Can the Debt-for-Nature Initiative Solve Africa’s Debt Problem?

How would it feel for African nations to be debt free? Would the Debt-for-Nature Initiative help to achieve this dream?

In light of the worsening debt situation in Africa, there have been some humanitarian initiatives to solve this problem. A good example is the Debt-for-Nature Initiative. The World Wildlife Fund pioneered the concept of the debt-for-nature swap and successfully executed its first swap in Ecuador in 1989.

Debt-for-nature swaps leverage funds for use in local conservation efforts, by buying discounted debt in secondary equity markets and exchanging it for local currency investments in the indebted country. This is particularly effective in reducing debt and providing funds for conservation projects because there is no transfer of ownership of the debtor repatriation of capital abroad.

So, essentially the person who buys the debt from the creditor writes it off on condition that a local currency equivalent of a percentage of the debt written off is invested in a conservation project. A good success story is in Bolivia, which was actually the first implementation of the debt-for-nature swap. In 1987, the Government of Bolivia and Conservation International (CI) signed the first debt-for-nature swap agreement.

Under that agreement, CI was able to acquire US$ 650,000 of Bolivian external debt at a discounted price of $100,000. In return, the Government of Bolivia undertook to provide the Beni Biosphere Reserve with maximum legal protection and to create three adjacent protected areas.

It also agreed to provide $250000 in local currency for management activities in the Beni Reserve. The success of this project opened the door for other countries to enter such agreements including African countries such as Kenya and Ghana.

This can be a model for other similar initiatives, for example, Debt-for-Education, or Debt-for-Health, where the governments could pledge a percentage of the debt written off for direct use in education and health programs.

This could go a long way in alleviating poverty given that currently, African governments spend 20% of GDP on debt repayment versus less than 5% on health or education. Support has also been drumming up recently across the worlds for a complete debt cancellation initiative. Though complete debt cancellation at this point seems far-fetched enough pressure can result in better concessions for the African countries.

The Commission for Africa set up by the former British Prime Minister, Tony Blair, released a report which includes a demand for a onetime 100% debt cancellation for countries that need it and whose governments can make good use of it.

Very little was achieved through this before his tenure ended as he was having hard times convincing the rest of Europe. Germany, for example, claims it is currently more preoccupied with domestic economic problems to expend much energy and cash in Blair's project for Africa.

What are your thoughts, do you think this will work in the African context and should Tony Blair’s report be adopted?

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