According to the Corporate Finance Institute, public finance refers to the management of a country’s revenue, expenditures, and debt obligations through various government and quasi-government institutions. More simply, public finance is the system by which governments mobilize, manage, and allocate public resources to meet the needs of their citizens and advance national development. Ultimately, the way a nation raises revenue, manages debt, allocates spending, and enforces accountability in the use of public funds determines the overall wellbeing of its people.

Public finance, therefore, is not simply a government ledger; it reflects a nation’s constitutional values and legal integrity. When managed effectively, public finance can serve as a cornerstone for economic growth, sustainable development, and prosperity. Public financing stands at the heart of the African Development Bank Group’s commitment to advancing accountable governance, sustainable development, and national resilience.

Nations that enhance rule of law and adhere to good governance achieve higher growth rates, equitable development and are more stable. The judiciary plays a major role in shaping the trajectories of development of nations. The theory of justice and development offers a powerful contextual framework

The Global Rule of Law Ind from 1996-2023 (Source: The Global Economy.Com) shows that the topmost 6 countries are Finland, Denmark, Norway, Switzerland, Austria and Luxembourg. African countries ranked very low on the global rule of law index, starting in the 60th position with Seychelles, Botswana (70th), Rwanda (80th), South Africa (85th), Ghana (97th) and Morocco (111th). Kenya ranked in the 111st position, while Nigeria ranked in the 151st position.

Africa must do better on the rule of law index. That is because the rule of law, which also includes the sanctity of contracts, is an important factor in attracting investments to countries. So important is the rule of law in attracting foreign direct investment that the American Bar Association has in place a rule of law initiative to “promote justice, human dignity and economic opportunity through the rule of law”, which it considers a “necessary condition for robust economic development”. (David Dettman, 2024 “Upholding prosperity: the economic benefits of the rule of law”. Centre for Global Development Programs News, USA).

To fill financing gaps, nations turn to foreign direct investment. Africa faces an annual foreign direct investment financing gap of over $100 billion. Evidence suggests that foreign direct investments move more to countries that have political stability, stable democracies, transparency and low levels of corruption.

Other important drivers include independent and transparent judiciary, strong regulatory frameworks, public accountability, efficient public service, competition policy, as well as respect for intellectual property rights. (Samina Sabir, Anum Rafique, and Kamran Abbas, 2019: “Institutions and FDI: evidence from developed and developing countries’ Financial Innovation, 5, Article No. 8).

These factors are especially important for Africa, where many countries rely on revenues from natural resources to finance their economies, including oil, gas, minerals, metals, forests, marine resources and vast lands for agriculture.

However, this richness in natural resources has not always translated into economic prosperity. At the heart of the dissonance is the issue of governance and rule of law over natural resources. Nations that have strong natural resource laws and rule of law have been able to turn their natural resources into wealth for their population.

Africa’s natural resource-rich countries should learn from successful experiences of countries that have turned their natural resource wealth into prosperity for their populations. Norway, which relies largely on oil and gas, has in place strong and transparent natural resource laws that guide concessions, acquisition and exploration of natural resources, while protecting biodiversity and securing the prosperity of future generations. Through such laws and regulations, Norway has been able to establish the largest sovereign wealth fund in the world, worth about $1.9 trillion from revenues from its oil and gas for the benefit of generations. Norway is a AAA-credit rated country.

Saudi Arabia, which relies on oil and gas for its economy, today has its national oil company, Aramco, with a market capitalization of over $1.6 trillion.

What lessons can African countries learn from this?

First, there is nothing really called ‘natural resource curse’; how could what makes some nations rich end up making some poor? The difference lies on governance, transparency and public accountability over natural resources.

Second, natural resources of countries should be targeted for the benefit of the people; avoiding rent seeking, rent grabbing, and elite-driven state capture or  corruption.

Third, communities should be involved in the management of natural resources; and strong efforts should be made to ensure that multinational corporations are held accountable for environmental externalities based on the polluter pays principle.

Fourth, the judiciary should play a greater role in development of natural resource laws that ensure good governance over the nation’s natural resources. The judiciary should also play a greater role in ensuring compliance with these laws.

Fifth, nations should have a longer-term perspective on their natural resources. Earnings from natural resources should be invested in building human capital, social development and infrastructure, which will ensure the sustainable development of their economies.

Nations should guard against wasting windfall revenues from natural resources by simply ramping up public expenditure. Rather, they should establish and grow their sovereign wealth funds and pension funds. These funds are important to secure the prosperity of future generations.

I would also like to propose that the judiciary should get involved on the issue of rising public debt for developing countries, especially in Africa. Today, Africa’s public debt has exceeded $1.3 trillion. The structure of debt has changed over time, as traditional concessional debt from multilateral and bilateral creditors are declining and being overtaken by reliance on Eurobond debt to commercial creditors. The change in the structure of Africa’s debt which has led to a greater reliance on commercial creditors has raised a lot of challenging legal issues for many African countries.

While restructuring of debt of nations, official and commercial creditors are required to agree on comparative debt treatment to bring debt to manageable levels. However, the framework has always been undermined by uncooperative private creditors. By refusing to sign on to the debt restructuring frameworks, the holdouts devise legal plots to rip countries off.

‘Vulture funds’, backed by hedge funds, buy off the debt of countries on secondary markets at a discount. Then taking advantage of the lack of a legally binding framework or global institution for dealing with bankruptcy of nations, they turn around to sue debtor nations for full payment of the discounted debt, including backdated interest payments, and legal fees. From Argentina to Greece, Brazil and Puerto Rico, vulture funds have raked in billions of dollars from their legal profiteering approaches. Africa has not been spared.

The vulture funds take advantage of legal jurisdictions in creditor countries where they always secure favorable judgements. Let me cite some examples based on reporting by Jubilee USA.

Two vulture funds bought a 30-year-old commercial bank debt of Liberia for $6.5 million in 2009. They then took the country to court to make claims for full payment of the discounted debt. By the time of a UK court ruling in 2010, the debt claim had risen to $43 million. Jubilee USA network report cases for Democratic Republic of Congo, where an American vulture fund bought an $ 8 million worth of debt for a discounted value of just $800,000. It then sued the country to pay back $27 million. In Zambia, a vulture fund bought a $30 million debt of Zambia for a discounted value of $3.3 million. It then took the country to court and secured a judgement in its favor for over $55 million, which was eventually settled for $15.4 million.

What lessons can African learn from these experiences and what roles can the African legal profession play?

First, the practice where debt agreements are signed and subject to law in jurisdictions that have been known to always favor the creditors not the debtor nations should be reviewed to ensure fair hearings, equity and justice before the law. Investors choice of foreign jurisdictions suggest preferences for legal systems they know and trust, and their belief that there is rule of law and judicial independence, transparency in their nations. By implication it suggests that they do not trust the judicial systems in African countries. African judiciary systems should rise to this challenge. They must assure judicial independence that engenders trust and confidence of foreign investors in dealing transparently, justly and fairly with disputes – essentially, assure the rule of law. This will be further enhanced through greater ethical standards and reduction of perceived corruption in the judiciary. There is no substitute for a very transparent, capable, fair, just and independent judiciary to curtail currently existing moral hazards in the global debt arbitration systems.

Second, African countries should also prioritize legal arbitrations in African jurisdictions. Equally important is building and strengthening of the capacity of African arbitral institutions. The establishment of the African Arbitration Academy, to train young arbitrators, is a good development. Such efforts should also deepen and strengthen partnerships at the national and regional level arbitral institutions, while aligning with international arbitral institutions and treaty agreements.

Third, investors should use Africa-based arbitration systems for loans and agreements signed with African governments and corporate entities. This will avoid the inherent biases, cultural differences and loopholes often existent in legal systems of the creditor countries, as well as lack of sensitivities to local contexts of nations.

Fourth, the judiciary should get more involved in the development of their countries and move beyond the text-based interpretations of law and the constitution, as important as those are. When, for example, vulture funds take advantage of legal loopholes in international debt resolution frameworks, threaten the asset of countries through enforcement of liens on national assets; the judiciary should get involved in safeguarding their countries’ national interest and assets.

Fifth, to prevent the pernicious effects of vulture funds on debtor countries, global debt resolution systems should have enforcement systems that prevent free transferability or assignment of sovereign debt, where they can be easily bought at discounts on the secondary debt market and used for subterraneous financial motives.

It is clear that many African countries lack the capacity to properly negotiate public contracts. Yet, these contracts will shape the future of economies. That is why the African Development Bank established the Africa Legal Support Facility, to support African governments to protect their sovereignty, negotiate fairer deals, and defend their constitutional and economic rights.

Since its inception, the African Legal Support Facility has supported over 50 African countries in negotiating and renegotiating commercial, extractive, infrastructure, and sovereign debt contracts. Through its work, the Africa Legal Support Facility has helped to avert more than $ 4 billion in potential public losses; resources that have been redirected toward national development.

We must collectively strengthen constitutionalism, insist on accountability in the use of public funds, and strengthen the legal system and the judiciary.

We must champion environment, sustainability and governance principles, ensure that courts have suitable quality infrastructure, digitize our courts, build digital trust, and reform and uphold the ethics of the legal profession.

As we strive to do this, while strengthening a just, fair, independent and incorruptible judiciary, the benefits for societies will be immense across the continent: Africa will attract the capital it needs. Businesses will flourish in trust. Justice will cease to be a privilege, and become a right, delivered to all. And development will no longer be a distant promise, but a daily reality in the lives of people. And this will be true for all of Africa.

When Africa stands for the rule of law, the world will stand with Africa. Let us make a choice that history will record, and generations will remember. Kenya is watching. Africa is waiting. The future is calling. And it is the lawyers, the judges, the arbitrators, who must answer that call.

Let us rise together, to build a stronger, freer, fairer, and more prosperous Africa. Lawyers, justices and guardians of the law ought to uphold the rule of law. They should execute justice with fairness and righteousness. For we are created equal before God, the lowly and the rich, the weak and the powerful. And at the end of time, when we all stand in judgment before God the creator of all, we should do so, with clean conscience that we dispensed justice rightly, justly, with equity, protecting the weak and defending what is right for our nations.

May we have the courage, always, to do the right thing. And may history judge us right!

By Dr. Akinwumi A. Adesina,

President and Chairman, Boards of Directors, African Development Bank Group