Investing in Africa’s Future: Why Long-Term Loans are Key, According to Jeffrey Sachs

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Renowned economist and policy analyst Professor Jeffrey Sachs has stated that short-term loans with tenures ranging from 7 to 10 years and high-interest rates pose liquidity problems for Africa, as they fail to consider the continent’s long-term growth potential.

He said while speaking in an interview with CNBC Africa on the sidelines of the Africa Union summit in Addis Ababa, Ethiopia where he faulted international lenders and credit ratings agencies for having a narrow mechanical perspective of the continent.  

According to him, the strategy Africa should adopt is long term growth for long term development stating that the continent can growth by at least 7% for the next 40years.  

  • He stated, “while I want to raise capital for sovereigns, I don’t want to do it on 7yr or 9yr loans. Africa’s development prospects are enormously bright, but they require 25yrs, 30yrs or 40yrs loan. Africa does not have the liquidity in the sovereign debt in the international market, so when rollovers come, there is always a crisis. Not for deep reasons but because of the lack of the institutional framework that is adequate at the international level.” 

He further stated that countries, credit rating agencies, international lenders should key into the right strategy which is long-term borrowing for long term growth.  

More Insights  

  • In the past few years, a few African countries have defaulted on their foreign debt mainly due to lingering growth issues from the covid-19 pandemic and the effects of their war in Ukraine on their local currencies and inflation levels.  
  • The hawkish monetary policy position of central banks across Europe and the United States is also responsible for the elevated interest rates for lending to African countries and short tenure stance of the lenders.  
  • Africa’s huge young population requires substantial investment in infrastructure- transport, communication, education and housing. These can only be built through properly though-out financing.  
  • Governments across the continent have not been that successful in locally raising the capital needed and have turned to foreign lenders with rate of returns occupying their minds rather the development of the continent. 

Source: Nairametrics

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