The African Development Bank has warned African nations, including Nigeria, about the dangers of short-term, high-cost commercial loans and advocated for more sustainable debt solutions and long-term financial planning.
The Bank’s Vice-President for Economic Governance and Knowledge Management, Prof. Kevin Urama, spoke in an interview about the significance of responsible borrowing practices.
“Debt for growth is a well-known technique for economic progress. However, the debt’s structure and quality are important to evaluating its long-term viability and impact,” Urama noted.
He warned that short-term borrowing often traps countries in problematic refinancing cycles.
“The problem emerges when nations take on short-term loans but cannot repay them before investments mature,” he explained, urging governments to opt for longer-term loans with lower interest rates.
He further advised that such loans should be tied to investment strategies capable of generating sustainable returns.
Focusing on Nigeria, Urama highlighted that effective use of borrowed funds is more important than the amount borrowed.
“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 foreign exchange vulnerabilities, Urama pointed out Africa’s heavy dependence on food imports as a significant economic risk, citing the Ukraine war as an example of this fragility.
“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 asserted.
He referenced AfDB initiatives such as the AgriPreneur and Special Agro-Industrial Processing Zones (SAPZ) programs as key to unlocking Africa’s agricultural potential.
He praised Ethiopia’s transformation from a wheat importer to an exporter within four years, demonstrating that focused investment in agriculture can lead to self-sufficiency and global competitiveness.
Urama also emphasized the role of political stability and sound macroeconomic policies in attracting investment. He cited Botswana as an excellent example, saying that “the cost of capital falls, investments flow more freely, and economic growth accelerates when political stability and good governance are in place.”
Urama concluded by urging long-term plans that put an emphasis on political stability, efficient economic management, and boosted domestic manufacturing in order to lessen reliance on outside funding and stabilise African currencies.