Can Africa turn government debt from burden to solution?
The timing seems good. Global interest rates are at historic lows and real yields that justify the risks of lending are hard to find. Many global investors want to make environmental, social, and governance (ESG) impacts. The marriage with African governments who need capital to finance development and close the continents infrastructure gap seems natural. Smith travelled to 26 African countries when he was conducting research for his book. The detailed country breakdowns on national debt trajectories of 16 countries (Kenya, Senegal, the Cte DIvoire, Rwanda, Ethiopia, Angola, Uganda, Tanzania, Namibia, Zimbabwe, South Africa, Gabon, Nigeria, Zambia, the Seychelles and Egypt) are among the books strong points. Non-African investors who still think of the continent as a generic destination have no excuse left. Western lenders will have to either charge a premium to reflect the opacity, learn to adapt and devise new kinds of lending, or walk away, with all the risks which that entails. Many of the books arguments are attractive. Debt should not come just from the worlds recognised financial centres, but also from other African countries. African free trade should work in parallel with attempts to increase intra-African lending and investment. One of the main claims is that Africas problems revolve around the investment uses to which debt is put, and the ability of states to collect tax revenue to make debt sustainable, rather than in absolute debt levels. Too often, loans are either consumed by governments or poorly invested, meaning that debt repayment obligation will be there long after a short-term lift to economic activity has vanished. If African countries can convert debt more reliably into productive investment, then it can become a financing solution rather than a millstone. Smith argues that one of the most crucial gaps in the debt relief discussions of the 2000s was the lack of emphasis on building public investment systems. A consequence of structural adjustment programs was that the role of the state was reduced too far, and many of African national development banks were closed. Rather than dispersing responsibilities across a range of government ministries, the book says, public investment projects could be better delivered by national or regional development banks with the skills to deliver complex investment projects while mobilising private-sector financing. The article continues below Free download Get your free PDF: Top 200 banks 2019 The race to transform Complete the form and download, for free, the highlights from The Africa Reports Exclusive Ranking of Africas top 200 banks from last year. Get your free PDF by completing the following form Email Address * Title * Last name * First name * Country * Industry * Position * Get information from Jeune Afrique Media Group: subscription deals, special offers Close By downloading this PDF you agree to subscribe to The Africa Report Daily newsletter SUCCESS ERROR  Opaque Chinese loans  The full picture, of course, is yet more complex and unclear. As Smith notes, many frontier countries in Africa have experienced a big increase in borrowing from China, while still getting loans from traditional sources. The result, he says, is that frontier African countries are typically growing and borrowing like a middle-income country, but not managing to collect government revenue or export like one.  Many Africans, as Smith notes, have criticised Chinese loans due to the lack of African jobs created and the absence of environmental safeguards. Much of the Chinese lending to Africa is opaque and governed by non-disclosure agreements (NDAs). This, Smith argues, will need to change if overall Africa borrowing is to be optimised. Africa Insight Wake up to the essential with the Editor's picks. Sign up Also receive offers from The Africa Report Also receive offers from The Africa Report's partners SUCCESS ERROR  Here, the book seems at its least convincing. The idea that the Western powers could open up membership of the Paris Club , and allow China a bigger role on the boards of the IMF and the World Bank , seems far-fetched as NATO now deems China a security threat which is rapidly expanding its nuclear arsenal and engaging in military co-operation with Russia. , and allow China a bigger role on the boards of the and the , seems far-fetched as NATO now deems China a security threat which is rapidly expanding its nuclear arsenal and engaging in military co-operation with Russia. In terms of realpolitik, there is no chance of China ending the use of NDAs on its African loans. As Africa continues to borrow, it will do so on terms that are at least partly invisible. Western lenders will have to either charge a premium to reflect the opacity, learn to adapt and devise new kinds of lending, or walk away, with all the risks which that entails. Bottom line  African governments may be able to find ways to invest their loans better  but dont expect the process to be a fully transparent one.