Revised June 18, 2002,

Status: Forthcoming in
Journal of Eastern Africa Social Science Research Review, OSSREA

The Historical Origin of African Debt Crisis

Alemayehu Geda*

Abstract

The literature about the origins of the African debt crisis lists a number
of factors as its cause. The oil price shocks of 1973-74 and 1978-79,
the expansion of the Eurodollar, a rise in public expenditure by African
governments following rising commodity prices in early 1970s, the
recession in industrial countries and the subsequent commodity price fall,
and a rise in real world interest rate are usually mentioned as major
factors. Surprisingly, almost all the literature starts its analysis either in
the early 1970s or, at best, after independence in 1960s. The main
argument in this paper is that one has to go beyond this period not only
to adequately explain the current debt crisis but also to propose its
possible solution.. The conclusion that emerges from such analysis is that
the African debt problems is essentially a trade problem.
Keywords: debt, trade, international finance, Africa
JEL classification: F1, F34, F35, N77, E44

1. Introduction

Notwithstanding the highly publicized debt relief initiative, the Highly Indebted Poor
Countries (HIPC), the African debt problem is one among myriad of problems the
continent is facing. A number of studies, in particular on Latin American countries debt,
have attempted to explain the origin of the debt crisis. This literature attributes the
developing countries debt (including that of Africa’s) to shocks generated in the early
1970s. In this paper an attempt to explain the historical origin of the African debt crisis is
made. It will be argued that understanding the African debt problem and proposing its
solution requires understanding its historical origin. The paper is organized as follows. In
section 2 I will discuss the background to African economic crisis in general and its debt
problems in particular. In section 2.1 an attempt to provide a brief summery of the policy
debate about African economic crisis is given. This is primarily intended to show the
general context under which the debt problem is understood by major institutions. This is
followed by section 2.2 where the external finance problems of Africa will be described. In
section 3 I will focus on the structure of African economies created by its colonial history
and its relation to the current debt problem. Section 4 will examine the evolution of the
debt problem in the pot-independence period. Section 5 will conclude the paper.

*
Department of Economics, School of Oriental & African Studies (SOAS), University of London.:
[email protected] or [email protected]

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2 The African Economic Crisis and African Debt

2.1 The Policy Dialogue about Africa's Economic Crisis1

Three contending explanations are given for Africa’s economic crisis: the World Bank view
which begins with what is know as ‘the Berg Report’ (World Bank 1981, 1989, 1994), the
African Alternative Framework to Structural Adjustment Programs (ECA, 1989a) and a view held by
academics with Marxist orientation (see inter alia Lawrence, 1986, Sutcliffe 1986). The World
Bank publications cited above basically argued that, notwithstanding the problems associated
with external shocks and population pressure, the main reason for African economic crisis
lies on government policy failure. The Bank continues to argue (see World Bank 1994) that
orthodox macroeconomic management represents the road to economic recovery in Africa
and, hence, that more adjustment, not less, is required. A number of other analysts have
arrived at conclusions, in line with those of the Bank (see van Arkadie 1986, Grier and
Tullock’s 1989, Elbadawi et al 1992, White 1996b, Ghura 1993, Easterly and Levine 1996,
Collier and Gunning 1999). This assertion of the ‘policy school’ has been the subject of
various criticisms, coming from a host of different angles (see inter alia Adam 1995, Mosley et
al 1995, Lall 19952).

In contrast, the ECA (1989a) prefers to explain Africa's problems in terms of deficiencies in
basic economic and social infrastructure (especially physical capital), research capability,
technological know-how and human resource development, compounded by problems of
socio-political organization. Thus, the ECA argued the ‘policy school’ type of analysis and its
proposed solution – Structural Adjustment programs, SAPs-, is not only the wrong diagnosis
but also the wrong treatment. The ECA document noted ‘...both on theoretical and
empirical grounds, the conventional SAPs are inadequate in addressing the real causes of
economic, financial and social problems facing African countries that are of a structural
nature’ (ECA, 1989a: 25). Just as many have argued in favour of the Bank/ IMF view, so
too, many analysts have come out in support of the ECA’s line of reasoning (see Ngwenya
and Bugembe 1987, Fantu 1992, Adedeji 1993, Stefanski 1990, Ali 1984, Wheeler 1984, Stein
1977).

The third view differs from the other two and is critical of both. For these analysts the
African problems emanates from its economic dependence (Lawrence 1986:2, Sutcliffe
1986). Thus, according to these viewpoints, Africa's problems are best understood as
resulting from long-term underdevelopment, following dependency theory3, and short-term
vulnerability, following international aspects of crisis theory (Amin 1974a, 1974b, Ake 1981,
Ofuatey-Kadjoe 1991, Sutcliffe 1986, Harris 1986, Onimode 1988, Moyo et al 1992,
Mamdani 1994). While there are areas where the first two approaches both converge and
diverge, the third explanation for Africa’s economic crisis stands firmly in opposition to
both.

1 Readers interested in detailed treatment of these issues may consult Alemayehu (2002b).
2 See White (1996) for a review of this debate.
3 See Leys (1996) and Ofuatey-Kodjoe (1991) for critiques of dependency theory, in the African
context.

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The core of the disagreement between the bank and ECA views centers on 'the role of the
market' mechanism4 (Oskawe, quoted in Asante, 1991:179). While the Bank believes in the
market mechanism as representing the fundamental instrument of resource allocation and
income distribution, the ECA questions this viewpoint. However, these institutions do agree
on some major issues, such as the need for human resource development, improving the
efficiency of parastatals, and sound debt management (see Alemayehu 2002b). Thus, it is
within this general context the African external problems in general and its debt problem in
particular need to be understood.

2.2 The African Debt Problem

One of the major external problems of African countries is the external finance problem in
general and the debt crisis in particular. As can be seen from Tables 1 and 2, the total
external debt of Africa (and Sub-Saharan Africa) grew nearly 17 ( and 20) fold, from its
relatively low level of US $16. 3 ( and 11) billion in 1970 to nearly US $280 (and 223) billion
today. The most important component of this foreign burden is long-term debt outstanding.
The use of IMF credit became important in the late 1970s and early 1980s when structural
adjustment and enhanced structural adjustment facilities became important components of
flows to Africa.

Although the share of African debt in the total debt of developing countries’ is very low (Sub-
Saharan Africa share is about 9 percent between 1995 and 2000), its relative burden is very
high. Another dimension of the structure of African debt is the changing pattern of its
creditors. Based on Table 1, bilateral debt is the most important component of the total
African debt. This is followed by multilateral debt. About a quarter of the Sub-Saharan Africa
debt is owed to multilateral debtors. The bilateral and private debtors account for 35 and 14.4
percents, respectively. Private inflows are showing a declining trend (see Table 1). A final
observation is that a larger share of the official debt is on concessional terms. It is also
interesting to note that the debt problem is aggravated by capitalization of interest and
principal arrears, which constitute nearly a quarter of the external debt (See Alemayehu 2000a
for detail). In fact, the net transfer from Sub-Saharan Africa (to the developed world) between
1995-2000 was about US$ 3 billion, the corresponding figure for all developing countries
being about US$ 23 billion (see Table 1).

Table 1: Africa and Other Debtor Regions

(Average Annual Figures, in billions of USD, unless stated otherwise)
1970-74 1975-79 1980-84 1985-89 1990-94 1995-2000
Total debt stocks (EDT) (DOD, US$) SSA 11.0 32.8 77.0 136.6 190.3 223.3
All LDC 104.1 323.2 780.3 1219.2 1673.5 2400.2
South Asia 15.6 28.1 48.6 91.2 143.8 160.2

4 Makandawire (1989 cited in Elbadawi et al 1992) summarizes the two contending views about the
cause of African crisis as structuralist and neoclassical. He notes
The structuralist view is one which highlights a number of features and ‘stylized facts’ that almost every point contradicts
the neoclassical view...class based distribution of income rather than marginal productivity based distribution of income;
oligopolist rather than the laissez-faire capitalist market; increasing returns or fixed proportion functions rather than
‘well-behaved’ production functions with decreasing returns and high rates of substitution; non-equivalent or ‘unequal
exchange’ in the world rather than competitive, comparative advantage based world system; low supply elasticities rather
than instantaneous response to price incentives (Makandawire (1989) quoted in Elbadawi et al (1992).

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L. America 46.7 139.6 340.7 442.9 522.7 742.9
Multilateral debt/Total debt (EDT) (%) SSA 12.5 13.0 13.5 18.9 23.1 24.7
All LDC 10.0 9.0 8.6 12.5 14.2 13.1
South Asia 18.6 22.1 26.5 28.9 32.4 36.9
L. America 8.9 6.6 5.6 10.2 12.2 10.8
PPG, bilateral (DOD, US$) SSA 47.7 35.8 30.4 36.9 39.3 35.1
All LDC 33.7 24.7 20.6 23.9 27.9 22.3
South Asia 69.8 64.9 44.9 35.9 35.3 31.7
L. America 14.0 12.6 11.4 14.4 19.1 12.8
PPG, private creditors (DOD, US$) SSA 23.1 25.9 26.3 23.8 16.8 14.4
All LDC 21.6 29.5 34.7 39.7 31.2 26.3
South Asia 4.8 3.4 8.6 17.4 18.7 18.1
L. America 28.3 39.9 42.4 52.2 38.9 32.8
Aggregate net transfers (US$) SSA 1.4 5.1 7.6 9.6 11.8 12.0
All LDC 6.6 27.2 23.0 2.6 89.0 173.8
South Asia 1.5 3.0 5.2 7.8 6.7 6.3
L. America 3.2 10.6 1.4 -17.8 16.0 56.3
Net transfers on debt, total (NTR, US$) SSA 1.6 5.3 5.9 2.9 1.9 -2.7
All LDC 13.1 44.2 17.8 -23.8 19.2 -22.7
South Asia 1.3 1.5 4.2 4.0 0.2 -3.2
L. America 5.9 17.4 -4.0 -24.9 0.7 -8.7
Source: Author’s computation based on Global Development Finance 2001 (The World Bank)
Note: SSA= Sub-Saharan Africa;LDC = Least Developing Countries
Net transfer = Loan disbursements less amortization and interest payment [as defined in World Debt Tables]
Aggregate net transfer = Aggregate net resource flows (Loan disbursements less amortization) plus official grants (non-
technical) and foreign direct investment (FDI) less interest payment and FDI profit [as defined in World Debt Tables

Table 2 shows the composition of debt across regions in Africa. Some important patterns do
emerge from these figures. First, the debt stock is equally shared across the three regions in
Africa – this shows that the North Africa region has the highest debt stock per country.
Second, private debt creating flows are important in North Africa than the other regions. This
is in line with literature which shows that private capital flows are positively associated with
the level of development (see Alemayehu 2002b). Finally, net transfer to Africa is negative
and has rising trend (the average annual figure being US $ –0.3, -4.9 and –6.7 billions in
1985-89, 1990-94 and 1995-99, respectively). Among the regions, North Africa, NA, (which
has a negative value even in aggregate transfer) is the worst hit, followed by the West &
Central Africa (WCA) and East & Southern Africa (ESA) regions. The burden of debt on
meagre resources can be read from such negative net transfers to the sub-regions.

Table 2: Debt Profile of Africa

(Average Annual Figures, in billions of USD, unless stated otherwise)
1970-74 1975-79 1980-84 1985-89 1990-94 1995-99
Total debt stocks (EDT) (DOD, US$)
All Africa 16.3 59.4 131.2 219.9 266.3 283.6
ESA 5.5 16.6 35.3 64.0 88.9 98.3
NA 6.0 28.5 59.1 91.7 90.7 94.6
WCA 4.7 14.3 36.8 64.2 86.7 90.7
Multilateral debt/Total debt (EDT) (%)
All Africa 13.6 17.1 19.1 25.4 32.7 36.9
ESA 23.5 26.5 26.9 33.6 39.3 43.2
NA 5.4 8.7 9.5 13.3 19.8 22.3
WCA 12.0 16.1 21.0 29.3 39.2 45.1

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PPG, bilateral (%)
All Africa 48.1 34.7 33.0 37.9 40.8 43.2
ESA 44.0 38.9 40.6 43.2 41.0 38.3
NA 54.7 35.3 39.7 41.9 43.0 51.2
WCA 45.7 29.9 18.8 28.6 38.5 39.9
PPG, private creditors ( % )
All Africa 26.0 31.4 29.4 27.6 22.2 14.6
ESA 26.8 23.2 18.8 18.8 15.6 11.6
NA 28.9 40.2 34.9 32.9 32.6 20.5
WCA 22.3 30.8 34.7 31.1 18.5 11.6
Aggregate net transfers (US$)
All Africa 1.9 9.6 8.2 8.2 9.1 5.6
ESA 0.9 2.3 4.4 5.2 6.0 5.0
NA 0.8 5.3 2.2 1.5 0.3 -1.9
WCA 0.2 2.0 1.5 1.5 2.8 2.5
Net transfers on debt, total (NTR, US$)
All Africa 2.2 10.6 6.1 -0.3 -4.9 -6.7
ESA 1.0 2.2 3.2 2.0 1.0 -0.4
NA 0.6 5.7 1.2 -0.9 -4.7 -4.9
WCA 0.5 2.6 1.8 -1.4 -1.2 -1.4
Source: Author’s computation based on Global Development Finance 2001 (The World Bank)
Note: ESA = East & Southern Africa, NA = North Africa, WCA (West & Central Africa).

The debt burden can also be read from the terms and conditions of borrowing (Table 3). The
grant element of external resource flows remains fairly stagnant in the last 30 years, with some
improvement for WCA region. Average interest rate, however, declined over this period
(from 5 to about 2.5%). The interest rate for the NA region is still high, about 4.4 %,
however. Except a slight improvement in WCA regions, the average maturity years are hardly
changed. Moreover, concessionality of aid in general has declined, except for some
improvement in ESA region. The only major improvement is the declining share of technical
assistance in total grants, which dropped from 45.5 to 33.8 percent. In ESA, it declined nearly
by half while it rose in NA regions. In general, the terms and conditions of borrowing for
African debtors do not seem to improve a lot in the last three decades. This aggravated the
continent’s debt burden (see Table 4).

Table 3: Terms of Borrowing (Average Annual Figures)

1970-74 1975-79 1980-84 1985-89 1990-94 1995-1999
Average grant element (%)
All Africa 39.3 32.5 28.1 37.8 43.5 43.6
ESA 43.3 41.3 35.2 46.2 49.6 43.4
NA 31.5 20.4 11.8 16.8 25.8 34.7
WCA 43.2 35.8 37.3 50.5 55.2 52.7
Average interest (%)
All Africa 3.9 5.2 6.2 4.8 3.7 2.5
ESA 3.1 3.9 5.4 3.9 2.9 1.9
NA 5.2 6.8 8.2 7.2 5.9 4.4
WCA 3.3 4.7 4.9 3.3 2.4 1.2
Average maturity (years)
All Africa 22.1 20.9 25.7 23.4 24.6 21.6
ESA 23.6 23.9 37.5 26.5 26.9 22.4
NA 20.0 17.3 15.5 15.1 17.7 17.8

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WCA 22.7 21.6 24.0 28.5 29.2 24.6
Concessional debt/Total debt (EDT) (%)
All Africa 54.3 44.1 36.3 38.5 45.4 50.7
ESA 52.6 49.1 41.2 45.6 53.1 57.5
NA 50.5 35.5 28.4 25.3 29.6 34.3
WCA 59.7 47.8 39.4 44.6 53.4 60.3
Technical cooperation grants as % of total grants
All Africa 45.5 41.1 47.5 40.9 30.4 33.8
ESA 61.8 44.9 38.1 32.3 26.6 28.2
NA 27.8 28.8 55.5 50.4 32.0 41.9
WCA 46.9 49.8 48.9 40.0 32.7 31.4
Source: Authors computation based on Global Developmen t Finance 2001 (The World Bank)

Table 4 shows that the debt to export and debt to GNP ratio rose from 100 and 24 percent in
1971-74 to 142 and 108 percent, respectively, in 1995-99. These figures are very high for the
ESA region where they jumped form 86 and 24 percent in 1970-74 to 661 and 145 percent in
1995-995. The debt service ratio which was about 13 percent in the first half of the 1970s
picked to 24 percent in the first half of 1990 and declining to 19 percent in the late 1990s.
These figures are relatively high for the NA region (being 25, 34.6 and 22 percent in 1970-74,
1990-94 and 1995-99, respectively (see Table 4). The latter is partly explained by the
composition of the NA region debt, which relatively has high level loans from private
creditors.

Table 4 Debt Burden Indicator (Average Annual Figures)

1970-74 1975-79 1980-84 1985-89 1990-94 1995-99
Debt service (TDS)/Exports of goods and services (XGS) (%)
All Africa 13.0 9.6 20.0 27.5 24.2 19.1
ESA 8.6 7.9 16.9 25.3 21.7 18.9
NA 24.9 13.2 26.1 34.6 34.6 22.1
WCA 5.4 7.7 17.2 22.6 16.5 16.4
Interest (INT)/Exports of goods and services (XGS) (%)
All Africa 2.5 3.7 9.7 11.0 9.0 7.0
ESA 2.5 2.8 8.0 9.6 8.3 6.0
NA 3.0 6.0 12.3 13.6 11.5 9.0
WCA 2.0 2.3 8.7 9.9 7.2 6.1
Reserves (RES)/Imports of goods and services (MGS) (months)
All Africa 2.2 2.1 1.8 2.2 3.3 4.3
ESA 2.6 2.7 1.8 2.5 3.1 4.2
NA 1.9 2.2 2.2 2.3 4.4 5.9
WCA 1.9 1.4 1.4 2.0 2.4 2.9
Total debt (EDT)/Exports of goods and services (XGS) (%)
All Africa 101.0 146.0 237.3 423.3 496.7 441.9
ESA 86.5 153.1 278.9 531.6 796.4 661.3
NA 156.4 164.2 197.5 286.3 206.1 173.4
WCA 60.0 120.6 235.7 451.9 487.6 491.1

5 By and large these figures show the average scenario. However, there are some exceptions. Burundi
and Guinea-Bissau in WCA region had a debt service ratio of 40% and 94%, respectively, by 1992; Uganda
and Madagascar in ESA region had a ratio ranging from 40-70% and 50-60%, respectively, from the mid
1980s. In terms of debt to GNP ratio, Mozambique recorded 300-580% from the mid 1980s to early 1990s;
Guinea-Bissau had a debt to GNP ratio of 130-300% from 1980-1990. Similarly Congo and Cote d’Ivoire
had a ratio close to 200% in the mid 1980s (see Alemayehu 2000a, 2000b).

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Total debt (EDT)/GNP (%)
All Africa 23.8 39.1 60.0 91.8 107.6 107.8
ESA 23.8 35.2 48.6 89.0 134.0 145.4
NA 27.1 49.9 68.5 85.0 70.2 59.1
WCA 20.5 32.3 62.8 101.4 118.7 118.9
Source: Author’s computation based on Global Development Finance 2001 (The World Bank)

In sum, the African debt is characterized by the growing importance of debt owed to
bilateral and multilateral creditors, a stagnant set of terms and conditions of borrowing, an
increasing importance of interest and principal arrears (usually capitalized through the Paris
and London clubs) in the growth of long term debt. Indicators of the debt burden also
revealed that the African debt is extremely heavy compared to the capacity of the African
economies. In fact, recent trend shows net outflow of resources. The performance of these
economies coupled with the mounting debt surely shows that African countries are
incapable of simultaneously servicing their debt and attaining a reasonable level of economic
growth, not to speak of poverty alleviation (Alemayehu 2002b).

Whereas the mere size of debt is not ordinarily an economic problem in itself, being tackled
by rescheduling and similar temporary arrangements, its relative (to capacity) level and
subsequent impact in the economy are serious problems. In this respect Alemayehu (2002b)
noted three inter related implications of the debt problems: First, the servicing of the
external debt erodes the meagre foreign exchange available for imports. This has led to the
import compression problem that adversely affected both public and private investment.
Second, the debt stock creates a debt overhang problem that could shatter the confidence of
both foreign and domestic private investors. Finally, servicing of debt in the African context
is placing an enormous fiscal pressure. Such pressure has an adverse effect on public
investment on physical and social infrastructure. Thus, the debt issue is a crucial part of the
overall economic crisis facing Africa. The important question is: how this crisis comes
about? And how can it be resolved?

Debt reduction can be brought about through negotiated changes in the terms and
conditions of contracted debt. Steps such as debt rescheduling and re-timing of interest
payments may reduce the amount of interest to be paid in any given year. Other debt
reduction mechanisms include debt conversion, debt-equity swaps and debt buyback. Non
of such mechanisms are comprehensively employed in Africa6. Various proposals to
ameliorate the debt problems of developing countries are made. None of them seem to be
fully implemented, however. The highly publicized new debt initiative, sponsored by the
World Bank and IMF, and designed to address the problem of ‘Highly Indebted Poor
Countries’ (HIPC) is the latest generation of these initiatives launched in September 1996.
According to this initiative there are two phases. Phase one requires a three-year record of
compliance with an IMF program. This leads to the decision point for acceptance in HIPC
initiative. Acceptance as HIPC requires having some indicators that show the country is
beyond the debt sustainability thresholds. If countries found themselves above these
thresholds, they are eligible for the Naples terms, which allows two-third debt stock
reduction. The reduction is applied to all type of debt, including multilateral ones. Phase
two of the new debt initiative comprises another three-year IMF program and, if in HIPC
category, 80 percent debt stock reduction. Various studies show that most African
countries could be eligible for the first phase of the ‘new debt initiative’. However, it is
6 See Alemayehu (2000b), Chapter 2, about the economics of debt.

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widely believed that these African countries may not reach the second phase in foreseeable
future (see Oxfam, 1997 for critical review of this issue). Moreover, if the HIPC initiative
is fully successful and all African debt is cancelled, will the debt problem be over?
Answering this question requires understanding the origin the debt crisis.

The literature on the origins of the African debt crisis lists a number of factors as its cause.
The oil price shocks of 1973-74 and 1978-79, the expansion of the Eurodollar, a rise in
public expenditure by African governments following increases in commodity prices during
the early 1970’s, recession in the industrialised nations and subsequent fall in commodity
prices, as well as rises in real world interest rate are all mentioned as major factors.
Surprisingly, almost all of this literature focuses on the post-independence period, with a
greater part of the analysis contained therein relating to the 1970s and 80s. The main
argument set out in this paper is that we need to extend this analysis to the pre-
independence period if we are to adequately explain the current debt crisis, as well as
propose possible solutions for its resolution. From this point of departure, the following
section traces the historical formation of an African economic structure incapable of
handling the current debt crisis (Alemayehu 2002a, Alemayehu 2002b).

3. The Historical Origin of Africa’s Debt Crisis

Pre-colonial African economic interactions with the rest of the world, and especially Europe,
date back many centuries, before culminating in fully-fledged colonisation in the latter part
of the nineteenth century.7 This was particularly true in WCA. During the first part of this
period, Africa had autonomy in its linkages with the rest of the world and did produce
processed goods. 8 It is also worth noting that the quality of many of these processed goods
was quite comparable with products originating in other parts of the world. Moreover, none
of the goods brought by Europeans supplied any of the basic or unfulfilled needs of African
societies. However, this autonomy in traditional industries was undermined by subsequent
events (Amin 1972:107-110, Hopkins 1973:87, Rodney 1972, Amin 1972:117, Hopkins 1973:
51-86; Neumark 1977:128-130, Vansina 1977: 237-248, Austen, 1987: 48, Konczacki,
1990:24).

The early development pattern of Africa varies between regions, however. In contrast to
West Africa, East and Southern Africa (ESA) were characterized by a well-established
economic interaction with the Arabian and Asian countries, long before the arrival of the
Europeans. More specifically, this part of Africa supplied a range of products, such as gold,
copper, grain, millet, and coconut to the Middle East and Indian Ocean economies. There
also existed a dynamic caravan trade and commercial plantations long before the onset of
European colonial rule. Thus, one may reasonably conclude that, although its economy was
not as complex as that of West Africa, nevertheless, that the ESA region had some degree of

7 Amin (1972) has termed this the Pre-mercantile period.

8 Wallerstein characterizes the trade of the period as trade in "luxuries", with such trade being
undertaken between external arena and not in an integrated world economy framework. Wallerstein and
Amin define luxuries as those goods, the demand for which comes from the part of the profit that is
consumed. Suraffa defines luxuries as goods that are not used in the production of other goods. He,
however, took it as trade/ exchange in which 'each can export to the other what is in his system socially
defined as worth little in return for the import of what in its system is defined as worth much'. Or, in Alpers’
phrase 'trade from which each side believed itself to be profiting' (Wallerstein, 1976:31 and footnote 3).

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autonomy in its economic activity, and, hence, was not as dependent on the export of
commodities, particularly to Europe. In general, there would appear to be a long history of
integrated and autonomous economic activity in most regions of Africa with local and long
distance trade playing a linking role. This is not an attempt to paint a ‘golden past’ for Africa.
Rather, it is meant to underline the fact that Africa had a healthy and fairly independent
economic system, before colonialism intervened to force a structural interaction with Europe
(Austen 1987:67-74, Leys 1996, Nzula et al 1979,9 Amin 1972, Alemayehu 2000b).

The period leading up to the industrial revolution, and the 16th and 17th centuries, in
particular, witnessed the beginning of the shaping of the African economy by European
demand. With the onset of the industrial revolution in Europe, Africa lost its remaining
autonomy and was reduced to being a supplier of slave labour for the plantations of America
(Amin 1972 :107-110, Rodney 1972: 86-87, Munro 1976: 55, Bernstein et al 1992). This era
witnessed a widespread expansion of European control. This expansion was undertaken with
the dual aims of: (a) incorporating new areas under primary crop production, using African
land and labour (which were priced below world market prices); and, (b) increasing the level
of production of existing primary commodities. On the import side, cheaper and purer iron
bars, and implements such as knives and hoes were made available, displacing some of the
previous economic activities undertaken by local blacksmiths. This had knock-on effects in
terms of a reduction in levels of iron smelting and even a decline in the mining of iron-ore
(Wallerstein 1976: 34-36; Baran,1957: 141-143,10 Alemayehu 2002b).

As described above, there existed a reasonable degree of trade linkage with Europe in the
pre-colonial period. Leaving aside the slave trade, the main feature of this trade was the
export of primary commodities by African colonies to Europe. Thus, even before the onset
of the colonial era, the seeds of Africa's subsequent role (as a supplier of raw materials and
foodstuffs for Europe, and a market for European manufactures) as well as its dependence
on external finance had already been sown11. Or, to take a slightly different perspective, a
move from the production of primary products to processing of these products (by Africans
and in Africa) was interrupted. This represents the first pre-designed attempt to articulate
African economic activity to the requirements of the outside world. This development was
vigorously followed up during the colonial period as a consequence of: (i) the so called
imperial self sufficiency in raw materials scheme (Hopkins 1973: 137, Longmire 1990: 202, Munro
1976: 128-137, Amin, 1972: 112-117, Fieldhouse 1986: 48; Fyfe quoted in Wallerstein 1976:
36; Onimode 1988: 177, Konczacki 1977: 81, Austen 1987: 133, Dickson 1977: 142, Rodney
1972: 172, Frankel 1977: 236); (ii) the demand for primary commodities that emerged owing
to the impact of the first and second world wars (Munro 1976: 119-177, Burdette,1990: 84 ); and (iii)
9 The original work is written in 1933.
10 In describing the impact of underdeveloped nations’ interaction with Western Europe Baran noted
" [the population of these nations] found themselves in the twilight of feudalism and capitalism enduring the
worst features of both worlds. Their exploitation is multiplied, yet its fruits were not to increase their
productive wealth; these went abroad or served to support parasitic bourgeoisie at home. They lived in
abysmal misery, yet they had no prospect of a better tomorrow. They lost their time-honoured means of
livelihood, their arts and crafts, yet there was no modern industry to provide new ones in their place. They
were thrust into extensive contact with advance of the West, yet remained in a state of the darkest
backwardness" (Baran, 1957:144). Perhaps we should not be surprised that Baran’s description, written
nearly four decades ago, remains relevant today.
11 Imports of palm oil by Britain, groundnuts by France, palm kernels (for cattle cake) by Germany
(and for the manufacturing of margarine) by the Dutch represented the main items traded during the 19th
century, prior to the onset of formal colonialism at the end of that century (For a description of this, see
particularly Chapter 4 of Hopkins 1973).

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financing requirements for the creation of public utilities designed to serve (i) and (ii) (see Bacha and
Alejandro 1982, UN 1949, Munro 1976, Austen 1987, Alemayehu 2002b for detail).

Notwithstanding this common features, there was also variation of the colonial experience
across different regions of Africa. Using the Amin-Nzula classifcation (see Alemayehu
2002a, 2002b), we have North Africa (NA), East and Southern Africa (ESA) and West and
Central Africa (WCA). The fundamental distinction between these regions is derived from
the manner in which the colonial powers settled the ‘land question’ (Nzula et al, 1979: 36,
Amin 1972).

In West Africa, commodity production did not take a plantation form. Besides, until quite
recently the mineral wealth of the region remained largely untapped. The amount of African
peasant land expropriated was also negligible. However, in spite of this, the control and
growth of the commodity sector was governed by European interests, while land remained
in the hands of small peasants (Amin 1972, Hopkins 1973: 213-214, Nzula et al 1979: 38).12
In much of today’s Central Africa, and part of Southern Africa, concessionaire companies,
usually supported by their European state, dominated the entire economic structure through
their involvement in mining, fishing, public works and communication, and even taxation. In
these regions, the indigenous population were reduced to semi-slavery, and exploited by
open and non-economic forms of coercion on the plantations and mines. The colonial
authorities encouraged adventurer companies to ‘try to get something out of the region’. The
activities of these companies were organized in line with demand in the 'mother country’.
(Nzula et al 1979: 37, Austen 1987: 140-142, Seleti, 1990: 40, Burdette 1990: 84, Amin 1972:
117). In Southern and Eastern Africa both systems referred to above were intricately
interwoven with a number of specific features. In this region the extraction of mineral and
settler agriculture was accompanied by the creation, often by force, of a small, and often
insufficient, reserve of labour comprising land owning peasants and the urban unemployed.
This was undertaken with the labour demands of mineral extraction and settler agriculture
firmly in mind (Amin 1972: 114-115, Nzula et al 1979: 37, Nzula et al 1979: 36, Seleti, 1990:
34-47, Konczacki 1977: 82).

The implication of all these is that, by the end of the colonial period, what had been
achieved in all these macro-regions was the creation of a commodity exporting economy and
virtual monopoly of the African trade (both import and export) by Europe. As a result, not
only did production for overseas markets expand at a high rate, but also several new items
(especially foodstuffs) started to emerge in the list of imports (Hopkins, l973: 178). As noted
by Konczacki, the economic pattern of what is called ‘matured’ colonialism 13 in Africa has
three distinct components. Firstly, both imports (which were mainly manufactured goods),
and exports (mainly raw materials), were fixed with the 'mother' country. Second, capital
investment in the colony was determined by the trading interest of the 'mother' country, and
concentrated in exporting enclaves. Finally, a supply of cheap labour was ensured through a
variety of mechanisms (legal, monopolistic employment and through other economic
instruments.) (Konczacki, 1977: 75-76). Indeed, it is worth noting that this pattern has not
changed fundamentally, even today (see Alemayehu 2002a, 2002b for detail).

12 See also Amin (1972) for a political and social analysis of how the region’s commodity production
and exports were controlled.
13 Portuguese colonialism does not qualify as ‘matured’ in his analysis.

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In summary, it has been shown that African nations were in possession of an integrated and
autonomous economic structure prior to their intensive interactions with Europeans. The
historical interaction with today’s developed countries has shaped the structure of the
economic activity of African nations, particularly in the areas of international trade and
finance. Thus, given such historical process it is not surprising to find that almost all African
nations had become exporters of a limited range of primary products, and importers of
manufactured goods, by the time of independence, in the 1960s.14 This was further
accompanied by a demand for external finance, when export earnings were not sufficient to
finance the level of public expenditures required for maintaining and expanding the
commodity exporting economy. This structure has not changed in any meaningful way in the
post-colonial era. Thus, when one examines the financial problems of Africa, which is
related to its role as a primary commodity exporter, as I argued elsewhere (see Alemayehu
2002b), one is compelled to conclude that these problems are a direct outcome of such
historical process.

4. The Implication for the Post-Independence Period

In the previous section I have explained how a primary commodity and external finance
dependent economy has been created. The impact of the subsequent (after political
independence) events of the boom in commodity prices, the oil price shocks of 1973-74
and 1978-79 and the evolution of African debt from the early 1970s onward would be
difficult to understand unless an explicit link is made between the historically formed
structure and the pattern of trade and finance in the period 1970-2000. This section briefly
summarizes this phenomenon. This evolution of African trade and finance in the post-
independence period could be categorized under three periods.

The first period refers to the late 1960s and early 1970s. This period is characterized by the
first oil price shock and the rise in commodity prices. The commodity price boom is
followed by a sharp bust in 1974, and again after 1977 for coffee and cocoa (See Figures 1
and 2). The response in most African countries is a rise in government expenditure in
particular in infrastructure sector. When the commodity price fall governments were not
only unable to cut expenditure but also in need of marinating on going projects. This has
been accomplished by increased borrowing owing to improved credit worthiness when
prices of export commodities rise and due to belief in cyclical nature of prices when
commodity prices decline. This can be read from the pattern of trade and finance in a
number of countries examined in the context of this study15 (See Alemayehu 1997 for
details). The major point that emerges from examining this period is that following the rise
in commodity price and access to loan there was a rise in public expenditure. Given the
inherited colonial structure that necessitated spending on social and physical infrastructure,
the rise in government expenditure (and hence the beginning of debt creation) is not a policy
mistake, as seems to be depicted in the good part of the African debt literature. This

14 In virtually all African countries, one to three commodities account for 50-90% of total exports.
Indeed, in the period 1982-86, in 13 African countries 1 product, in 8 countries 2 products, in 6 countries 3
products, and finally, in 8 African countries 4 products accounted for over 75% of export earning (see
Adedeji (1993) for details).
15 This list includes, Zambia, Sierra Leone, Tanzania, Ghana, Zambia, Kenya, Malawi, Nigeria, Egypt
(See Alemayehu 1997 for detailed information about the evolution of the pattern of trade and finance since
1970 in each of this counties which are picked from each macro regions outlined in this paper).

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 12
spending is necessitated by fundamental problems, which were structural/historical, and the
resulting policies are the reflection of this reality (See Alemayehu 1997).

Figure 1: Price Indices of Some Major Agricultural Export Commodities of Africa (1965=100)

600
500
400
300
200
100
0
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
Cocoa Coffee Cotton
Source: Alemayehu (2000a)

Figure 2 Price Indices of Some Major Mineral Export Commodities of Africa (1965=100)

700
600
500
400
300
200
100
0
65

68

71

74

77

80

83

86

89

92

95
19

19

19

19

19

19

19

19

19

19

19

Bauxite Copper Iron Ore Petroleum

Source: Alemayehu (2000a)

The above analysis shows that the early 1970s was characterized by a rise in the price of
commodities on which African countries had specialized for historical reasons. It was also
a period in which imports of capital and intermediate goods (mainly to develop
infrastructure) increased. This effort was complemented by foreign borrowing. It is at this
particular juncture that almost all countries were hit by the first oil price shock. This shock
was tackled, partly, by resorting to external financing. This was the case in Ghana, Zambia,
Sierra Leon, and many other countries. The same was true in Kenya (although price of

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 13
coffee rose in the first half of 1970s but fall in the second half leading Kenya to finance its
balance of payment deficit by a rise in private capital inflow). Malawi also experienced
similar problems and private capital inflows (especially of supplier's credit) were important
in tackling the balance of payment difficulties. Another way of viewing the latter
phenomenon is to consider the additional external finance (which eventually turned into
debt) requirements of African countries as a policy response to the external shocks they
were facing ( See Balassa 1983 1984, Hardy 1986, Ezenwe 1993). The question is whether
such policy responses were rational. Should the shock be seen as a temporary one? Both
on the part of African governments and creditors these shocks were believed to be
temporary. Given this belief (that is the expectation of an eventual rise in commodity
prices) and given the then prevailing low real interest rate (which was even negative, see
Khan and Knight, 1983: 2), it seems reasonably rational that both lenders and borrowers
responded in this way. As it turned out, the frustration of these expectations (secular
decline in commodity price and rise in real world interest rate) put an enormous burden on
Africa and not on Northern creditors16.

In all these cases the rise in commodity prices during this period was followed by an
increase in government expenditure. True, there were domestic policy problems in
managing public expenditure in this period. However, the nature of public expenditure did
not constitute a reckless spending as is usually implicitly portrayed in the African debt
literature. For instance in Nigeria after the first oil boom nearly 80% of public expenditure
was on physical and social infrastructure. Capital expenditure was twice that of current
expenditure. Public expenditure on trade, industry and mining rose from 7.3% in 1970-74
to 26% in 1975-80, transport from 21.3% to 22.2% in the two periods while general
administration dropped from 22% to 13.6% (Mohammed 1989).17 Contrary to the case of
Nigeria, current expenditure in Zambia was nearly 75% of total expenditure in 1970-74
and this is largely attributed to the Zambianaization policy, which is dictated by the
inherited colonial structure (see Mwale 1983). Nonetheless, from 1972 (strengthened in
1974) the government attempted to curb current expenditure. For instance consumer
durable import was reduced from 28% in 1974 to 18% in 1978. Similarly subsidies, with
attending political costs, had been reduced in the early 1970s (Mwale 1983). In general by
mid 1970s public and private consumption had been substantially reduced from its high
level in 1970 (Mulalu 1987). In Sudan the rise in government expenditure following the
early 1970s was largely owing to decentralization, infrastructure development and debt
servicing (Galil, 1994: 31-33). This pattern was similar in many African countries (See
Alemayehu 1997 for detail).

Thus, following the rise in commodity prices and access to loans there was a rise in public
expenditure. However, this in itself did not constitute a mistake. Given the inherited
colonial structure that necessitated spending on social and physical infrastructure to
address the problem of the hitherto neglected sections of the population; given the
prevailing hope in technology transfer through import substitution; and the uncertainly
about commodity prices, the expenditure was not a reckless spending. In fact, in most

16 The situation was a little different for oil exporters (See Alemayehu 1997 for details).
17 This investment was not without result either. Following this expenditure universal primary
education was almost achieved, more health infrastructure was built, infant mortality rate declined more than
by third. However, the public enterprises built were seriously affected by recession in the North, high import
content (59-60%), lack of domestic demand, which adversely affected their capacity to be self-sufficient (see
Mohammed 1989).

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African countries the relative share of functional expenditure hardly changed following the
commodity boom of 1973-74 in general and 1976-77 for cocoa and coffee exporters. The
capital expenditure did change, however, as noted above, owing to the import substitution
strategy pursued (See Alemayehu 1997). In retrospect, it might appear a policy problem.
However, it is difficult to expect that such infant governments (which were themselves the
result of a unique historic process) would have had full foresight of commodity price
decline18. Even had they had such insight, the root cause of the problem was the
deterioration of the terms of trade. The policy problem that emanated from failing to
predict commodity price collapse and mange demand was a secondary one. This argument
should not be taken as endorsing some white-elephant investments carried in some
African countries, however. Perhaps the major domestic policy problem associated with
the rising expenditure was the way in which the import substitution (IS) strategy was
conducted. While the IS strategy was a sound one, it was carried out in the context of a
disarticulated production and consumption structure. The latter is in particular vivid in the
neglect of: the industrial and agricultural linkages (as it was based on the urban elite's
patterns of consumption); neglect of the future demands for recurrent cost of intermediate
inputs; and development of the human capital required. However, the fundamental problems
were structural/historical and the resulting policies are therefore a reflection of this reality and hence
secondary in their effect19.

This pattern was compounded by another development in the global financial markets.
The oil price hikes not only forced oil importers to become more dependent on
borrowing, they also created what is called the OPEC surplus -pax Arabica? (Bacha and
Alejandro 1982). This surplus was circulated through the international banking system.
The Euromarket became an important source of financing for a number of African
countries, which had never borrowed before (Krumm 1985, Mistry 1988). The situation
was reinforced by a second oil price shock (Kruger 1987, Salazar-Carrillo 1988 in Taiwo,
1991:39; and Ezenwe 1993). The new funds borrowed were spent on mining companies
and major public projects. But, in general, these loans were characterized by harder terms.
When the second oil price shock came in the late 1970s, with commodity prices

18 Let alone the then African government’s, even an international institution like the IMF that was
supervising some countries’ economic evolution (like Zambia) did not foresee some of the events. Observing
this, Mulalu (1987) noted the irony of IMF blame of the Zambian government despite its close monitoring
of that country from 1975.
19 One common comments is that East Asian countries (such as Korea, Singapore and Hong Kong)
that were under colonial rule have developed while Africa is not. Such comments are not credible because
the historical parallel is completely different. Hong Kong and Singapore prospered as enterpots owing to
direct British colonial interest. Moreover, they are city-states incomparable to African colonies. Probably the
only comparable country is Korea and to some degree Taiwan. However, the Japanese colonialism (which
was as harsh as the others) had an aim of creating heavy industry and self-sufficiency in its empire, and,
hence, has done better than the colonizers in Africa. Some figures may substantiate this point. Taiwan and
Korea experienced higher GDP growth than their colonizer (Japan) between 1911-1939; their infrastructure
has also developed (Taiwan having 600 kilometres of rails and 3,553 kilometres of road where there were
none before. By the end of the colonial period primary school enrolment in Taiwan stood at 71% and similar
pattern is observed in Korea. Owing to geopolitical factors (the cold war) Korea, for instance, obtained US
$6 billion grants from USA between 1946-78 compared to US $6.89 billion for the whole of Africa. US
military delivery to the two countries in 1955-78 stood at US $9 billion, the combined figure for Latin
America being US $3.2 billion- one can imagine what the economic impact of this might be (see Chowdhury
and Islam 1993). In Korea alone aid financed nearly 70% of total imports and equalled 75% of total fixed
capital formation (See Haggard 1990 which also provides the political economy of this event). Hopefully, the
above points show that this experience is incomparable to the situation in Africa.

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 15
continuously deteriorating as shown in Figures 1 and 2, most countries were unable to
absorb the shock (Krumm, 1985: 1-9). Thus, by the end of the 1970s the total external
debt grew almost fifteen fold (see Table 2)20.

The second period refers to the late 1970s and early 1980s. The end of the 1970s had
witnessed the second oil price shock. 21 Major commodity prices continue to decline,
prompted, inter alia, by the recession in the industrial countries. The early 1980s was also
characterized by a hike in real interest rate in industrial countries, chiefly due to lax fiscal and
tight monetary policy of the US.22By 1981 the real foreign interest rate was 17.4% compared
to -17.9% in 1973 (see Khan and Knight, 1983:2). The latter aggravated the interest rate cost
of nonconcessional and private debts that became increasingly important during this period
(see Alemayehu 1997 for detail). This development prompted many African governments to
continue borrowing (and get credit) on the assumption of a cyclical turn around in
commodity prices. These new loans were used to finance enlarged oil bills and avoid sharp
politically/socially disruptive cut backs in public expenditure (Mistry, 1988:7). The
experiences of most countries’, such as Ghana, Zambia, Malawi, Tanzania, Sierra Leone,
Libya and Nigeria, discussed in detail in Alemayehu (1997), during this period generally
confirm this pattern.

The third period refers to the late 1980s to the 1990s. This period, as that of late 1970s was
generally characterized by continually declining commodity prices and the deterioration of
terms of trade. For the period 1985-90, when a large number of African countries undertook
adjustment programs, the deterioration in the barter terms of trade of nine major export
commodities resulted in a 40% decline in average export revenue (compared to 1977-79
average), despite a 75% increase in export volume (Husain, 1994:168). As a result, African
countries became more vulnerable to further indebtedness. Moreover, the capitalization of
amortization and interest payment through the Paris and London clubs rescheduling had also
started pushing the debt stock upward in many African countries (van der Hoeven, 1993 and
Alemayehu 1997).

Given this general pattern from the mid 1980s to early 1990s, African economies were
extremely indebted by the end of 1990s. Moreover, not only investment in infrastructure
(like the transport sector) which needed external finance for its maintenance, almost all
countries had become dependent on external finance for securing imported intermediate
inputs and ensuring the smooth functioning of their economy (See Ndulu 1986, Ngwenya
and Bugembe 1987, Fantu 1991, Rattos 1992, Mbelle and Sterner 1991, Alemayehu 2000b).
Thus, throughout the period under analysis the value of import was persistently increasing in

20 However, Taiwo (1991) using regression analysis based on data from eleven Sub-Saharan African
countries (1970-88) noted that the most important factor for the debt crisis was the relative (periphery to
center) level of economic development (measured as the ratio of per capita income of LDC to industrial
world) and to a lesser degree terms of trade, relative prices, real cost of borrowing and openness of the
economy.
21 However, the collapse of oil price from its 1979 hike although relived the oil importing countries it
adversely affected oil exporting economies of North Africa and some of the countries in West and Central
African regions (mainly Nigeria).
22 Besides, the terms for African countries were harder even compared to South Asian countries. For
instance in 1980 African countries on the average had to pay an average interest rate of 6.6% on loans with a
maturity of 18 years. The comparable figures for South Asian countries were 3.1% and 30 years (van der
Hoeven, 1993:1).

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 16
23
almost all countries . This recurrent import demand problem was compounded by actual
running down of the capital stock, including infrastructure.

Thus, starting form the late 1980s such historically structured African economies were
vulnerable to events such as the industrialized economies recession, following the global
monetary shock of 1979-81, which depressed commodity prices. This is also a time where the
world economy witnessed (i) the emergence of high, positive real interest rate throughout the
1980s which increased the debt service burden of indebted countries, (ii) protectionism in the
world market for agricultural products and low technology manufacturing which hampered
diversification attempts and, finally, (iii) the prevalence of repeated official and private
rescheduling, often at punitive terms (see Mistry, 1991:10-11 for detail). This crisis widened
the role of multilateral finance despite being available at unacceptable terms - policy
conditionality. Thus, another major development in the 1980s and early 1990s was the growth
of multilateral debt, especially that owed to the World Bank and African Development Bank
and to a lesser degree the IMF. The main reasons for an increase in debt owed to multilateral
agencies were (a) the stepping in of these multilateral banks to finance the partial bail-out of
commercial banks in the 1980s (See Alemayehu 1997 for detail), (b) the fact that these debts
were denominated in SDR and ECU while most African countries earned their currency in
US dollars, which had depreciated against both SDR and ECU for the last 30 years24 and
finally (c) the growth of adjustment financing (Mistry, 1994, 1996). In sum, by the end of
1990s African countries found themselves not only being extremely indebted but also
structurally unable to pay back their debt.

4. Conclusions

The descriptive analysis at the beginning of this papers revealed that the current level of debt
is beyond the capacity of the continent to service. Thus, the insolvency issue is at the heart
of the African debt crisis. Various contending explanations about the cause of the problems
of Africa’s external economy in general and its external finance in particular have been
forwarded in the literature. These contending explanations range from those that emphasize
policy as the main problem to those that favour historically formed structures. A third view
emphasizes the systemic nature of the crisis. The recent literature on the origin of African
debt problems limits itself largely to the events of the 1970s and late 1980s. Certainly these
are crucial but explain only part of the story. The analysis of the African debt crisis needs a
historical explanation of how a weak and vulnerable economic structure has been built as a
result of Africa’s specialization as a primary commodity exporter. I have shown that this was
the case in Africa. Such analysis also explains how such structure paved the way for
indebtedness by creating the necessity for borrowing and by making debt servicing difficult.

23 An interesting area of further study is to explore the impact of services (especially of insurance and
shipping), which seriously affected a number of small countries in Africa.
24 According to Mistry (1996) if this fact is taken into account one need to question the
concessionality of this debt. For instance the effective average annual exchange-risk adjusted cost of their
concessional debt in US dollars may be between 4-6% annually instead of the 1% or lower coupon rate
which such debt nominally carry. Besides, the residual principal value of the concessional debt, which needs
to be repaid, had increased by between 30-45% in US dollar terms, aggravating the debt servicing problem of
African countries. Thus, since it had not been borrowed in US dollars in the first place, such concessional
debt is as expensive as market debt. This exchange rate effect not only effectively reduces the cocessionality
of such debt (form 80% which donors usually say to 40-50%) but also makes African countries vulnerable to
macroeconomic policies of industrialized countries (Mistry 1996: 26, Alemayehu 2000b).

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 17
It is interesting to ask whether the financial, physical, human and institutional ‘capital’
inventories from colonial era have somewhat reproduced themselves in the last four decades.
The answer is undoubtedly, yes. There are at least four fundamental reasons for this. First,
the demand from the previous colonial powers and hence the pattern of trade and finance is
not fundamentally changed. For instance by 1988 88% of sub-Saharan export went to
Europe (See Sommers and Assefa, 1992 for details). This pattern is not changed by 2002
either. This old division of labour was strengthened by what is called the Lomé convention
(See Amin, 1996). Second, the new agents that came to power after ‘independence’
attempted diversification. This was largely a failure not only due failure in the
conceptualization of the whole process, notably of the disarticulation of agriculture and
industry, but also fundamentally because such efforts required huge investments, which were
beyond their capacity. This severely limited the policy options available. Third, despite
politically both the radical -i.e. radical departure form colonial pattern- Casablanca
(Nasserism, Algerian FLN, Nkrumahism and to a degree followers of Lumumba) and the
moderate- i.e. adaptation to the pattern- Monrovia groups (Ivory Coast and Kenya being the
main) after ‘independence’ have been reconciled to an African perspective by Emperor
Haileselassie of Ethiopia and hence the OAU formation in 1963 (see Amin, 1996), their
subsequent existence in power is informed by maximization of short run gains subject to the
constraint of inherited trade and financial structure. This necessarily implies relying on
primary commodities and loans instead of structural transformation. This is aggravated by
selfish leaders engaged in looting and capital flight. The latter is estimated to be larger than
the total African debt (see Boyce and Ndikumana 2001). Finally, since the mid 1980s (for
some even before that) the economy of Africa was essentially (mis) managed by the Bank
and the Fund which itself is a failure (see Adams 1995, Lall 1995, Mosley and Weeks 1993,
Mosley et al 1995, ECA 1989b among others). It is within this broader framework that the
specific problem of the African external finance and debt crisis and its macroeconomic
ramifications should be understood. This paper points to the fact that debt cancellation is
not a panacea for the African debt crisis. Thus, sustainable solution to the debt problems
requires addressing structural problems – which in this context are trade-related- in the
continent. In short, we need to recognize that the African debt problem is essentially a trade,
not an aid, problem.

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 18
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