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AfDB offers strategic solutions for Africa’s debt, forex challenges

The African Development Bank has proposed key strategies for Nigeria and other African countries to address rising debt burdens and foreign exchange issues.

Prof. Kevin Urama, the Bank's Vice-President for Economic Governance and Knowledge Management, shared these insights during a recent interview with the News Agency of Nigeria.

Urama spoke about Nigeria's debt profile, emphasising that when managed strategically, debt can be a powerful driver of economic growth. He stated that debt for growth is a well-established economic development strategy, but that the structure and quality of the debt are critical to ensuring long-term viability.

The AfDB's Chief Economist expressed concern about the growing reliance on short-term, high-cost commercial loans in many African countries, which raises refinancing risks. He explained that countries frequently struggle to repay these loans before the investments mature, forcing them into a cycle of refinancing at unfavourable terms.

Urama urged governments to prioritise securing longer-term loans at lower interest rates. He emphasised that such loans, backed by clear investment strategies that generate long-term returns, would be more effective in managing national debts.

For Nigeria, Urama proposed that the focus shift from the size of borrowing to how borrowed funds are used. He emphasised that infrastructure investments that promote both short- and long-term growth have the potential to turn borrowing into a strategic economic decision.

Concerning foreign exchange and trade, Urama identified Africa's reliance on imports, particularly food, as a significant vulnerability. He noted that geopolitical disruptions, such as the ongoing conflict in Ukraine, have highlighted the dangers of this reliance.

"Africa has no business importing wheat from Ukraine when the continent holds 65% of the world's remaining arable land and has a young, dynamic population capable of driving agricultural productivity," the commentator said.

Urama highlighted AfDB initiatives such as the AgriPreneur program and Special Agro-Industrial Processing Zones, which aim to unlock Africa's agricultural potential.

He cited Ethiopia's rapid transformation as a success story, pointing out that the country went from importing wheat to exporting wheat in just four years thanks to targeted agricultural investment. This, he argued, demonstrates that Africa can achieve food self-sufficiency and even become a global exporter.

Urama also emphasised the importance of political stability and effective macroeconomic policies in addressing Africa's broader economic challenges. He cited Botswana as an example of how stable governance can attract foreign investment and drive 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, emphasising the importance of long-term strategies that promote both political stability and effective economic management.

Finally, Urama emphasised Africa's need to focus on domestic production, reduce reliance on external financing, and stabilise currencies. By implementing these strategies, African countries could overcome debt and foreign exchange challenges, paving the way for long-term economic growth.

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