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Africa’s debt sustainability: cause for concern?


Many African countries were caught in a debt trap at the turn of the century. A number of initiatives, most notably the Highly Indebted Poor Countries Initiative (HIPC), resulted in constructive but challenging negotiations and the debts of African nations being written off by the Paris Club of lenders in 2007. With the slate rubbed clean, African governments were free to borrow again. Today, eight countries are once more at risk of falling into a debt trap. Their chances of negotiating debt relief are grim.

Demographics and democracy

In the face of low domestic savings rates, it’s understandable that governments would want to borrow to invest in critical infrastructure and economic diversification. But in most cases, loans have been used to plug fiscal deficits and finance short-term political objectives. Ghana for example, used the proceeds of a debt raise to double some civil servants’ salaries.

In general, borrowing has failed to generate the revenues needed to cover increased levels of debt service, leading to a vicious cycle of rollover financing.  In a small number of cases loans have been embezzled. The case of Mozambique and the $2.4bn ‘tuna bonds’ scandal is perhaps the most brazen. On 17th October 2019, a former Credit Suisse banker confessed to a jury in Brooklyn that he had pocketed $45mn from the deal.

Rapid population growth in Africa (26 nations expect their populations to double by 2050) places pressure on governments to raise finance to serve expanding populations, while the spread of democracy encourages short-termism and myopia that doesn’t look beyond the next election cycle.  After all, politicians don’t win elections with promises to raise taxes and reduce public service spending.

The rise of commercial lenders

In the aftermath of the global financial crisis and the Eurozone crisis in 2008,  commercial lenders such as hedge funds and banks, and even high net worth individuals, moved into emerging and frontier markets in search of higher yields (African interest rates were higher than other regions, while rates in the West were at historical lows). African debt became a hot commodity and African governments were inundated with offers from banks and brokers to borrow on the private market.

Suddenly African governments had access to easy credit again, albeit at rates of interest that caused debt servicing costs to increase rapidly.  According to the Brookings Institute,’’ interest costs as a share of government revenues doubled from 5% in 2012 to 10% in 2017, its highest level since the early 2000s.’’  Today interest costs account for 10% of government revenues in seventeen countries, compared with six countries in 2012. This increase has been particularly large in Angola, Nigeria, Ghana and Burundi. Rising by almost 20%.

African governments raised more than $25bn from Eurobonds in 2018 alone, the third consecutive annual record. The practice continues to this day. Last week the Kenyan government announced its intention to borrow $4.1bn from external lenders (a total of 44 loan agreements), having been granted parliamentary approval for an increase in the country’s debt ceiling to $85.7bn. Parliament’s approval has opened the door for another $38bn on top of existing debt of $56bn (in June) and takes the nation’s debt to unprecedented levels.
Average external debt payments on the continent doubled between 2015-2017, from 5.9% to 11.8%. Much of this is commercial borrowing, accounting for 32% of total debt, and 55% of interest payments.

Table 1: Eurobond yields
Yield (mid)
USD 1.75 billion
EUR 500 million
USD 1 billion
USD 1.5 billion
USD 1 billion
Cote d’Ivoire
USD 571.5 million
USD 1 billion
USD 1.25 billion
USD 750 million
USD 750 million
USD 400 million

New colonialism

A ‘new colonialism’ is a term that was coined at the start of the century to reflect China’s growing influence in Africa and the proliferation of loan agreements underwritten by Chinese state-owned banks to African governments. When presenting the United States’ ‘New Africa Strategy’ in December 2018, Ambassador John Bolton said: ‘’China uses bribes, opaque agreements, and the strategic use of debt to hold states in Africa captive to Beijing’s wishes and demands.’’ Readers of the Wall Street Journal or New York Times could be forgiven for thinking that Chinese lending to Africa was responsible for the current levels of debt in Africa. It is not.

It’s easy to overestimate Chinese lending to Africa. $140bn was loaned to African nations by Chinese banks between 2000 to 2017.  While the sum is large, it accounts for only 20% of all debts owed by African nations to foreign lenders today. Nor are the terms of China’s loans predatory. The China Export Import Bank (Exim Bank), which is responsible for about 70% of Chinese loans in Africa lends at a fixed average rate of 2%.  Moreover, of the eight African nations that are categorized as being under debt distress, the proportion attributable to Chinese debt is negligible. 

Debt Distress

African debt levels have risen steadily from 38% of GDP to 59% of GDP between 2012-2018 (Debt to GDP is a measure of what a country owes, relative to its ability to pay).  Seven African countries today have a ratio above 80% – Eritrea, Cabo Verde, Mozambique, Angola, Zambia, Egypt and the Gambia. That’s 188 million people served by a public sector that in many cases is ill-equipped to manage these funds efficiently and productively.

Table 2: Public debt above 80% of GDP

Countries with Debt-to-GDP level above 80%
Debt as % of GDP in 2019 (IMF)
Cabo Verde
Gambia, The

In the past, when debt crises occurred and nations were facing default, they could negotiate with sovereign creditors. Today, nations must negotiate with a more diffuse creditor base comprising commercial lenders and vulture funds who buy debt on secondary markets, often at deep discounts with the intent of suing the debtor for full recovery. Vulture funds have averaged recovery rates of about 3 to 20 times their investment, equivalent to returns of (net legal fees) 300%-2000%.

Their practice is simple: purchase distressed debt at deep discounts, refuse to participate in restructuring, and pursue full value of the debt often at face value plus interest. The African Development Bank (AfDB) cites one recent case against Zambia, where a vulture fund, having bought a debt for US$3 million, sued Zambia for US$55 million and was awarded US$ 15.5 million.

Table 3: Debt as a proportion of GDP

Debt as % of GDP in 2019 (IMF)
Cabo Verde
Gambia, The
Republic of Congo
Sao Tome and Principe
Sierra Leone
South Africa
Côte d'Ivoire

Risk of contagion

The backdrop of dimming economic prospects off the continent provides aggravated cause for concern on the African continent. In its half yearly update published in October 2019 the IMF said that almost 40% of the corporate debt in eight leading industrialised countries – the US, China, Japan, Germany, Britain, France, Italy and Spain – would be impossible to service if there was a downturn half as serious as that of a decade ago. 

The World Bank’s Chief Economist for Africa points to the real fragility of those African nations who have seen an increase in debt by more than 20% points over six years, in the event of a global downturn. Commodity price slumps, a natural disaster or conflict would have similar devastating impacts. Renaissance Capital, an investment bank focused on emerging and frontier markets, worries that a large spike of $12 billion in repayments is due by African governments in 2024—mostly from smaller oil-importing countries. This would be hard to roll over if the global economy in 2024 is in bad shape.

Public debt dynamics

The US has a 77% public debt to GDP ratio, while France had a ratio of 98.4% at the end of 2018.  In cases where governments have the capacity to bear high levels of debt, there's little reason for concern. But research conducted by the Brookings Institute concludes that ‘’public debt dynamics in many countries in sub-Saharan Africa are now working against their stability and growth.’’ They found that ‘the quality of policies and institutions has deteriorated or not improved in most African countries,’ with the biggest deterioration occurring in countries that have witnessed the highest increases in public debt. This should concern us.

What next?

The IMF is working to address the risk of default in nations facing debt distress. Under its IDA programme it has established a Sustainable Development Finance Policy (SDFP). Under this initiative they will engage with the non-Paris Club — the so-called emerging donors – to help restructure African nations’ debts where possible, and to ensure they remain eligible beneficiaries of IDA funding.

While you will never hear them speak of conditionalities, the IMF intends to use the next two years to push for measurable progress in the policy actions needed for debt sustainability. In instances where there is no measurable progress, they will reduce the allocation for the third year. Constructive engagement between the IMF and the governments of Ghana and Gabon have resulted in measures to successfully reduce their debt burdens in recent years, while the merry dance that has played out between the Government of Zambia and the IMF has failed to achieve the same results. Zambia’s external debt stock today stands at more than $19billion (a debt to GDP of 74%). It stood at just $3bn in 2008. 

Structural and governance constraints

The fact that nations face the prospect of another debt crisis less than two decades after HIPC debt relief was granted, is a reminder that structural and governance issues still pose a challenge on the continent. Domestic resource mobilization, through efficient tax revenue collection and domestic financial markets, forms an important part of the solution. 

Combating illicit financial flows and strengthening natural resource governance, is important too. And finally, accountability. We have to address the fact that governments can borrow billions of dollars on the Eurobond market with little or no accountability regarding the use of the proceeds, as Andrew Roche points out in his article published on 17th October 2019 in the FT.

So, what needs to happen next?

Firstly, African governments must stop denying that a problem exists.  Secondly, when issuing bonds, they should present full prospectuses, identifying clearly how the funds will be spent. The ‘don’t ask, don’t tell’ approach cited by Roche which characterises most bond issuances is irresponsible, and in the case of the Mozambican example I cited above, damn right criminal.  All revenue raises should be subjected to parliamentary scrutiny and to ESG performance principles, to ensure that the proceeds are invested in areas that generate improved performance at low risk and conform with environmental and social impact criteria. Such scrutiny should be rewarded with improved risk ratings for the nation.

For their part, issuers should be obligated to reveal the full costs of a transaction, including the costs of the underlying goods (in the case of Mozambique, the real cost of the tuna fishing fleet, and the cost of the inducements also!). Nor is the full cost limited to items appearing on the balance sheet. As Sylma Du Plessis, partner at Alkebulan reminds us, ‘many deals are structured in such a way that commitments are given off the balance sheet, whether through direct government guarantees or indirect take or pay offtake arrangements, such as power purchase agreements that place commitments directly or indirectly on the State (as in the case of Eskom in South Africa).

The role of the World Bank (IFC and MIGA) in structuring and insuring credit must improve also. These institutions often provide credit support to banks where most of the value ends up with the banks, not the country itself – in particular with difficult-to-price derivatives that get guaranteed by insurance companies and MIGA and are not always priced appropriately based on market prices, leading to significant mark to market gains for banks and limiting the credit lines available to countries.  

And finally, industry should take note  that high  levels of debt distress leads governments to  introduce new taxes (in 2019 the Zambian government has attempted to introduce a new sales tax),  or to pursue arbitrary and discriminatory enforcement of regulations aimed at  raising the funds they need to bridge the deficit. In such instances, companies would be wise to anticipate regulatory shifts and to work with industry peers to proactively raise and resolve concerns, while presenting feasible alternatives. Saying nothing and doing nothing is an act of sabotage.

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Can we cure ourselves from the cancer of corruption?

28th October 2020
DCEC DIRECTOR: Tymon Katholo

Bokani Lisa Motsu

“One of the saddest lessons of history is this: If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It’s simply too painful to acknowledge, even to ourselves, that we’ve been taken. Once you give a charlatan power over you, you almost never get it back.” Carl Sagan

Corruption is a heavy price to pay. The clean ones pay and suffer at the mercy of people who cannot have enough. They always want to eat and eat so selfishly like a bunch of ugly masked shrews. I hope God forgives me for ridiculing his creatures, but that mammal is so greedy. But corruption is not the new kid on the block, because it has always been everywhere.

This of course begs the question, why that is so? The common answer was and still is – abuse and misuse of power by those in power and weak institutions, disempowered to control the leaders. In 1996, the then President of The World Bank, James D. Wolfensohn named the ‘C-Word’ for the first time during an annual meeting of the Bretton Woods Institutions. A global fight against corruption started. Transparency International began its work. Internal and external audits mushroomed; commissions of inquiry followed and ever convoluted public tender procedures have become a bureaucratic nightmare to the private sector, trying to fight red tape.

The result is sobering corruption today is worse than it was 25 years ago. There is no denying that strong institutions help, but how does it come that in the annual Transparency International Ranking the same group of countries tend to be on the top while another group of countries, many African among them, tend to be on the bottom? Before one jumps to simple and seductive conclusions let us step back a moment.

Wolfensohn called corruption a cancer that destroys economies like a cancer destroys a body. A cancer is, simplified, good cells in a body gone bad, taking control of more and more good cells until the entire body is contaminated and eventually dies. So, let us look at the good cells of society first: they are family ties, clan and tribe affiliation, group cohesion, loyalty, empathy, reciprocity.

Most ordinary people like the reader of these lines or myself would claim to share such values. Once we ordinary people must make decisions, these good cells kick in: why should I hire a Mrs. Unknown, if I can hire my niece whose strengths and weaknesses I know? If I hire the niece, she will owe me and support my objectives.

Why should I purchase office furniture from that unknown company if I know that my friend’s business has good quality stuff? If I buy from him, he will make an extra effort to deliver his best and provide quality after sales service? So, why go through a convoluted tender process with uncertain outcome? In the unlikely case my friend does not perform as expected, I have many informal means to make him deliver, rather than going through a lengthy legal proceeding?

This sounds like common sense and natural and our private lives do work mostly that way and mostly quite well.

The problem is scale. Scale of power, scale of potential gains, scale of temptations, scale of risk. And who among us could throw the first stone were we in positions of power and claim not to succumb to the temptations of scale? Like in a body, cancer cells start growing out of proportion.

So, before we call out for new leaders – experience shows they are rarely better than the old ones – we need to look at ourselves first. But how easy is that? If I were the niece who gets the job through nepotism, why should I be overly critical? If I got a big furniture contract from a friend, why should I spill the beans? What right do I have to assume that, if I were a president or a minister or a corporate chief procurement officer I would not be tempted?

This is where we need to learn. What is useful, quick, efficient, and effective within a family or within a clan or a small community can become counterproductive and costly and destructive at larger corporate or national scale. Our empathy with small scale reciprocity easily permeates into complacency and complicity with large scale corruption and into an acquiescence with weak institutions to control it.

Our institutions can only be as strong as we wish them to be.

I was probably around ten years old and have always been that keen enthusiastic child that also liked to sing the favourite line of, ‘the world will become a better place.’  I would literally stand in front of a mirror and use my mom’s torch as a mic and sing along Michael Jackson’s hit song, ‘We are the world.’

Despite my horrible voice, I still believed in the message.  Few years later, my annoyance towards the world’s corrupt system wonders whether I was just too naïve. Few years later and I am still in doubt so as to whether I should go on blabbing that same old boring line. ‘The world is going to be a better place.’ The question is, when?

The answer is – as always: now.

This is pessimistic if not fatalistic – I challenge Sagan’s outlook with a paraphrased adage of unknown origin: Some people can be bamboozled all of the time, all people can be bamboozled some of the time, but never will all people be bamboozled all of the time.

We, the people are the only ones who can heal society from the cancer of corruption. We need to understand the temptation of scale and address it. We need to stop seeing ourselves just a victim of a disease that sleeps in all of us. We need to give power to the institutions that we have put in place to control corruption: parliaments, separation of power, the press, the ballot box. And sometimes we need to say as a niece – no, I do not want that job as a favour, I want it because I have proven to be better than other contenders.

It is going to be a struggle, because it will mean sacrifices, but sacrifices that we have chosen, not those imposed on us.

Let us start today.

*Bokani Lisa Motsu is a student at University of Botswana

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Accounting Officers are out of touch with reality

19th October 2020

Parliament, the second arm of State through its parliamentary committees are one of Botswana’s most powerful mechanisms to ensure that government is held accountable at all times. The Accounting Officers are mostly Permanent Secretaries across government Ministries and Chief Executive Officers, Director Generals, Managing Directors of parastatals, state owned enterprises and Civil Society.

So parliament plays its oversight authority via the legislators sitting on a parliamentary committee and Accounting Officers sitting in the hot chair.  When left with no proper checks and balances, the Executive is prone to abuse the arrangement and so systematic oversight of the executive is usually carried out by parliamentary committees.  They track the work of various government departments and ministries, and conduct scrutiny into important aspects of their policy, direction and administration.

It is not rocket science that effective oversight requires that committees be totally independent and able to set their own agendas and have the power to summon ministers and top civil servants to appear and answer questions. Naturally, Accounting Officers are the highest ranking officials in the government hierarchy apart from cabinet Ministers and as such wield much power and influence in the performance of government.  To illustrate further, government performance is largely owed to the strategic and policy direction of top technocrats in various Ministries.

It is disheartening to point out that the recent parliament committees — as has been the case all over the years — has laid bare the incompetency, inadequacy and ineptitude of people bestowed with great responsibilities in public offices. To say that they are ineffective and inefficient sounds as an understatement. Some appear useless and hopeless when it comes to running the government despite the huge responsibility they possess.

If we were uncertain about the degree at which the Accounting Officers are incompetent, the ongoing parliament committees provide a glaring answer.  It is not an exaggeration to say that ordinary people on the streets have been held ransom by these technocrats who enjoy their air conditioned offices and relish being chauffeured around in luxurious BX SUV’s while the rest of the citizenry continue to suffer. Because of such high life the Accounting Officers seem to have, with time, they have gotten out of touch with the people they are supposed to serve.

An example; when appearing before the recent Public Accounts Committee (PAC), Office of the President Permanent Secretary, Thuso Ramodimoosi, looked reluctant to admit misuse of public funds. Although it is clear funds were misused, he looked unbothered when committee members grilled him over the P80 million Orapa House building that has since morphed into a white elephant for close to 10 successive years. To him, it seems it did not matter much and PAC members were worried for nothing.

On a separate day, another Accounting officer, Director of Public Service Management (DPSM), Naledi Mosalakatane, was not shy to reveal to PAC upon cross-examination that there exist more than 6 000 vacancies in government. Whatever reasons she gave as an excuse, they were not convincing and the committee looked sceptical too. She was faltering and seemed not to have a sense of urgency over the matter no matter how critical it is to the populace.

Botswana’s unemployment rate hoovers around 18 percent in a country where majority of the population is the youth, and the most affected by unemployment. It is still unclear why DPSM could underplay such a critical matter that may threaten the peace and stability of the country.
Accounting Officers clearly appear out of touch with the reality out there – if the PAC examinations are anything to go by.

Ideally the DPSM Director could be dropping the vacancy post digits while sourcing funds and setting timelines for the spaces to be filled as a matter of urgency so that the citizens get employed to feed their families and get out of unemployment and poverty ravaging the country.
The country should thank parliamentary committees such as PAC to expose these abnormalities and the behaviour of our leaders when in public office. How can a full Accounting Officer downplay the magnitude of the landless problem in Botswana and fail to come with direct solutions tailor made to provide Batswana with the land they desperately need?

Land is a life and death matter for some citizens, as we would know.

When Bonolo Khumotaka, the Accounting Officer in the Ministry of Land Management, Water and Sanitation Services, whom as a top official probably with a lucrative pay too appears to be lacking sense of urgency as she is failing on her key mandate of working around the clock to award the citizens with land especially those who need it most like the marginalised.  If government purports they need P94 billion to service land to address the land crisis what is plan B for government? Are we going to accept it the way it is?

Government should wake up from its slumber and intervene to avoid the 30 years unnecessary waiting period in State land and 13 years in Tribal land.  Accounting Officers are custodians of government policy, they should ensure it is effective and serve its purpose. What we have been doing over the years, has proved that it is not effective, and clearly there is a need for change of direction.

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Is it possible to make people part of your business resilience planning after the State of Public Emergency?

12th October 2020


His Excellency Dr Mokgweetsi EK Masisi, the President of the Republic of Botswana found it appropriate to invoke Section 17 (1) of the Constitution of the Republic of Botswana, using the powers vested in him to declare a State of Public Emergency starting from the 2nd April 2020 at midnight.

The constitutional provision under Section 17 (2b) only provided that such a declaration could be up to a maximum of 21 days. His Excellency further invoked Section 93 (1) to convene an extra- ordinary meeting of Parliament to have the opportunity to consult members of parliament on measures that have been put in place to address the spread and transmission of the virus. At this meeting Members of Parliament passed a resolution on the legal instruments and regulations governing the period of the state of emergency, and extended its duration by six (6) months.

The passing of the State of Emergency is considered as a very crucial step in fighting the near apocalyptic potential of the Novel COVID-19 virus. One of the interesting initiatives that was developed and extended to the business community was a 3-month wage subsidy that came with a condition that no businesses would retrench for the duration of the State of Public Emergency. This has potentially saved many people’s jobs as most companies would have been extremely quick to reduce expenses by downsizing. Self-preservation as some would call it.

Most organisations would have tried to reduce costs by letting go of people, retreated and tried their best to live long enough to fight another day. In my view there is silver lining that we need to look at and consider. The fact that organisations are not allowed to retrench has forced certain companies to look at the people with a long-term view.

Most leaders have probably had to wonder how they are going to ensure that their people are resilient. Do they have team members who innovate and add value to the organisation during these testing times? Do they even have resilient people or are they just waiting for the inevitable end? Can they really train people and make them resilient? How can your team members be part of your recovery plan? What can they do to avoid losing the capabilities they need to operate meaningfully for the duration of the State of Public Emergency and beyond?

The above questions have forced companies to reimagine the future of work. The truth is that no organisation can operate to its full potential without resilient people. In the normal business cycle, new teams come on board; new business streams open, operations or production sites launch or close; new markets develop, and technology is introduced. All of this provides fresh opportunities – and risks.

The best analogy I have seen of people-focused resilience planning reframes employees as your organisation’s immune system, ready and prepared to anticipate risks and ensure they can tackle challenges, fend off illness and bounce back more quickly.  So, how do you supercharge your organizational immune system to become resilient?

COVID-19 has helped many organisations realize they were not as prepared as they believed themselves to be. Now is the time to take stock and reset for the future. All the strategies and plans prior to COVID-19 arriving in Botswana need to be thrown out of the window and you need to develop a new plan today. There is no room for tweaking or reframing. Botswana has been disrupted and we need to accept and embrace the change. What we initially anticipated as a disease that would take a short term is turning out to be something we are going to have to live with for a much longer time. It is going to be a marathon and therefore businesses need to have a plan to complete this marathon.

Start planning. Planning for change can help reduce employee stress, anxiety, and overall fear, boosting the confidence of staff and stakeholders. Think about conducting and then regularly refreshing a strategic business impact analysis, look at your employee engagement scores, dig into your customer metrics and explore the way people work alongside your behaviours and culture. This research will help to identify what you really want to protect, the risks that you need to plan for and what you need to survive during disruption. Don’t forget to ask your team members for their input. In many cases they are closest to critical business areas and already have ideas to make processes and systems more robust.

Revisit your organisational purpose. Purpose, values and principles are powerful tools. By putting your organisation’s purpose and values front and center, you provide clear decision-making guidelines for yourself and your organisation. There are very tough and interesting decisions to make which have to be made fast; so having guiding principles on which the business believes in will help and assist all decision makers with sanity checking the choices that are in front of them. One noticeable characteristic of companies that adapt well during change is that they have a strong sense of identity. Leaders and employees have a shared sense of purpose and a common performance culture; they know what the company stands for beyond shareholder value and how to get things done right.

Revisit your purpose and values. Understand if they have been internalised and are proving useful. If so, find ways to increase their use. If not, adapt them as necessities, to help inspire and guide people while immunizing yourself against future disruption. Design your employee experience. The most resilient, adaptive and high performing companies are made up of people who know each other, like each other, and support each other.

Adaptability requires us to teach other, speak up and discuss problems, and have a collective sense of belonging. Listening to your team members is a powerful and disruptive thing to do. It has the potential to transform the way you manage your organisation. Enlisting employees to help shape employee experience, motivates better performance, increases employee retention and helps you spot issues and risks sooner. More importantly, it gives employees a voice so you can get active and constructive suggestions to make your business more robust by adopting an inclusive approach.

Leaders need to show they care. If you want to build resilience, you must build on a basis of trust. And this means leaders should listen, care, and respond. It’s time to build the entire business model around trust and empathy. Many of the employees will be working under extreme pressure due to the looming question around what will happen when companies have to retrench. As a leader of a company transparency and open communication are the most critical aspects that need to be illustrated.

Take your team member into confidence because if you do have to go through the dreaded excise of retrenchment you have to remember that those people the company retains will judge you based on the process you follow. If you illustrate that the business or organization has no regard for loyalty and commitment, they will never commit to the long-term plans of the organisation which will leave you worse off in the end. Its an absolutely delicate balance but it must all be done in good faith. Hopefully, your organization will avoid this!

This is the best time to revisit your identify and train your people to encourage qualities that build strong, empathetic leadership; self-awareness and control, communication, kindness and psychological safety.  Resilience is the glue that binds functional silos and integrates partners, improves communications, helps you prepare, listen and understand. Most importantly, people-focused resilience helps individuals and teams to think collectively and with empathy – helping you respond and recover faster.

Article written by Thabo Majola, a brand communications expert with a wealth of experience in the field and is Managing Director of Incepta Communications.

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