Nwakego Eyisi's Blog

This is the final part in the ECOWAS outlook series

FOREIGN DEBT TO GDP RATIO

Average debt to GDP ratio for the region is 38.7%. Cote d’ivore, Cape Verde, Senegal, Ghana and Guinea-Bissau have higher debt ratios – above 50% of GDP. The other countries ratios are below 50%.  Nigeria has the lowest debt ratio at 3% of GDP.

Debt profile for the region greatly improved in the last decade due to economic growth and debt forgiveness amongst others. Debt ratios are much better today in the nineties it was north of 80%.

West Africa’s average (38.7%) is much lower when compared to the U.S. and countries in the Euro zone where debt is at least 70% of GDP.

What this means for business and economics in the region is that these countries are in a good fiscal position and governments in the region need not raise taxes to pay off debt. It also bodes well for investor confidence because the government is lean and the economy is efficient.

In the last decade countries in the region have ploughed back monies that would have gone to debt servicing into sectors (infrastructure) of the economy where it is sorely needed. It also signifies prosperity because only well-managed economies can maintain a low debt profile.

Debt accumulation in recent years is due to borrowing to pay for infrastructure projects, oil and food price shocks and increased spending to keep up demand due to the crunch of 2008. It is expected that countries in the region would take on more debt in the future to pay for infrastructure projects – they have the capacity since debt is still very low. At the same time economies in the region are undergoing rapid expansion which means that average debt for the region could still remain low this decade.

BUSINESS ENVIRONMENT

This involves transparency, the rule of law, fight against corruption, enforcing contracts, enabling infrastructure, tax laws, time to register a business and other reforms that is  crucial for private sector growth.

According to the World Bank doing business report for 2010 Burkina Faso, Liberia, Cote d’ivore, Mali and Sierra Leone improved their business environment. Nigeria, Gambia, Ghana, Guinea, Senegal and Togo deteriorated. All in all the business and regulatory environment in the region has greatly improved in the last decade. It is expected that this trend will continue as countries in the region are eager to attract greater foreign direct investment needed to push past growth to development.