By George B.N. Ayittey

(Testimony before the U.S. House Sub-Committee on Africa on April 13, 1999).


Mr. Chairman, Ladies and Gentlemen. Thank you for inviting me to speak
to you on debt relief for Africa. I must commend you for holding this
hearing to tackle this important issue. As you already know, Africa is a
sad and tragic story -- economically and politically.

 The statistics on Africa's postcolonial development record are
horrifying. In 1985 more than 100 million of Africa's 700 million people
lived in abject poverty. This number rose to 216 million in 1990 and is
projected to reach 304 million by the year 2000. Recently there has been
a slight improvement in Africa's economic performance over the 2 percent
growth rate in the early 1990s. In 1996, for example, Africa's gross
domestic product did register a 5 percent rate of growth. However,
subtract an average population growth rate of 3 percent and that leaves
miserly rates of growth of less than 2 percent in GDP per capita. This
rate would not be sufficient to reduce Africa's average poverty rates,
which are among the highest in the world. In fact, a recent report from
the International Labor Organization estimates that in Sub-Saharan
Africa, the proportion of the population living in poverty will increase
to over 50% by the year 2000.

Efforts to improve Africa's economic performance have been crippled by
a crushing foreign debt burden.  Additionally, the debt overhang
seriously impairs Africa&rsquos ability to carry out reform. Total African
foreign debt has risen 24-fold since 1970 to a staggering $320 billion
in 1996 which was equal to its yearly GNP), making the region the most
heavily indebted in the world. (Latin America's debt amounted to
approximately 60 percent of its GNP.) Currently debt service obligations
absorb about 40 percent of export revenue, leaving scant foreign
exchange for the importation of capital goods, essential spare parts,
and medical supplies. Only about half of the outstanding debts are
actually being paid while on the other half, arrearages are continually
being rescheduled.

A large chunk of Africa&rsquos foreign debt - about 80 percent - is owed to
Western governments and multi-lateral financial and development
institutions such as the World Bank, the IMF and the UNDP. The loans
were extended to African governments under various foreign aid programs
at concessional rates (below market interest rates with a grace period
and a longer term to maturity) to finance development projects and to
fund Structural Adjustment Programs, SAPs, (economic restructuring) and
democratization programs in Africa. The general consensus among African
development analysts is that foreign aid to Africa has not been
effective. For example, between 1980 and 1988, sub-Saharan Africa
received $83 billion in aid. Yet all that aid failed to spur economic
growth, arrest Africa&rsquos economic atrophy, or promote democracy. The
continent is littered with a multitude of "black elephants&rdquo (basilicas,
grandiose monuments, grand conference halls, and show airports) amid
institutional decay, crumbling infrastructure and environmental
degradation.

Nor has "adjustment lending&rdquo by the World Bank and the IMF made much
impact on poverty reduction in Africa. In fact, the World Bank&rsquos own
Report, Adjustment Lending in Africa released in March 1994 confirmed
this. The World Bank evaluated the performance of 29 African countries
it had provided more than $20 billion in funding to sponsor Structural
Adjustment Programs (SAPs) over a ten-year period, 1981-1991, and
concluded that, only six African countries had performed well: The
Gambia, Burkina Faso, Ghana, Nigeria, Tanzania, and Zimbabwe. Six out of
29 gives a failure rate in excess of 80 percent. More distressing, the
World Bank concluded, "no African country has achieved a sound
macro-economic policy stance.&rdquo Since then, the World Bank&rsquos list of
"success stories&rdquo has shrunk. The Gambia, Nigeria and Zimbabwe are no
longer on the list and even on Ghana, the World Bank&rsquos own Operations
Evaluation Department noted in its December 1995 Report that, "although
Ghana has been projected as a success story, prospects for satisfactory
growth rates and poverty reduction are uncertain.&rdquo

 It is generally agreed that mistakes were made on both the donor and
recipient sides. On the donor side, the allocation of foreign aid was
often determined more by ideological considerations: To support Cold-War
allies (the late Mobutu Sese Seko of Zaire; the late General Samuel Doe
of Liberia; the late General Siad Barre of Somalia), and to woo various
Marxist leaders from the Soviet bloc (Flt./Lte. Jerry Rawlings of Ghana;
Chissano of Mozambique; dos Santos of Angola).

Second, much Western aid to Africa was tied, thereby reducing its
effectiveness. A 1995 Foreign Aid study was conducted by the Freedom
Support Coalition, chaired by former Congressman Dave Nagle noted that
"80 percent of U.S. foreign aid is spent in the United States buying
food, equipment, expertise and services&rdquo (The Washington Times, 13
October, 1995; A17). Even then, U.S. AID was plagued with cronyism:
"Ninety-five percent of procurement went to a few firms that only did
business with AID. They were inside-the-Beltway firms that employed
former AID staffers, said Larry Bryne, the assistant administrator for
management&rdquo (The Washington Times, 19 August 1995; A8). Similarly, "an
estimated 80 percent of French aid to Africa comes back to France in
salaries, orders, and profits&rdquo (Biddlecombe, 1994).

Third, Western governments and development agencies failed to exercise
prudence in the grant of aid and loans to African governments. Much
Western aid to Africa was used to finance grandiose projects of little
economic value and to underwrite economically ruinous policies. There
are many horrifying blunders. In Senegal, the U.S. built silos in 1983
and placed them in locations peasant farmers never visited. In the
1980s, Canada funded a fully-automated modern bakery in Tanzania but
there was no flour to bake bread. In Somalia, the Italian funded a
banana-boxing plant but the production capacity needed to make the plant
break even exceeded the country&rsquos entire output of bananas. And in
northern Kenya, Norwegian aid officials built fish-freezing plant to
help the Turkana people. The only problem was the Turkana people do not
fish; they raise goats.

Fourth, foreign aid allocations were often cocooned in bureaucratic red
tape and shrouded in secrecy. The programs lacked transparency and the
people being helped were seldom consulted. In this way, the donors set
themselves up to be duped. As Reps. Benjamin Gilman and Lee H. Hamilton
wrote in a letter to Secretary of State Warren Christopher in July 1995,
"Zaire under Mobutu represents perhaps the most egregious example of the
misuse of U.S. assistance resources. The U.S. has given Mobutu nearly
$1.5 billion in various forms of aid since Mobutu came to power in 1965.
Mobutu claims that during the Cold War he and his fellow African
autocrats were concerned with fighting Soviet influence and were unable
to concentrate on creating viable economic and political systems. The
reality is that during this time, Mr. Mobutu was becoming on the of
world&rsquos wealthiest individuals while the people of Zaire, a once-wealthy
country, were pauperized&rdquo (The Washington Times, 6 July 1995; A18).

More maddening, the West knew that billions of dollars were being
transferred to Swiss and foreign banks by greedy African leaders and
elites. "Every franc we give impoverished Africa comes back to France or
is smuggled into Switzerland and even Japan,&rdquo wrote the Paris daily, Le
Monde in March 1990. In an interview, Edward Jaycox, the former World
Bank&rsquos Vice President for Africa, complained bitterly: "How many African
governments put a top priority on alleviating poverty? I can&rsquot even
think of three. When has the military given up its toys? When has a
diplomatic mission been closed in the interests of poverty alleviation?
When has the role of women been enhanced in any of these African
countries, without outside interference?&rdquo (African Recovery,
April-September 1994; 9).

Fifth and finally, SAPs or "adjustment lending&rdquo failed because of
design flaws, sequencing, pedagogical inanities, and other factors. The
commitment to reform has demonstrably been weak in Africa. Even when
reform - both economic and political -- is accepted, it is poorly
implemented. While implementation problems cannot be blamed on the World
Bank or the donors, the programs sponsored by the donors were themselves
fraught with design flaws. In many cases, SAPs amounted to reorganizing
a bankrupt company and placing it, together with massive infusion of new
loans or capital, in the hands of the same incompetent managers who
ruined it in the first place. Additionally, SAPs assumed development
occurred in a vacuum. That civil wars, environmental degradation,
infrastructural deterioration and general state of terror and violence
in Africa have no effect on economic development. Accordingly, the World
Bank lent billions to various African countries to restructure their
economies that were being ravaged by civil war: Algeria, Angola,
Burundi, Ethiopia, Mozambique, and others.

More serious perhaps was the belief by the World Bank that economic
restructuring alone was sufficient to lift Africa out of poverty. It is
clear to most by now that the economic and political systems in Africa
are fused. Therefore, economic reform without a concomitant political
reform is an exercise in futility. It was only after the collapse of the
Soviet Union in 1989 that democratization was added as a new political
conditionality for receipt of Western aid. Even then, sequencing is
critical in this regard since reform is needed in many areas as well:
governance, establishing transparency in government procurement,
professionalism in the armed and security forces, estabilishing the rule
of law (institutional reform) and promoting intellectual freedom
(respect for freedom of expression and of thought) and reducing
government control of the media and facilitate the free flow of
information, etc.

I believe that the critical first step in reforming a state-controlled
society must begin with intellectual freedom. That is, the removal of
restrictions on the flow of information by privatizing state-owned or
controlled media (newspapers, radio, and television), lifting of
censorship rules and the banishment of criminal libel suits, which have
now become the choice weapon of African autocrats to gag the press. The
importance of intellectual freedom can be recognized by the fact that,
ultimately, it is Africans who must devise their own "African solutions
for their African problems" but cannot do so in an environment of brutal
repression, where criticism of government policies result in a jail or
even death. More importantly, reform which is internally generated is
far more sustainable than that imposed from without. Africans need an
intellectually free environment to expose, debate and find their own
solutions. Once they have this freedom, Africans themselves will
determine the typed of democratic and economic systems best suited for
them. Currently, a free press exists in only 10 African countries. But
tragically, intellectual reform or freedom has scarcely captured the
attention of Western donors who still focus on economic and political
liberalization and, thus, put the cart before the horse.

On the recipient side, so many blunders were committed by African
governments. The cardinal principle of borrowing requires that the loan
be used productively to generate a net income over and above that
required for debt repayment or amortization. But in case after case in
Africa, foreign loans were squandered, flouting this principle. Some of
the external loans were used to finance reckless government spending; to
establish grandiose loss-making state enterprises and other "black
elephants"; to purchase weapons to slaughter the African people; while
the rest was simply squandered.

How Foreign Loans Were Squandered

A "debt crisis" simply means inability to meet service obligations on
an existing debt; that is, paying interest and principal on time.
Africa's debt crisis or "problem loans" originate from three basic
missteps. First, many of the loans were simply "consumed" and therefore,
did not generate the returns neded to repay the loan. Second, in many
other cases, the loans were indeed "invested" in projects but they
turned out to be hopelessly unproductive. Third, some of the foreign
loans that were contracted were of a "questionable nature."

 (i) Consumption Loans

 "Consumption" loans are three in nature. The first is borrowing from
abroad to finance a budget deficit on the current account. Such a loan
simply finances recurrent expenditures; for example, paying civil
servants' salaries. The use of the loan produces no foreign exchange. If
the loan is used to finance a deficit on the capital account, such as a
new office building or telephone system, it must produce or save enough
foreign exchange to service the loan. But in general, this is difficult
to achieve and explains why such countries as Tanzania, which borrowed
to finance budget deficits, have repayment problems.

A second type of consumption loan is borrowing abroad to finance
imports of consumer goods (corned beef, sardines, Mercedes Benzes, TV
sets, etc.). In this case, the loan is simply consumed and there will be
nothing to show for it; no foreign exchange saved or earned. Ghana,
Nigeria and Cameroon borrowed much abroad to buy consumer goods. In the
early 1980s, for example, more than half of Tanzania's imports were
financed by loans from foreign governments.

The third type of consumption loan is that taken to purchase arms and
ammunition -- perhaps the most pernicious and destructive use, given
Africa's never-ending cycles of violence and war. No income generated to
repay the loan. Ethiopia, Angola, Mozambique, Libya, Chad, Somalia and
Uganda all borrowed heavily to purchase weapons to wage various civil
wars. Currently, Ethiopia and Eritrea are purchasing huge amounts of
weapons to prosecute their border war. If conflicts can be settled
through dialogue and negotiation at very little cost, then there is
little point in having a poor nation to borrow heavy amounts and wage
military conflicts. What Africa spends on arms, much of which is bought
with foreign loans, in the teeth of its famine crisis, defies common
sense.

(ii) Unproductive Investments

The other general mis-step was the investment of loan proceeds in
projects, mostly state-owned enterprises, that turned out to be towering
black elephants. Africa has more than 3,000 state enterprises (SEs) but
their performance has been nothing short of the scandalous. These
enterprises, set up with foreign loans, were supposed to earn or save
the foreign exchange needed to service or pay back the loan. Instead,
they racked up losses upon losses, used up more foreign exchange and
compounded the debt crisis. The state enterprises could not fill the
shortfall in production. Inevitably, the results were greater
inefficiency, excess capacity, and economic retrogression. In Ghana, for
example:

 The State Meat Factory at Bolgatanga was closed for nine months; yet
employees were paid in full for the entire period" (West Africa, 1981;
p.2884).

 For 14 months, from November 1978 to January 1980, the State Jute Bag
Factory was closed due to a shortage of raw materials. Yet, the 1,000
workers received full pay for the entire period of closure [Punch, 14-20
August 1981, p.4].

 The Boatyard Division of GIHOC at Mumford Village in the Apam District
(Central Region) has launched only 6 vessels with a workforce of 40
employees since its establishment 9 years ago" (Daily Graphic, 14
August, 1981; p.8).

 The pre-fab factory started by the Russians in 1962 has not produced a
single home. Yet, 500 Ghanaian workers and 13 Soviet experts were
drawing salaries for a period of 6 years [Graphic, 6 December 1978,
p.5].

The picture elsewhere in Africa was pretty much the same:

In Nigeria, most state enterprises are triumphs of towering
inefficiency. Consider the rate of capacity utilization of a random
selection from the Central Bank's 1992 Annual Report: Nigerian Machine
Tools: 8 percent; Nigerian Paper Mill, Jebba: 12.1 percent; Nigerian
Newsprint Manufacturing Company: 13.3 percent; Jukura Mable Plant: 1
percent; the Nigerian Sugar Company: an impressive 72 percent. The
Nigerian National Paper Manufacturing Company did not make anything at
all: "construction work which started in 1977 was yet to be completed
due to lack of funds" (The Economist, Aug 21, 1993; Survey p.9).

 The Tunisian Government runs the airline, the steel mill, the phosphate
mines and 150 factories employing a third of Tunisian workers. Mr. Ben
Ali doesn't want them jobless, hanging around mosques. Before 1990, 35
companies were sold off; fewer than 20 have sold since.
  Private businessman Afif Kilani bought one called Comfort, a
featherbed for 1,200 workers who built 15,000 refrigerators a year. Mr.
Kilani paid $3.3 million for the place in 1990. Now it has 600 workers
and makes 200,000 refrigerators a year. "Like all state companies, its
point was to support the maximum number of jobs," he says from behind a
big glass desk. "It was social work. A sort of welfare." (The Wall
Street Journal, June 22, 1995; p.A11).

 Tanzania's state-owned Morongo Shoe Company (MSC) was financed by the
World Bank. Based on abundant supplies of hides and skins, the project
was supposed to be a low-technology, economies of scale activity that
would expand the country's exports. About 80 percent of the shoes were
to be shipped to Europe. But when the plant became operational in the
1980s, "MSC achieved just over 5 percent capacity utilization . . . By
1986, the figure was below 3 percent. Most of the machines were never
used, quality and design were absymal, and unit costs were very high and
the factory was eventually abandoned" (Luke, 1995; p.154).

 A tin can manufacturing plant in Kenya had such high production costs
that cans full of vegetables could be imported from Asian competitors
cheaper than this Kenyan company's cost for the cans alone. The Kenya
government estimated that over $1.4 billion had been invested in state
enterprises by the early 1980s. Yet, their annual average return had
been 0.2 percent (Goldman, The Backgrounder, p.10). As Mr. E.A. Sai,
member-Secretary of Ghana's Committee of Secretaries, observed:
 Apart from a few success stories in the management of public
enterprises in Africa, such as in the Kenya Tea Development Authority,
Botswana's Meat Commission, Tanzania's Electricity Company, The Guma
Valley Water Company of Sierra Leone and Ghana's Volta River Authority,
the record of state enterprises had been poor" (West Africa, 16 May,
1988; p.897).

(iii) Corruption, Fraud and Shady Deals

Considerable evidence exists to suggest that many foreign loans were
contracted under rather dubious and corrupt circumstances. Nigeria, for
example, does not know if its foreign debt is really $35 billion or not.
Back in 1990, Chief Olu Falae, Secretary to the Federal military
government, announced after a debt verification exercise that "over 30
billion naira (or $4.5 billion) of Nigeria's external debt was
discovered to be `fraudulent and spurious'" (West Africa, Sept 25 - Oct
1, 1990; p.1614). And while the country sank deep into debt, Nigeria's
former military rulers amassed huge personal fortunes -- former General
Ibrahim Babangida with an estimated fortune of $8 billion and even the
late General Sani Abacha who massed $5 billion after only 4 years in
office.

In 1995, Ghana's foreign debt stood at $5 billion with a population of
17 million. To finance its industrialization drive, Nkrumah borrowed
heavily from abroad under supplier&rsquos credit. In a supplier's credit
arrangment, a fast-talking equipment pedlar would sell Glana an
equipment over a period of time, generally 4 to 6 years. The pedlar then
would obtain credit from private banks and have it guaranteed by his own
country's governmental export credit insurance organization. After this
arrangement, any future dealings will be between Ghana and the export
credit organization; not with the pedlar. He was paid and gone.

Indeed, under supplier's credit arrangements, Ghana bought in many
cases obsolete equipment at inflated prices and contracted a huge
foreign debt between 1961 and 1966. For example, the expensive 3
Illyushin jets Ghana bought from the Soviets, at a time when Ghana
Airways was having difficulty filling its planes, turned out to be old
jets that had been repainted. The British firm, Parkinson-Howard, sold
Ghana a huge dry dock which laid idle for 9 years after it was
commissioned in 1969. The German "equipment-monger", Stahlunion, build a
sheet glass plant with a capacity of nearly 3 times the size of the
local market. The plant was never brought in operation and later had to
be converted at an extra cost of 2.5 million cedis for bottle-making.
When that was completed too, the same government imported large
quantities of bottles from Czechoslovakia and China to make it difficult
for the factory to sell its bottles. A Parliamentary Report suspected
that the plant supplied Ghana's Vegetable Oil Mills "was of pre-war
manufacture and had been lying idle for more than 30 years before being
shipped to Ghana" (Public Accounts Committee, 1965; p.9).

A Ghana Government investigation (Apaloo Commission, 1967) reported
Parkinson-Howard, which built the Accra-Tema Motorway; Tema Harbor
extension; the dry docks and steelworks, paid a total of $680,000 in
bribes between 1958 and 1963 in three installments to certain ministers.
In most cases, the bribes were 5 to 10 percent of the value of the
contract.

In recent years, there have been persistent allegations of corruption
and fraud in the use of aid to Ghana: "The British environmental group,
Friends of the Earth, says millions of dollars in overseas aid -- going
to Ghana's timber sector -- have been diverted by local and foreign
logging firms which got development aid from the British Overseas
Development Administration and the World Bank" (The African Letter,
March 16-31, 1992; p.1). Even refugee aid was not spared. Mattresses,
rations and other relief supplies to Liberian refugees encamped at
Budunburam in Ghana were regularly pilfered by the authorities. When a
Liberian refugee by name of Oscar complained, "the Ghanaian soldiers
beat him" (Index on Censorship, April 1996).

External loans contracted privately on behalf of Ghana was subject to
much abuse and fraud, according to Mary Stella Ankomah, MP for Wassa
Mpohor in the Fourth Republic:
    " A member of parliament for the Wassa-Mpohor constituency, has
disclosed that the government pays agency fees on loans it contracts.
Miss Ankomah also said that the government pays what it terms
"exposure fees" before loans are granted to the country.
      The MP explained that the government claims it pays middlemen, who
lead Ghana to negotiate loans on its behalf, a certain percentage that these
agents demand.
      She said when the minority MPs smelt some fishy deals in the whole
exercise, they invited the Deputy Minister of Finance, Mr. Victor Selormey,
to explain the term "agent and exposure fees" to the House.
      According to Miss Ankomah, the Minister said there are some
benevolent Ghanaians in the United States who negotiate loans for the
country under the condition that they are paid a certain percentage.
Under one of such conditions, the MP said the government paid out 27
percent of an $8 million loan recently given to the country by an
European country.
      The MP wondered how a country with a Minister of Finance and an
economic team which oversees the economic performance of the country should
contact an agent in contractual bids. She described the Minister's
explanation as a big farce (The Independent, Aug 28 - Sept 4, 1996; p.1).

The worse part is much of the funds embezzled by Africa's kleptocrats
are siphoned out to overseas banks. An estimated $20 billion--more than
what Africa receives in foreign aid -- flees the continent annually. In
1988, for example, France sent $2,591 million in aid to Africa, but in
the same year, according to the Independent, "[n]early CFA 3.5
billion--47 percent of the total issue--was exchanged in Europe by the
Bank of France, some of it exported in suitcases" (June 19, 1990). "One
Nigerian banker guesses that Nigerian [kleptocrats] have at least $25
billion in foreign bank accounts. A recent World Bank survey reckoned
that capital flight during the 1980s may have reached $50 billion (The
Economist, 21 August 1993, Survey, 10). "A Nigerian man and a banker
accompanying him were arrested at the Lagos airport after trying to
board a London-bound jet with $800 million in cash. Customs officials
said the seizure was the biggest recorded in Nigeria. The banker
accompanied the other man apparently so that customs officials would not
ask questions. The money has since been deposited in the Central Bank of
Nigeria" (The Washington Times, 29 July 1995, A7).

In Kenya, "critics of the Moi government say that many of the people in
government have the biggest accounts in foreign banks and that there is
more money from Kenyans in foreign banks than the entire Kenyan foreign
debt, which is about $8 billion" (The Washington Times, August 3, 1995;
p.A18). According to one United Nations estimate, "$200 billion or 90
percent of the sub-Saharan part of the continent's gross domestic
product (much of it illicitly earned), was shipped to foreign banks in
1991 alone" (The New York Times, 4 February 1996; page 4). Note that the
huge amount involved was more than half of Africa's total foreign debt.

RECOMMENDATIONS

Mr. Chairman, Ladies and Gentlemen, it is clear that mistakes were made
by both donors (creditors) and recipients (borrowers) and therefore
corrective action must be taken by both sides. Since the loans cannot be
repaid and some debt relied is needed. The dilemma, then, is how to
provide this debt relief without at the same time rewarding reckless and
incompetent management. On the donor (creditor) side, greater
transparency and more input by the African people -- not only their
governments -- are required. Clearly, those on whose behalf loans are
being contracted must have a say on the terms of the loans and the uses
to which these loans are put.

On the recipient (African borrowers) side, debt relief without a
concomitant fundamental change in errant debt-producing behavior would
be meaningless. If someone is deeply in consumer credit card debt, you
just don't wipe off their debt and grant them the same access to their
credit cards without counselling. Therefore, I am opposed to outright
debt relief without conditionalities. I believe the following conditions
should be attached to the African Debt Relief Bill.

A full public accounting of external loans must be made before any debt
relief is offered. The reason for this should be obvious. The people of
Africa want to know what the external loans contracted on their behalf
were used for. There must be some accountability to prevent reckless
behavior and debt mismanagement in the future.

In fact, angry Africans are already demanding accountability and
th