebted poor countries initiative in the 1990s to the Gleneagles G8 summit in 2005, for instance. To date, the UK has cancelled £2 billion of debt under these initiatives, and the international community collectively has agreed cancellations worth more than $100 billion. The Government have continued to adapt our approach in recent years in response to the evolving debt pressures on lower-income countries.

When the pandemic hit, we worked rapidly with G20 partners to establish the debt service suspension initiative, which deferred around $13 billion of debt repayments to the G20 and Paris Club. In November 2020, the G20 and Paris Club agreed to a new common framework, as colleagues have noted, to provide debt restructuring and relief to countries that require it. Although two countries—Chad and Zambia, as mentioned by colleagues —have reached restructuring agreements with official bilateral creditors through the new common framework, I think we would all agree that progress has been far too slow.

I will update colleagues on the specifics of UK debt relief; the figures are greater than some quoted by Members. We have provided £1.4 billion through the multilateral debt relief initiative, £150 million through the IMF’s catastrophe containment and relief trust, and roughly £600 million bilaterally as part of the HIPC initiative. So we are leading the way, and we have set out, in a number of areas, our new approach to debt and development in our international development White Paper.

First, we have committed to work with our partners to reshape and reform the debt architecture so that it is fit to address today’s challenges. We will push for the common framework to be more co-ordinated, predictable, transparent—which is important—and timely. We will use the UK’s position on official creditor committees, both within and outside the framework, to help return countries to debt sustainability. We will push more forcefully for the timely conclusion of debt treatments, including debt standstills, where relevant. Importantly, of course, this is a G20 initiative, built on consensus, and delays by some members, such as China, make the pace all the more challenging to achieve.

Secondly, we will ensure that key debt management tools are fit for purpose. That includes, for example, updating the IMF’s debt sustainability frameworks to take account of the impact of climate change—obviously, that is a critical element and many colleagues have highlighted it today—and the investments needed to address it and drive the adaptation and resilience programmes that are needed to support countries.

Thirdly, we will push forward best practice with the private sector, which now accounts for 19% of the foreign debt owed by low-income countries. We will encourage them to introduce contractual innovations, including climate resilient debt clauses, which pause repayments when a shock hits, such as a flood or cyclone. We have pioneered the use of such clauses in our lending agreements, enhancing the ability of developing countries to respond to external shocks. We want to see such clauses rolled out across private and official sector lending. We will encourage the private sector to embrace majority voting provisions in debt contracts to facilitate better outcomes in debt restructurings.

Fourthly, we will support debtor countries. We will continue to champion their voice in fora such as the global sovereign debt roundtable and we will work to find other ways to strengthen their voice. We will also help them to strengthen their debt management capacity with support from our new centre of expertise on public finance and tax.

Finally, we will champion greater debt transparency to build creditor confidence and keep borrowing costs down. The shadow Minister, the hon. Member for West Ham (Ms Brown), highlighted that one of the really difficult and continuing challenges is that the risk profile adds yet another layer.

We in the UK are very proud of our record of transparency as a lender. In 2021, we became the first G7 country to publish details of all new Government lending on a quarterly basis, and we have secured a commitment from other G7 countries to do the same. We will continue to work to push transparency further, reporting on our adherence to the G20 guidelines for sustainable financing, and encouraging the private sector and lending and borrowing countries to disclose their debt agreements properly.

Alongside those five steps to address unsustainable debt levels directly, we are working to help countries to avoid debt distress. The UK Government have a strong track record in helping developing countries to collect more tax and manage their public finances. We will encourage Governments, through the responsible infrastructure investment campaign, to demonstrate that all major infrastructure projects are economically viable and have been competitively tendered.

[Jim Shannon]

If I have heard her correctly, the Minister has outlined a number of ways forward. Time is of the essence. Many of these countries are in extreme debt. I, along with others, am keen to get a timescale for when those debt decisions could be made and when those countries could move away from where they are. Is that possible? Can the Minister please do that?

[Anne-Marie Trevelyan]

The hon. Member challenges me on something that I cannot give him an answer to. I will ensure that the Minister of State, my right hon. Friend the Member for Sutton Coldfield, comes back to him and that that conversation can continue in more detail. I hope that is helpful. I am not the expert in the detail of this so I will ask my right hon. Friend to make sure that the issue is highlighted. To the hon. Member for Strangford’s point, I should say that none of this is immediately resolvable; it is very much around a consensus effort through international partners. However, I will ensure my right hon. Friend gets back to hon. Members accordingly.

As part of our work, we continue to support the debt sustainability challenge by encouraging international financial institutions to scale up their support for the poorest and most vulnerable countries, which are particularly in Africa. We are a leading donor to the multilateral development banks that provide countries with more affordable concessional finance and have announced UK guarantees over the last two years that will unlock more than $2.6 billion in additional finance for African countries.

We have delivered on our commitment to channel a further $5.6 billion of our share of the IMF’s historic issuance of $650 billion of special drawing rights to the IMF’s concessional lending facilities to support vulnerable countries. Perhaps the biggest prize of all is stretching the balance sheets of our MDBs to get more from their existing resources. They could potentially deliver an extra $300 billion to $400 billion over the next decade by implementing the G20 capital adequacy review recommendations. We will continue to push them to do so.

The hon. Member for Slough highlighted the critical challenge that we all face in supporting women and girls, who are so often at the end of the line on funding, education, healthcare and, indeed, tools and investments to help them make the climate adaptation they need in their communities. That is why the international women and girls strategy, which we published earlier in the year, sets out clear commitments with more than £2.5 billion of live official development aid programmes at the moment for women and girls in Africa. The strategy also commits at least 30% of the FCDO’s bilateral aid programmes to focus on gender and equality through to 2030, which is absolutely at the heart of our commitment to the way we want to deliver those development aims.

To conclude, we absolutely recognise the serious challenges that debt poses for countries in Africa. That is why the Minister of State, my right hon. Friend the Member for Sutton Coldfield, set out in the international development White Paper a wide-ranging and comprehensive approach to address them. I thank colleagues for their thoughtful comments and their cross-party support for the work that my right hon. Friend has set out. By building on progress in the common framework, innovating alongside private creditors and working to encourage debt transparency and sustainable lending, the Government will work to ensure that unmanageable debt is swiftly restructured so that countries can develop sustainably.