The African Development Bank (AfDB) has offered strategic recommendations for Nigeria and other African nations to address escalating debt burdens and foreign exchange challenges.
These insights were shared by the Bank’s Vice-President for Economic Governance and Knowledge Management, Prof. Kevin Urama, during an interview with the News Agency of Nigeria (NAN).
Addressing Nigeria’s debt profile, Urama noted that debt, when strategically deployed, can serve as a powerful engine for economic growth.
“Debt for growth is a recognized strategy for economic development. However, the structure and quality of the debt are critical in determining its long-term sustainability and impact,” he said.
Reliance on short-term loans
The AfDB’s Chief Economist expressed concerns about the rising reliance on short-term, high-cost commercial loans in African countries, which increase refinancing risks.
“The problem emerges when nations take on short-term loans but cannot repay them before investments mature.
- He added that short loans force a refinancing cycle, often under unfavorable terms.
- He urged governments should prioritize longer-term loans with lower interest rates, backed by clear investment strategies that can generate sustainable returns to service the debt.
- For Nigeria, Urama emphasized that the focus should shift from the scale of borrowing to the effective utilization of borrowed funds.
“The question is not whether Nigeria should borrow but how those resources are being deployed. Investments in infrastructure that drive short- and long-term growth make borrowing a strategic move,” he added.
Addressing FX challenges through local production
On foreign exchange and trade, Urama highlighted Africa’s dependence on imports, particularly food, as a key vulnerability.
He noted that geopolitical disruptions, such as the war in Ukraine, have exposed the risks associated with this dependency.
“Africa has no business importing wheat from Ukraine when the continent holds 65% of the world’s remaining arable land and boasts a vibrant, youthful population ready to drive agricultural productivity,” he stated.
- The AfDB’s initiatives, such as the AgriPreneur and Special Agro-Industrial Processing Zones (SAPZ) programs, are tailored to unlock Africa’s vast agricultural potential.
- Urama pointed to Ethiopia’s recent transformation as a model for the continent.
“Ethiopia transitioned from being a wheat importer to a wheat exporter within four years through focused agricultural investment. This demonstrates that Africa can not only achieve food self-sufficiency but also become a global exporter,” he noted.
Political stability and economic resilience
Urama also stressed the importance of political stability and sound macroeconomic policies in addressing Africa’s broader economic challenges.
He cited Botswana as an example of a nation that has successfully leveraged stable governance to attract foreign investment and stimulate economic growth.
“When political stability and good governance are in place, the cost of capital decreases, investments flow more freely, and economic growth accelerates,” he said.
The AfDB Vice-President emphasised the necessity of long-term strategies that focus on political stability, sound economic management, and local production to reduce reliance on external financing and stabilize currencies.
