Connect with us
Advertisement

Africa’s debt sustainability: cause for concern?

MARCUS COURAGE

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
Issuer
Size
Maturity
Yield (mid)
Angola
USD 1.75 billion
2028
7.72%
Benin
EUR 500 million
2026
5.15%
Ethiopia
USD 1 billion
2024
5.69%
Gabon
USD 1.5 billion
2025
6.95%
Ghana
USD 1 billion
2029
7.72%
Cote d’Ivoire
USD 571.5 million
2028
5.9%
Kenya
USD 1 billion
2028
6.45%
Nigeria
USD 1.25 billion
2030
7.1%
Cameroon
USD 750 million
2025
7.55%
Namibia
USD 750 million
2025
5.09%
Rwanda
USD 400 million
2023
4.16%

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)
Eritrea
165.1
Cabo Verde
123.5
Mozambique
108.8
Angola
95
Zambia
91.6
Egypt
84.9
Gambia, The
80.9

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)
Eritrea
165.1
Cabo Verde
123.5
Mozambique
108.8
Angola
95
Zambia
91.6
Egypt
84.9
Gambia, The
80.9
Republic of Congo
78.5
Mauritania
78.5
Sao Tome and Principe
77.2
Tunisia
74.4
Togo
72.6
Guinea-Bissau
69.2
Mauritius
68.7
Morocco
65.3
Malawi
65.1
Sierra Leone
64.5
Ghana
63.8
Burundi
63.5
Senegal
63.3
Kenya
61.6
South Africa
59.9
Ethiopia
59.1
Sudan
59.1
Gabon
56.4
Niger
55.8
Seychelles
53.8
Côte d'Ivoire
52.7

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.

Continue Reading

Opinions

Botswana to Become a Vaccinated Nation: Pandemic Anxiety Over?

30th March 2021

OSCAR MOTSUMI

This is a question that should seriously exercise the mind of every Botswana citizen and every science researcher, every health worker and every political leader political.

The Covid-19 currently defines our lives and poses a direct threat to every aspect and every part of national safety, security and general well-being. This disease has become a normative part of human life throughout the world.

The first part of the struggle against the murderous depredation of this disease was to protect personal life through restrictive health injunctions and protocols; the worst possibly being human isolation and masks that hid our sorrows and lamentations through thin veils. We suffered that humiliation with grace and I believe as a nation we did a great job.

Now the vaccines are here, ushering us into the second phase of this war against the plague; and we are asking ourselves, is this science-driven fight against Covid-19 spell the end of pandemic anxiety? Is the health nightmare coming to an end? What happy lives lie ahead? Is this the time for celebration or caution? As the Non State Actors, we have being struggling with these questions for months.

We have published our thoughts and feelings, and our research reviews and thorough reading of both the local and international impacts of this rampaging viral invasion in local newspapers and social media platforms.

More significantly, we have successfully organised workshops about the impact of the pandemic on society and the economy and the last workshop invited a panel of health experts, professionals, and public administers to advance this social dialogue as part of our commitment to the tripartite engagement we enjoy working with Government of Botswana, Civil Society and Development partners. These workshops are virtual and open to all Batswana, foreign diplomatic missions based in Gaborone, UN agencies located in Gaborone and international academic researchers and professional health experts and specialists.

The mark of Covid-19 on our nation is a painful one, a tragedy shared by the entire human race, but still a contextually painful experience. Our response is fraught with grave difficulties; limited resources, limited time, and the urgency to not only save lives but also avert economic ruin and a bleak future for all who survive. Several vaccines are already in the  market.

Parts of the world are already doing the best they can to trunk the pestilential march of this disease by rolling out mass-vaccinations campaigns that promise to evict this health menace and nightmare from their public lives. Botswana, like much of Africa, is still up in the disreputable, and, unenviable, preventative social melee of masked interactions, metered distances, contactless commerce.

We remain very much at the mercy of a marauding virus that daily runs amuck with earth shattering implications for the economy and human lives. And the battle against both infections and transmissions is proving to be difficult, in terms of finance, institutional capacities and resource mobilization. How are we prepared as government, and as citizens, to embrace the impending mass-vaccinations? What are the chances of us  succeeding at this last-ditch effort to defeat the virus? What are the most pressing obstacles?

Does the work of vaccines spell an end to the pandemic anxieties?

Our panellists addressed the current state of mass-vaccination preparedness at the Botswana national level. What resources are available? What are the financial, institutional and administrative operational challenges (costs and supply chains, delivery, distribution, administering the vaccine on time, surveillance and security of vaccines?) What is being done to overcome them, or what can be done to overcome them? What do public assessments of preparedness tell us at the local community levels? How strong is the political will and direction? How long can we expect the whole exercise to last? At what point should we start seeing tangible results of the mass-vaccination campaign?

They also addressed the challenges of the anticipated emerging Vaccinated Society. How to fight the myths of vaccines and the superstitions about histories of human immunizations? What exactly is being done to grow robust local confidence in the science of vaccinations and the vaccines themselves? More significantly, how to square these campaigns vis-vis personal rights, moral/religious obligations?

What messages are being sent out in these regards and how are Batswana responding? What about issues of justice and equality? Will we get the necessary vaccines to everyone who wants them? What is being done to ensure no deserving person is left behind?

They also addressed issues of health data. To accomplish this mass-vaccination campaign and do everything right we need accurate and complete data. Poor data already makes it very hard to just cope with the disease. What is being done to improve data for the mass-vaccination campaign? How is this data being collected, aggregated and prepared for real life situation/applications throughout Botswana in the coming campaign?

We know in America, for example, general reporting and treatment of health data at the beginning of vaccinations was so poor, so chaotic and so scattered mainstream newspapers like The Atlantic, Washington Post and the New York Times had to step in, working very closely with civil society organizations, to rescue the situation. What data-related issues are still problematic in Botswana?

To be specific, what kind of Covid-19 data is being taken now to ready the whole country for an effective and efficient mass-vaccination program?

Batswana must be made aware that the  end part of vaccination will just mark the beginning of a long journey to health recovery and national redemption; that in many ways Covid-19 vaccination is just another step toward the many efforts in abeyance to fight this health pandemic, the road ahead is still long and painful.

For this purpose, and to highlight the significance of this observation we tasked our panellists with  the arduous imperative of  analysing the impact of mass-vaccination on society and the economy alongside the pressing issues of post-Covid-19 national health surveillance and rehabilitation programs.

Research suggests the aftermath of Covid-19 vaccination is going to be just as difficult and uncertain world as the present reality in many ways, and that caution should prevail over celebration, at least for a long time. The disease itself is projected to linger around for some time after all these mass-vaccination campaigns unless an effort is made to vaccinate everyone to the last reported case, every nation succeeds beyond herd immunity, and cure is found for Covid-19 disease. Many people are going to continue in need of medications, psychological and psychiatric services and therapy.

Is Botswana ready for this long holdout? If not, what path should we take going into the future? The Second concern is , are we going to have a single, trusted national agency charged with the  mandate to set standards for our national health data system, now that we know how real bad pandemics can be, and the value of data in quickly responding to them and mitigating impact? Finally, what is being done to curate a short history of this pandemic? A national museum of health and medicine or a Public Health Institute  in Botswana is overdue.

If we are to create strong sets of data policies and data quality standards for fighting future health pandemics it is critical that they find ideological and moral foundations in the artistic imagery and photography of the present human experience…context is essential to fighting such diseases, and to be prepared we must learn from every tragic health incident.

Our panellists answered most of these questions with distinguished intellectual clarity. We wish Batswana to join us in our second Mass-vaccination workshop.

*Oscar Motsumi: Email:oscar.motsumi@gmail.com

Continue Reading

Opinions

The women you see in the news matter. Here’s why

9th March 2021
Jane Godia

Jane Godia

Today is International Women’s Day – it’s a moment to think about how much better our news diet could be if inequities were eliminated. In 1995, when the curtains fell in one of the largest meetings that have ever brought women together to discuss women in development, it was noted that women and media remain key to development.

Twenty-six years later, the relevant “Article J” of the Beijing Platform for Action, remains unfulfilled. Its two strategic objectives with regard to Women and Media have not been met. They are
Increase the participation and access of women to expression and decision-making in and through the media and new technologies of communication

Promote a balanced and non-stereotyped portrayal of women in the media.

Today, as we mark International Women’s Day, it’s an indictment on both media owners and civil society that women remain on the periphery of news-making. They cannot claim equal space in either the structures of newsrooms or in the content produced, be that as sources of news or as the subjects of reports. Indeed, the latest figures from WAN-IFRA’s Women in News Programme show just one in five voices in news belong to women*, be they as sources, as the author or as the main character of the news report.

Some progress was evident several years back, with stand-out women being named as chief executive officers, editors in chief, managing editors and executive editors. But these gains appear short lived in most media organisations. Excitement has turned to frustration as one-step forward has been replaced with three steps backwards. In Africa, the problem is acute. The decision-making tables of media organisations remain deprived of women and where there are women, they are surrounded by men.

Few women have followed in the footsteps of Esther Kamweru, the first woman managing editor in Kenya, and indeed sub-Saharan Africa. Today’s standout women editors include Pamela Makotsi-Sittoni (Nation Media Group, Kenya), Barbara Kaija (New Vision, Uganda), Mary Mbewe (Daily Nation, Zambia), Margaret Vuchiri (The Monitor, Uganda), Joyce Shebe (Clouds, Tanzania), Tryphinah Dongwana (Weekend Post, Botswana), Joyce Mhaville (Independent Television -ITV, Tanzania) and Tuma Abdallah (Standard Newspapers,Tanzania). But they remain an exception.

The lack of balance between women and men at the table of decision making has a rollback effect on the content that is produced. A table dominated by men typically makes decisions that benefit men.

So today, International Women’s Day is a grim reminder that things are not rosy in the news business. Achieving gender balance in news and in the structure of media organisations remains a challenge. Unmet, it sees more than half of the population in our countries suffer the consequences of bias, discrimination and sexism.

The business of ignoring the other half of the population can no longer be treated as normal. It’s time that media leaders grasp the challenge, not only because it is the right thing to do, but because it also makes a whole lot of business sense: start covering women, give them space and a voice in news-making and propel them to all levels of decision making within your organisation.

We can no longer afford to imagine that it’s only men who make and sell the news and bring in the shillings to fund the media business. Women too are worthy newsmakers. In all of our societies, there are women holding decision making positions and who are now experts in once male-only domains such as engineers, doctors, scientists and researchers.

They can be deliberately picked out to share their perspectives and expertise and bring balance to the profile of experts quoted on our news pages. Media is the prism through which society sees itself and women are an untapped audience. So, as we celebrate International Women’s Day, let us embrace diversity, which yields better news content and business products, and in so doing eliminate sexism. We know that actions and attitudes that discriminate against people based on their gender is bad for business.

As media, the challenge is ours. We need to consciously embrace and reach the commitments made 26 years ago when the Beijing Platform for Action was signed globally. As the news consuming public, you have a role to play too. Hold your news organization to account and make sure they deliver balanced news that reflects the voices of all of society.

Jane Godia is a gender development and media expert who serves as the Africa Director of Women in News programme.  
WOMEN IN NEWS is WAN-IFRA’s ground-breaking programme to increase women’s leadership and voices in the news. It does so by equipping women journalists and editors with the skills, strategies, and support networks to take on greater leadership positions within their media. www.womeninnews.org

Jane Godia, Director, Africa, Women in News

Continue Reading

Opinions

Why is the media so afraid to talk about sexual harassment?

9th March 2021

MELANIE WALKER

The eve of International Women’s Day presents an opportunity for us to think about gender equality and the long and often frustrating march toward societies that are truly equal.

As media, we are uniquely placed to drive forward this reflection and discussion. But while focusing on the challenges of gender in society, we owe it to our staff and the communities we serve to also take a hard look at the obstacles within our own organisations.

I’m talking specifically about the scourge of sexual harassment. It’s likely to have happened in your newsroom. It has likely happened to a member of your team. It happens to all genders but is disproportionately directed at women. It happens in every industry, regardless of country, culture or context. This is because sexual harassment is driven by power, not sex. Wherever you have imbalances in power, you have individuals who are at risk of sexual harassment, and those who abuse this power.

I’ve been sexually harassed. The many journalists and editors, friends and family members who I have spoken to over the years on this subject have also been harassed. Yet it is still hard for leaders to recognize that this could be happening within their newsrooms and boardrooms. Why does it continue to be such a taboo?

Counting the cost of sexual harassment

Sexual harassment is, simply put, bad for business. It can harm your corporate reputation. It is a drain on the productivity of staff and managers. Maintaining and building trust in your brand is an absolute imperative for media organisations globally. If and when a case gets out of control or is badly handled – this can directly impact your bottom line.

It is for this reason that WAN-IFRA Women in News has put eliminating sexual harassment as a top priority in our work around gender equality in the media sector. This might seem at odds with the current climate where social interactions are fewer and remote work scenarios are in place in many newsrooms and businesses. But one only needs to tune into the news to know that the abuse of power, manifested as verbal, physical or online harassment, is alive and well.

Preliminary results from an ongoing Women in News research study into the issue of sexual harassment polling hundreds of journalists in Sub-Saharan Africa and Southeast Asia indicate that more than 1 in 3 women media professionals have been physically harassed, and just under 50% have been verbally harassed. Just over 15% of men in African newsrooms reported being physically harassed, and slightly less than 1 in 4 reports being verbally harassed. The numbers for male media professionals in Southeast Asia are slightly higher than a quarter on both forms of harassment.

The first step in confronting sexual harassment is to talk about it. We need to strip away the stigma and discomfort around having open conversations about what sexual harassment is and isn’t. Media managers, it is entirely in your power to create dynamics in your own teams that are free from sexual harassment.

Publishers and CEOs, you set the organisational culture in your media company.

By being vocal in recognising that it happens everywhere, and communicating to your employees that you will not tolerate sexual harassment of any kind, you send a powerful message to your teams, and publicly. With these actions, you will help us overcome the legacy of silence around this topic, and in doing so take an important first step to create media environments that truly embrace equality.

Melanie Walker is Executive Director of Media Development of the World Association of News Publishers (WAN-IFRA). She is a creator of Women in News, WAN-IFRA’s ground-breaking programme to increase women’s leadership and voices in the news. It does so by equipping women journalists and editors with the skills, strategies, and support networks to take on greater leadership positions within their media. www.womeninnews.org

Continue Reading
Do NOT follow this link or you will be banned from the site!