One of the issues that seems to be concentrating minds across the continent is that of sovereign debt. This, coupled with an equally worrying trend of escalating national debt, can no longer be relegated to the bottom drawer where all nasty matters are stored and hopefully forgotten until some diabolical day when they have to be removed, reviewed and addressed.
Debt, particularly sovereign debt – that is, debt owed by the nation to various lenders, including global institutions, commercial banks and finance companies and other sovereign nations – has weighed on the continent’s neck like a rotting carcass for most of its independent life.
Africa, like all those who have had to suffer the misery of bearing the weight of debt, has known all the anguish of the incessant demands, the rise and multiplication of interest rates and the sermons, threats and creditor abuse.
Many countries are falling into the nightmare of the vicious circle of debt.
They have to allocate a very large part of their annual income to servicing their debt, which means they don’t have enough to meet their budgetary expenses, which means they have to turn to international lenders to borrow, which means their level of indebtedness increases, leading to more revenue needed to pay off debts…and so on until some countries eventually give up in defeat and are effectively bankrupt and living of the charity of others.
The only way out of this vicious circle, we are told, is for them to increase their sources of income by generating and selling more of their products abroad and raising more taxes domestically.
The catch is that to be able to do either, you need more capital goods – in the case of nations, this often translates to productive infrastructure such as railroads, roads, ports, energy production, better education, etc. But to install this vital infrastructure, you have to…you guessed it…borrow! Back to square one.
Chinese loans promote growth
Enter China. The Chinese proposal was simple: “We will build your infrastructure for you in exchange for your natural resources if you have them; and if you open your markets to our products.
Most Africans, in fact most developing countries to whom this proposal was made, said, “Yes, please, when can you start?”
The Chinese answer was usually “tomorrow”. True to their word, they have rolled out billions of dollars of infrastructure across Africa, Latin America, the Middle East and most of Asia.
The net result was that dozens of African and other developing countries recorded record levels of growth. Were it not for the canker of corruption that many seem unable to shake off and that has marred much of this progress, more developing countries would have achieved levels of prosperity similar to some of the Asian Tigris economies.
In the process, China’s GDP has grown to rival that of the US and EU and its soft power influence has overtaken and challenged Western hegemony.
Western banks, not China, hold most of Africa’s debt
Alarm bells began to ring furiously and warnings that Africa and other developing countries were falling into the ‘dragon’s mouth’ and would be swallowed whole by a creeping China to collect its debt were sounded almost daily.
Today, as the world faces an unstable period of rising costs of living, acute shortages of basic necessities and polarization between the West against Russia and China, Africa is called upon to choose sides. The issue of debt can no longer be ignored.
But is China really about to close the debt trap and trap Africa for the foreseeable future, as we are being warned?
It’s not, says Debt Justice, formerly Jubilee Debt Campaign. African governments owe three times as much debt to Western banks, asset managers and oil traders as they do to China, and have to pay double the interest. China has been blamed by Western leaders for its failure to make progress on debt restructuring, but the data shows that is not the case.
The organization says 12% of African governments’ external debt is owed to Chinese lenders, compared to 35% to Western private lenders.
Tim Jones, policy manager at Debt Justice, said: “Western leaders blame China for Africa’s debt crises, but that’s a distraction. The truth is that their own banks, asset managers and oil traders are much more responsible, but the G7 let them off the hook.
He wants Western governments to force private lenders to ease their grip on African countries at this critical stage. We say Amen to that.