By Nana Akufo-Addo & Ulrich Volz On November 24-25, leaders from Africa and Europe will convene in Luanda, Angola, for the EU-AU summit....
By Nana Akufo-Addo & Ulrich Volz
On November 24-25, leaders from Africa and Europe will convene in Luanda, Angola, for the EU-AU summit. This event commemorates 25 years of cooperation between the European Union and the African Union, serving not only as a celebration but also as an opportunity to shape the future of relations between the two continents.
The stakes for Africa are extremely high. Numerous African nations face the challenge of unsustainable government debt, which limits their capacity to invest in robust infrastructure and long-term development. Public foreign debt has more than tripled since 2008, with a significant increase in debts owed to private bondholders.
The weight of these debts has increased due to the rise in borrowing costs and the decline in African currencies compared to the US dollar. African borrowers now encounter interest rates 2-3 times greater than those in more affluent nations, transforming loans from aids into burdens.
This does not reflect sound economic principles; it represents structural inequality. In 2024, African nations paid $163 billion solely for debt servicing. These heavy payments, along with extremely high borrowing costs, have depleted public funds and trapped numerous economies in a harmful cycle of debt, climate challenges, and development issues.
Out of the 39 African nations evaluated by the International Monetary Fund's Debt Sustainability Analysis for low-income countries, 21 are either already in or face a significant risk of debt crisis. However, this bleak figure fails to reflect the actual extent of the issue, as the IMF's methodology consistently overlooks weaknesses, particularly in nations susceptible to climate change. Official designations frequently trail behind actual conditions, only changing to "high risk" or "in distress" once crises occur, as seen in the cases of Zambia, Ghana, and Ethiopia.
The effects of climate change have intensified an already unfair system. Although Africa contributes less than 4% of global greenhouse gas emissions, it faces a significant portion of the impacts: droughts that ruin crops, floods that force millions to relocate, and storms that ruin entire neighborhoods.
Although African economies are the most susceptible to climate-related disruptions, they are the least prepared financially to deal with these challenges. The data is evident: the more vulnerable a nation is to climate changes, the higher the interest rates it must pay. This "climate risk premium" increases the cost of capital for African governments, reducing their financial flexibility and pushing aside essential investments in health, education, and infrastructure. The outcome is a persistent lack of investment that makes countries even more vulnerable to climate shocks.
While the IMF has noted that debt ratios have remained steady on average throughout Africa, this perspective fails to consider the convergence of significant debt loads, severe climate susceptibility, and slow advancement in meeting development targets. Viewing debt as "stable" while neglecting these interconnected challenges could lead to a harmful oversight.
The insufficient reaction from the global community has further eroded trust among African nations towards their Western allies. Specifically, Europe's reliability has been damaged due to the EU's inability to meet climate goals, reduction in development assistance, and the appearance of inconsistent approaches in handling emergencies. Meanwhile, other influential nations—such as China, Russia, Turkey, and various Arab countries—have continuously increased their influence across the continent. However, ongoing debt issues continue to risk undoing years of advancement, causing political instability and encouraging migration as Africans look for better prospects overseas.
The fast-changing global political landscape highlights the importance of robust economic and political alliances with African nations. Given that the EU's wealth and security are becoming more connected to Africa's situation, decision-makers can't remain passive as the continent faces various challenges. European authorities should leverage their significant power in the Bretton Woods institutions, the G20, and the G7 to reform the global financial system and implement a unified, broad approach to tackle the current debt issues.
The G20's Common Framework for Debt Treatments, designed to offer support to nations in financial distress, has been celebrated as a significant development. Nevertheless, it lacks enforceable guidelines to guarantee equitable responsibility among all lenders and does not tackle the underlying reasons for increasing debt. However, temporary relief is not equivalent to a lasting solution. As the Lomé Declaration, released during the AU's Debt Conference in May, emphasized, every creditor—whether private, bilateral, or multilateral—must be obligated to engage under similar conditions.
Leveraging this momentum, African nations have developed a Shared African Perspective on Debt, marking a significant achievement in the continent's economic diplomacy. Europe must now collaborate based on this foundation to turn this vision into real advancements. Given South Africa's G20 leadership focusing on debt sustainability, there is a limited opportunity for action that should not be missed. Africa and Europe need to cooperate to ensure that debt reform continues to be a key focus for the G20, G7, IMF, World Bank, and United Nations.
Rather than temporary solutions, Africa requires a fresh global debt-relief program that is bold, fair, and adapted to the region's specific circumstances. The benefits could be significant: debt relief can bring back economic stability, create room for funding crucial services, and create new opportunities for trade and development.
Crucially, the effect would extend well beyond the African continent. Authentic debt relief contributes to lowering poverty levels, increasing educational opportunities, and enhancing healthcare infrastructure, thus protecting the global community from upcoming pandemics and humanitarian emergencies, decreasing migration pressures, and lessening security risks.
Certainly, increasing tensions among the world's leading nations create significant challenges for debt relief. However, if Europe fully supports this effort, substantial progress can be achieved. The expense would be much less than the cost of another decade of stagnation and unrest. Once Africa is relieved of its debt burden, Europe—and the entire world—will benefit as well.
Nana Akufo-Addo was the former leader of Ghana and a member of the African Leaders' Debt Relief Initiative. Ulrich Volz, a Professor of Economics and Director of the Centre for Sustainable Finance at SOAS, University of London, serves as Co-Chair of the Debt Relief for Green and Inclusive Recovery Project.
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