For too long, the narrative around African development has been shackled by a simple, yet profoundly misleading, idea: that for big projects to happen, Africa needs foreign money. We’ve been told that without vast loans from international institutions or direct foreign investment, ambitious infrastructure — the very backbone of progress — remains an unattainable dream.

But what if I told you that this narrative is largely a myth? What if the true constraint isn’t a lack of dollars, euros, or yen, but something far more fundamental, and entirely within Africa’s grasp?

Let’s look at a monumental example that’s literally reshaping the landscape of East Africa: the Grand Ethiopian Renaissance Dam (GERD).

The GERD: A Testament to Self-Reliance

Picture this: a colossal hydroelectric dam, over a mile long and over 500 feet high, capable of generating over 5,000 megawatts of electricity. It’s an engineering marvel, a multi-billion dollar project ($5 billion, to be precise), and a source of immense national pride for Ethiopia. Now, here’s the kicker: the overwhelming bulk of this funding, roughly 80-90%, was sourced domestically.

Think about that for a moment. A developing nation in the Horn of Africa, against significant geopolitical headwinds and without the backing of traditional international lenders, embarked on and largely funded one of the largest infrastructure projects on the continent.

How did they do it?

The answer lies in understanding how modern fiat monetary system really works.

Beyond the Myth of Foreign Money: The MMT Lens, Money as an IOU of the Issuing Government

MMT fundamentally challenges the idea that a sovereign government, which issues its own currency, is financially constrained in the same way a household or a business is. As Stephanie Kelton succinctly puts it, “It’s not about the money, it’s about what the money can buy. A money-issuing government cannot run out of its own money, but it can run out of what money can buy”. 

Fadhel Kaboub, a leading MMT scholar from our own African soil, further affirmed: “Fiscal space is constrained by potential inflation risks, which may materialise for two reasons: first, inflation occurs due to the lack of real productive capacity such as skilled labour, infrastructure, technology and other inputs. The good news is that productive capacity is producible, and its production creates even more jobs.”

The Ethiopian Government is the monopoly issuer of the Ethiopian Birr. The Commercial Bank of Ethiopia (CBE), a state-owned institution, became the primary financing vehicle for the project. 

This isn’t magic; it’s a recognition that a government that issues its own currency doesn’t need to “find” or “borrow” that currency in the same way a consumer borrows from a bank. Legal scholar Robert Hockett points out in his book Money From Nothing that money, especially a government-issued currency, is fundamentally a promise-to-pay. It is a transferable IOU, a legal promise that the government will accept its own money to pay for things like taxes and fees.

Because a monetarily sovereign government has the sole authority to issue its own currency, it can never run out of these promises. It can always issue more to meet its obligations.  The Ethiopian Birr, like the US Dollar or the Japanese Yen, is ultimately a public monopoly, an IOU of the issuing government. The government can issue these IOUs to mobilise available resources.

The Power of Real Resources and Local Capacity

This is where the GERD’s story truly shines. Ethiopia didn’t just print Birr; it systematically built and leveraged its local capacity:

• Local Labour: Tens of thousands of Ethiopians were employed, their wages paid in Birr.
• Domestic Materials: The vast quantities of cement and rebar needed for the dam were supplied by Ethiopian companies, many with significant state influence or ownership (like Messebo Cement, connected to state-affiliated endowments). Even the sand, gravel, and crushed stone (aggregate) were sourced from quarries near the dam site.
• Engineering and Expertise: While some specialised expertise was brought in, Ethiopian engineers and workers gained invaluable experience, building critical skills for future projects.

By focusing on developing these domestic industries and utilising local labour, Ethiopia ensured that the money spent on the GERD circulated within its own economy, creating jobs, fostering skills, and strengthening its industrial base. The limited foreign currency needed was for highly specialised components like turbines, often financed through targeted agreements (like with China’s Exim Bank) and diaspora bonds.

A Blueprint for African Prosperity

What does this mean for Ghana, for Nigeria, for Kenya, or any other sovereign African nation?

It means that the potential to fund our own grand visions — the roads that connect communities, the schools that educate the next generation, the hospitals that heal, the renewable energy projects that power sustainable growth — is far greater than conventional wisdom suggests.

The primary hurdle isn’t a scarcity of dollars or euros; it’s the deliberate and targeted mobilisation of available real resources within the domestic economy.

The lesson from Ethiopia is clear:

1. Embrace Monetary Sovereignty: Understand that as an issuer of your own currency, you have the capacity to mobilise domestic resources.
2. Invest in Local Capacity: Prioritise the development of domestic industries that can supply essential materials (cement, steel, construction equipment), skilled labour, and engineering expertise. This includes strategic state-led investments and fostering robust private sectors.
3. Strategic Use of Foreign Currency: Reserve your hard-earned foreign exchange for truly essential imports that cannot be produced domestically.
4. Manage Inflation: While money, and IOU of the issuing government isn’t a constraint, real resources are. Ensure that government spending to mobilise these resources doesn’t outstrip the economy’s productive capacity, leading to inflation. This requires careful planning and a deep understanding of the real economy.

Imagine an Africa where nations are not perpetually beholden to external lenders for their development dreams. An Africa where multi-billion dollar projects are funded by the ingenuity, labour, and resources of its own people. The Grand Ethiopian Renaissance Dam isn’t just a dam; it’s a powerful symbol and a practical demonstration that this future is not just possible, but already being built. African governments have the power to issue their own promises-to-pay; the challenge, and the opportunity, lies in ensuring those promises can buy the real resources needed to build a brighter future.

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Noah Adablah
Development Finance, Reimagined