Africa Debt Crisis: Diversification & Local Transformation Key to Recovery
Around thirty African countries are on the brink of a debt crisis. Despite dynamic growth, debt is increasing rapidly – and perhaps too rapidly. Gabon, Senegal, Ghana… In total, Africa will have to pay more than $11 billion in debt coming due this year. Breaking the cycle requires investment and local transformation of resources.
A country is considered to be in a debt crisis when its debt becomes unsustainable. Since the oil shock of 1973, this type of crisis seems to repeat itself approximately every ten years. The crisis triggered by the Covid-19 pandemic has left many African countries mired in high levels of debt, despite good growth and the financial instruments put in place to cushion the shock.
“The reality is a lack of transformation that keeps us in, let’s say, a very low position in international value chains,” analyzes economist Hugues Mbadinga Madiya, a former Gabonese minister. “So, we must move forward, we must transform our raw materials a little more. In countries like Botswana, very important initiatives have been undertaken in terms of transformation. You have also followed in Gabon, in the wood sector, the added value of the wood sector has been multiplied by three.”
Senegal, for its part, must pay its creditors $485 million that are due in the coming weeks. African countries pay a high risk premium on financial markets. According to economist Abdoulaye Ndiaye, to hope to get out of this situation, Dakar must invest massively in certain sectors to reduce expenditure: “There are expenditures, which are energy subsidies, which are consumption subsidies, which are necessary. The solution is not only to cut them, but to see how, for example, we can make investments to be more productive, to make investments for cheaper electricity and energy.” These adjustments are necessary, according to the economist: “And I think that otherwise, there will be a debt crisis in Senegal. We may have one again in 2039-2040.”
Limited but Deepened Diversification
To break these cycles of debt crisis, the necessary condition, according to Hugues Mbadinga Madiya, is to go beyond simply balancing public accounts. “A well-managed budget, a credible currency, well-managed reserves, that is important, but it is not sufficient,” estimates the former Gabonese minister. “World economic history has taught us that some countries have developed with two or three products. We must go towards diversification with a few products, but with deepened transformation.”
Botswana has successfully achieved what is called vertical diversification. Rather than multiplying sectors, the country has deepened the local transformation of diamonds, a sector now in crisis but which still represents nearly 80% of its export earnings.
The situation across Sub-Saharan Africa is concerning, with twenty-two low-income countries currently in, or at high risk of, debt distress, according to the World Bank. This assessment is based on structural and economic factors, measuring a country’s debt-carrying capacity against specific thresholds. However, debt isn’t merely an abstract concept; a country struggling to service its debt faces consequences beyond the disapproval of creditors. Defaulting can damage a country’s reputation in global financial markets, discouraging new investment and hindering economic growth – a phenomenon known as debt overhang. Creditors lose confidence in the country’s ability to repay, making it harder to secure new, affordable financing.
The African Union addressed the growing debt crisis at its first Debt Conference held in Lomé, Togo, in May 2025. The conference brought together heads of state, finance ministers, central bank governors, multilateral institutions, and civil society representatives to chart a path towards fiscal sustainability. Discussions focused on strengthening debt governance, improving transparency, and aligning debt practices with national development objectives. A key proposal emerging from the conference was the launch of a Pan-African Credit Rating Agency, intended to ensure debt supports, rather than hinders, Africa’s development goals.
As of 2024, twenty-three African countries were experiencing financial distress, with three having already defaulted or sought formal debt restructuring. Collectively, African countries owe more than $1.8 trillion, a significant portion of which is owed to private creditors who are not obligated to participate in international debt relief frameworks. This presents a significant challenge, as it limits the scope of potential relief measures.
The challenges are compounded by rising global interest rates and falling credit ratings, creating a vicious cycle where increased borrowing is driven by low revenue and economic shocks. As funds are diverted to debt servicing, less is available for social services and economic stimulus, potentially leading to fewer jobs, lower tax revenue, and slower growth. The outlook for 2026 suggests this trend will continue, with borrowing across the continent expected to rise, further impacting citizens’ lives.
Regional solutions, alongside efforts from organizations like the G20, are seen as crucial to addressing the crisis. The African Union is playing a central role in advocating for reforms to global debt systems and strengthening fiscal sovereignty. However, the long-term solution hinges on a shift towards greater local transformation and diversification of economies, moving beyond reliance on raw material exports.