By Maxwell Gomera

The streets of Nairobi erupted in chaos last July and, tragically, 39 lives were lost and hundreds more injured as Kenyans, predominantly young people, protested tax hikes and the soaring cost of living. This unrest in Kenya is not an isolated incident, but a symptom of a broader African malaise.

These protests, while often triggered by specific grievances like tax increases or political deadlocks, mask a deeper, more systemic problem: African economies are failing to create jobs at a rate commensurate with the flood of young people entering the job market, while economic inequality continues to widen.

The root of this crisis lies in a vicious cycle of debt and underdevelopment that has long plagued the continent. Saddled with debt from years of coping with crises, low-income countries are being forced to choose between servicing that debt or investing in their people and future.

The scale of this challenge is staggering. The total external debt of low- and middle-income countries reached $9.4 trillion in 2022. More alarmingly, the poorest countries eligible for concessional financing from the World Bank's International Development Association (IDA) paid $23.5 billion in debt-service payments in 2022 - the highest in any single year and a 35% increase over 2021.

Today, 3.3 billion people—more than one-third of the global population—live in countries where debt interest payments exceed spending on education and health, and nearly half of lower-income countries at high risk of debt distress are in Africa. Zambia, Ghana, and Ethiopia have already defaulted, and the shadow of debt distress looms large over half of African countries. 

While re-negotiating or suspending that debt is crucial to allow countries to redirect  repayments towards social expenditures, it cannot solve the underlying problem: increasing development financing needs, declining aid, and limited options for alternative financing. 

To break out of the debt trap and significantly expand their financing options, low-income countries will need to rely much more on internal funding—and that means taking some calculated risks.

And we can. 

The African narrative has long been one of resilience and innovation, and it is through harnessing these qualities that we can forge a new path to self-reliance. Even as many African countries struggle to stay afloat, others are among the fastest growing economies in the world. Even today, African nations fill six of the top 10 economic growth spots for the world in 2024, with Niger, Senegal and Libya leading the pack with projected growth rates of 12.8%, 8.8%, and 7.5% respectively.

Drawing inspiration from the continent’s demonstrated resilience and innovation, two promising options could quickly become available to initiate the shift toward internal financing.

Reforming Pension Fund Mandates

Our pension funds, which have seen impressive growth and managed around US$450 billion in assets as of 2022 according to RisCura, are underutilised. Government rules require that pensions invest their funds conservatively to protect the savings of pensioners. It’s a valid concern, but an overly conservative approach comes at the expense of growth and punishes future generations. 

By recalibrating pension mandates to allow a fraction of these funds to be channelled towards growth-oriented investments, such as infrastructure and business start-ups, we can stimulate economic development while keeping the necessary security for pensioners’ futures. Several African countries have already taken steps in this direction. Nigeria’s Pension Reform Act of 2014 expanded coverage and improved fund management, while Kenya’s Retirement Benefits Act has been amended to allow for more diverse investments. 

Rethinking Sovereign Wealth Funds 

The second strategy entails the prudent use of sovereign wealth funds. Often embroiled in controversy and perceived as a reservoir to service debt, these funds—if managed with discipline—can yield substantial returns on investments in small- and medium-sized enterprises (SMEs), particularly those led by women and youth. 

These SMEs form the backbone of our economies, creating jobs and driving innovation, yet they struggle to secure financing due to perceived risks. By reallocating a fraction of sovereign funds to these enterprises, governments can ignite a virtuous cycle of growth and opportunity. We can learn from successful models like Botswana’s Pula Fund, which invests diamond revenues for future generations, and Nigeria’s Sovereign Investment Authority, which focuses on infrastructure development and stabilisation. 

Creating Alternatives

As we reconsider the role of pension funds and the potential of sovereign wealth funds, we must also confront the realities of traditional banking regulations, which refuse to loan to small and start-up enterprises based on their stringent security requirements.

Therefore, we cannot look to commercial banks to be drivers of growth. To counter this, we must advocate for alternative lending frameworks that acknowledge the unique landscape of African enterprise, allowing for risk-taking in measured and strategic ways. Innovative approaches like M-Shwari in Kenya, a mobile based savings and loan product, and the Africa Guarantee Fund, which provides guarantees to financial institutions to increase SMW lending, offer promising models for the future.

To be sure, other revenue generation strategies are possible. For example, taxation is often touted as a solution to revenue generation. And some forms of taxation could generate needed revenue. But it is also a double-edged sword. Higher taxes on populations struggling with a cost-of-living crisis and government cutbacks in basic services can backfire, as they did in Kenya in 2023 and 2024. 

Our focus should be on creating wealth through strategic investments, not on taxing an already burdened populace.

Africa stands at a crossroads, where the direction we choose could redefine our continent’s destiny. With $74 billion in annual debt payments in 2022 – an amount that exceeds the $64 billion in Official Development Assistance (ODA) we received, according to the OECD and UNCTAD – the time has come to recalibrate our financial strategy. The burdensome debt servicing that stifles our capacity to invest in our own growth and development must change.

The strategies proposed here transcend economic reform; they are a reclamation of our fiscal sovereignty and a declaration of our intent to craft a future dictated by our aspirations, not our debts. The goal is clear: to generate funds for both governments and the private sector, spurring growth from within.

As we stand at this crossroads, the choice we make will determine whether the energy of our youth becomes a force for positive transformation or a destabilising threat. By harnessing our internal resources more effectively, we can create the jobs and opportunities that our young people are demanding in the streets. We can turn their frustration into hope, their anger into productive energy.

The time for bold action is now. We must rewrite the African narrative, not through the lens of debt and dependency, but through innovation, self-reliance, and sustainable growth. Only then can we offer our youth the future they deserve and demand – a future where protests give way to progress, and where Africa's potential is finally realised.

Maxwell Gomera is the Director of UNDP’s Africa Sustainable Finance Hub, and Resident Representative of the United Nations Development Program to South Africa. He is a Senior Fellow of Aspen Global Innovators Group and an expert on public investments, particularly in agriculture and nature.