Africa’s Sub-Sahara region’s burgeoning debt is creating a wedge between the Bretton Woods Institutions and other lenders with China singled out for perpetrating a debt–trap that has soared by nearly 150% in the past 10 years, making the continent’s debt load unsustainable.

Soaring Sub-Saharan Debt is Becoming Unsustainable

Total external debt for sub-Saharan Africa jumped nearly 150% to $583 billion in 2018 from $236 billion 10 years earlier, according to World Bank data. Many now worry the debt load is becoming unsustainable as the average public debt increased from 2010-2018 by 40% to 59% of GDP.

In Zambia for example, government debt — including publicly-guaranteed obligations — is set to increase to 96% of GDP in 2020, according to the International Monetary Fund (IMF). The IMF is worried about rising debt in Africa, with about 40% of countries on the continent at distressed levels, Managing Director Kristalina Georgieva said in an interview with Bloomberg TV this past November.

“In some cases we are concerned, in others we see that investing is going to pay off over time,” she said, adding that “debt on its own is not bad, it is bad when it goes for the wrong things, and when it goes with a speed that the economy cannot handle … in cases where debt is dangerous — take Zambia — we do say, you need to really get a handle on your debt. In other cases, like Ethiopia, we say you do need to renegotiate some of your debt.”

Why is Sub-Saharan Debt Reaching Such Disastrous Levels?

Debt levels in the region have been rising as governments struggle to collect and grow revenue while increasing their budgets. South Africa’s ratio is projected to reach 81% of gross domestic product by 2028 and Kenya recently doubled its debt ceiling to match the size of the entire economy.

“We do advise Kenya to be somewhat more cautious in building debt, but we have seen good macroeconomic policies in Kenya,” Georgieva said. “Our program with the country, our engagement with the country, by and large, are just as positive.”

Presently, seven countries — Eritrea, Gambia, Mozambique, Congo Republic, Sao Tome and Principe, South Sudan and Zimbabwe — are in severe debt distress according to the IMF, while nine others including Ethiopia, Ghana and Cameroon are at high risk of debt distress.

It’s a problem across the low-income developing world but is particularly acute in the sub-Sahara region, where the fast-growing debt accumulation has outpaced other developing areas. The trend has been driven by a number of factors, including cheap money in more advanced economies so investors have been keen to seek yield in African countries promising up to 8% or 9% on Euro bonds, said the IMF managing director in a panel discussion at the World Bank in Washington, DC this mid Feb as reported by Quartz Africa.

Lack of Transparency, Bad Debt Management and Inability to Handle the Crisis

The IMF and World Bank are especially worried about the lack of transparency, weak debt management, and a lack of capacity in an increasing number of low-income countries.

“We are faced with a duality. Sophistication of lending instruments is going up. Multiplicity of sources is going up—and capacity to handle is falling behind,” says Georgieva.

Both the World Bank and IMF are jittery about the impact of China which, while still not the largest lender, has become a hugely influential source of capital in African countries that have few options due to their weak economic balance sheet. This is particularly true because China offers a convenient package of funding and execution through its state-owned enterprises for much-needed infrastructure projects across the continent. The problem, said World Bank president David Malpass, is the lack of transparency.

“One of the practical problems we’re dealing with right now is some of the new lenders, the non-Paris Club lenders—and so I guess when we say that, people should sometimes read China into that,” said Malpass. “They’ve escalated their lending, which is good in a way. We want more lending into developing countries. But…oftentimes their contracts have a nondisclosure clause that prohibits the World Bank or private sector from seeing what the terms of the contract are.”

Blaming the Asia Development Bank, European Bank for Reconstruction and Development, and the African Development Bank (AfDB), for “a tendency to lend too quickly and add to the debt problem of the countries,” Malpass added: “In the case of Africa, the African Development Bank is pushing large amounts of money into Nigeria, South Africa, and others without the strongest program to sustain it and push it forward.”
However Dr. Akinwumi Adesina, AfDB president says Malpass comments are “inaccurate and not fact-based.It impugns the integrity of the AfDB, undermines our governance systems, and incorrectly insinuates that we operate under different standards from the World Bank.”

The AfDB argues the World Bank has significantly larger operations on the continent of $20.2 billion in 2018 compared with the AfDB’s $10.1 billion.

China’s Aggressive Investment in Africa

China meanwhile is aggressively seeking investments and contracts around the world, and perhaps nowhere is this more visible than Africa, where Chinese companies have won contracts to build dams, roads, stadiums, airports and railways. In country after country, governments have borrowed heavily from China to pay for these projects.
China’s investments in Africa are central to President Xi Jinping’s signature Belt and Road Initiative (BRI) trillion-dollar program initiated in July 2019 to build infrastructure and extend Beijing’s influence around the globe, connecting at least 68 countries to Chinese trade routes. In 2019 it delivered a whopping $60 billion African aid package, further consolidating its robust economic influence.

According to the China-Africa Research Initiative (CARI), China is now the largest bilateral creditor in the region, accounting for 20% of Africa’s external public debt.

Typically, Chinese loans assume the form of cash for resources. In return for financing and building the infrastructure that poorer countries need, China demands favorable access to their natural assets, from mineral resources to ports. The recipient nations usually suffer from low credit ratings and have difficulty obtaining funding from the international financial market.

China, however, makes financing relatively easily available – albeit with certain conditions and less ‘paperwork’ than conventional sources. China’s ‘tied aid’ for infrastructure usually benefits Chinese companies, while its loans are in many cases backed by natural resources. Through this method China achieves the twin goals of economic penetration and strategic leverage.

America’s Response to China’s Growing African Presence

The Trump administration has accused China of engaging in predatory lending aimed at trapping countries in debt, acquiring strategic assets like ports and spreading corruption and authoritarian values.
US officials have condemned such moves, with former US Secretary of State Rex Tillerson accusing China of “predatory” lending behavior.

“The US pursues and develops sustainable growth that bolsters institutions, strengthens rule of law and builds the capacity of African countries to stand on their own two feet,” Tillerson said in a 2018 speech at George Mason University. “This stands in stark contrast to China’s approach, which encourages dependency using opaque contracts, predatory loan practices and corrupt deals that mire nations in debt and undercut their sovereignty.”

In Kenya, for example, reports indicate that its Government had used its prized port of Mombasa as collateral for a $3.2 billion loan, used to construct a 470-kilometer (292 miles) rail line between the seaside city and the capital Nairobi. In a leaked report linked to the auditor general’s office, Kenya was said to risk losing its port if it defaulted on the loan, with the Exim Bank of China taking over the port authority’s “escrow account” to regain revenues.
Djibouti, a strategically located state at the crossroads of Africa and the Middle East has become a crucial hub in China’s BRI and has accumulated a public debt worth around 88 percent of the country’s overall $1.72 billion GDP, with China owning the lion’s share of it, according to a report published in March 2019 by the Center for Global Development. Some reports even indicate that Beijing now holds over 70 per cent of Djibouti’s GDP in debt.

Sadly, with all these China loans to this east Africa nation, there are real fears it might sign off its port to China after borrowing more money than it can pay back.

L'articolo Soaring Sub-Saharan Debt Drives Wedge Between World Bank and Lenders proviene da InsideOver.

Argentina’s president-elect, Alberto Fernandez, has renounced the country’s $11 billion IMF loans tranches.

“What I want is to stop asking (for money), and that they let me pay [back the loan],” Fernandez said in a radio interview last month.

With his presidency beginning on the 10^th of this month, Fernandez is Argentina’s return to Peronism. Following populist Peronist ideals, he vowed to “try to revive the economy to pay and solve the debt problem sensibly.”

Following the loan, current president, centre-right Mauricio Macri would implement austerity measures to fix Argentina’s economy, but they would be unsuccessful.

During the 2017 midterm elections, where Macri was victorious, the country’s debt was at 38% of the GDP. Its debt currently exceeds 90% of the GDP.

“I have an enormous problem. And I’m going to ask for $11 billion more? “It’s like a guy who drinks a lot and is a little drunk. The solution is not to continue drinking. The solution is to stop drinking,” Fernandez vocalised.

His election victory saw a drop in the peso’s value, with fears of a debt default of the country’s $57b loan package, borrowed by President Macri.

“I don’t want to sign agreements that I’m not going to fulfil. Those agreements were already signed by Macri. He signed one, two, three and fulfilled none,” said Fernandez.

“We want them not to lend us more money, but to let us develop. Let’s discuss the time I need to develop, but don’t give me more money.”

In September, the IMF suspended the release of $5.4b disbursement, because Macri had failed to meet inflation targets.

Addressing fears of a loan default, Fernandez promised not to default on the $46b loan repayment. Under his presidency, he promised to renegotiate the terms of the loan, promising voters that their bank deposits would be safe.

“I try to be a serious person. A person who tells you ‘I’m going to do such and such a thing, and you know he’s going to do it,” Fernandez stated.

Fernandez’s promises follow Bolivia’s ousted President, Evo Morales’ call to also regain financial independence for his country.

Speaking in Mexico, a day after he fled a military coup against him, Morales said: “We freed ourself of IMF and had big plans on exports.”

“The OAS [Organization of American States] is in the service of the North American empire,” he continued, blaming the USA for a strong desire to retain imperialist power over resource-rich Bolivia.

Socialist Morales accused the coup plotters of not accepting “the nationalization of natural resources.”

Capitalism v. Socialism

The fight for social justice in Bolivia and Argentina are ideals embedded in the politics of the region, a direct antithesis to the USAs’ modern and postmodern capitalist imperialism.

The postmodern, neoliberal political and economic policies of the IMF and the World Bank are in direct opposition to the populist governance of Morales, Fernandez and Venezuela’s former president, Hugo Chavez.

In 1823, US Secretary of State, and future-president, John Quincy Adams, would pen most of the Monroe Doctrine, a policy created by then-president, James Monroe.

It stated: “The occasion has been judged proper for asserting, as a principle in which the rights and interests of the United States are involved, that the American continents, by the free and independent condition which they have assumed and maintain, are henceforth not to be considered as subjects for future colonization by any European powers.

“If we look to the comparative strength and resources of Spain and those new Governments, and their distance from each other, it must be obvious that she can never subdue them.”

Following The Monroe Doctrine, the US would continue to subdue Latin America, in the place of Europe.

Sixty-one years later, Berlin 1884 would take place, solidifying the New World Order. Present at the international conference were representatives from every European country (minus Switzerland), the USA and the Ottoman Empire. The conference would set Africa’s political and economic trajectory as a continent for foreign conquest and domination.

To retain power over Latin America and Africa, the US’ militarised power and the IMF’s monetized power are used as a double-edged sword over both resource-rich regions. Latin America need not be colonized when it can be neocolonised.

L'articolo Alberto Fernandez to Fix Argentina’s Economic Dependence on the IMF proviene da InsideOver.

World Bank data shows an increasing trend of indebtedness in the world’s emerging regions since 2012. Will this debt be a precursor to higher development, or instead to a decline?

The trends of debt owed to foreign lenders by four emerging world regions (Latin America and the Caribbean, South Asia, Sub-Saharan Africa and Middle East and North Africa), show both positive and worrisome signals.

The price of debt incurred by emerging regions of the world has heavily depended on the sources of debt, and the resources the borrower can offer to the lender or its allies. Cost of borrowing can be assessed by yearly payment rates and debt yields.

Long-term interest payments made by Middle Eastern and North African countries have been increasing year-by-year from 2012. Public and publicly guaranteed interest payment decreased in 2015, but saw a sharp increase in 2017.

Latin America and the Caribbean countries (3.8 – 5.8 per cent from multilateral development banks) follow the lead with significantly smaller borrowing costs. For all but two Latin American countries, borrowing from multilateral development banks is a cheaper alternative to the release of sovereign bonds.

The amount of the debt carried by Latin America and the Caribbean, South Asia, Sub-Saharan Africa and MENA has been growing since 2012. A slight ($13B) decrease in 2016 for South Asia, is the only decrease in the amount of debt taken on by these emerging regions since 2008.

The increases in the amount of debt carried by these four regions, along with high borrowing costs, point to the conclusion that external debt stocks should be very well thought out steps. Mostly, because of their large downside.

The amount of debt taken on by these four emerging regions has created an interesting relationship between them and some financial indicators. The relative strength index (RSI) for the Emerging Markets Bonds Index is particularly interesting. By charting the iShares JP Morgan fund for EMBI from 2012 to 2019, it is possible to see that its RSI frequently trends to values close to 70. With the amount of indebtedness growing in the emerging regions, these RSI values can mean that the perception of the debt’s value is decreasing.

Fundamental analysis of the emerging regions taking on debt in the Americas, Africa and Asia, shows a complex picture of debt and its management.

The increasing debt, when not used to re-finance older and unpaid debt (like 73% of new debt in 2018), fundamentally looks to be a precursor to higher development.

By using debt, MENA and Latin America and the Caribbean regions, have built energy infrastructure and invested into industry, trade and services – all necessary for higher development.

Receiving development assistance, and using it successfully, also comes with its costs. Latin America and the Caribbean and MENA, are regions that could eventually see a re-classification of their financial state into a more developed one. And with a re-classification to one of higher development, less developed regions will become competitors for cheaper assistance from multilateral development banks.

The success of debt taken on by emerging regions, can be measured by the growth in GNI, decreases in unemployment, and increases in wealth. Increases in unemployment are a particularly worrying trend for countries in emerging regions – as forecasted by the IMF. It could mean that the rising indebtedness has not translated into spending related to a better life quality.

The most basic indicators of a country’s financial state and their ties to external debt should also not be forgotten. Not improving debt to GDP ratios; and the still present divergence of debt growth in different industries, in contrast to mature markets, are basic factors that have shown mixed performance since 2012. Along with growing debt, this means that the trend of growing indebtedness could turn for the worse.

The effects of increasing debt in Latin America and the Caribbean, South Asia, Sub-Saharan Africa and MENA will be positive for all regions using accountable spending and fiscal responsibility.

The percentage increase of external debt stocks of South Asia (25.3% from 2012-2017) and Latin America and the Caribbean (20.1% during the same period) is the smallest out of all these four emerging regions. Yet, potentially, this increasing debt for the Asian and American regions, carries the most risk.

South Asia’s environmental problems have the power to decrease the development potential of this region. Having both too much, and not enough aquatic resources, remains a problem for some South Asian countries. Moreover, the still unpredictable impacts from recycling operations in South Asian countries like Sri Lanka, will very likely increase healthcare costs and spending in a country with an already high debt to GDP ratio.

Growing debt should not present a problem if the debt to GDP ratio remains stable. That is, if the economy will follow the same growth trend. In Latin America and the Caribbean, the effect of growing debt could turn negative, if the negative and uncertain growth prognoses will come true.

A growing external loan portfolio along with the underdeveloped finances sector could start to become a political issue in countries of MENA. Simon Neaime of American University of Beirut argues that “[…] MENA policy-makers will need to introduce macroeconomic policy measures […]” and “[…] financial policies aimed at increasing MENA countries’ savings […]”. All that to decrease the impact of the growing debt and its negative effects.

Increasing external debt can also affect the debt released by the borrowing government. Sub-Saharan Africa is the emerging region which saw the highest percentage increase in external debt stocks from 2012 to 2017. This increase has been recorded at 34%. The increase by over a third, if higher debt to GDP will continue to be a positive influence on debt yields, could lead to even higher indebtedness or difficulties in repaying debt.

Countries in different continents of emerging regions have used external debt for vastly different projects.

In emerging regions of Asia and Africa (MENA, South Asia, Sub-Saharan Africa), debt is mostly used to finance energy and extraction and public administration (World Bank 2019 Annual Report) projects.

In MENA and Sub-Saharan Africa, borrowing from external borrowers is done mostly for the financing of the energy and extraction sectors.

South Asian countries, in a similar manner, have received over a tenth of development loans for their energy sector in 2019.

Contrarily, in an emerging region of Americas (Latin America and the Caribbean), external debt is a more complex tool. In contrast to spending on energy and extraction, development loans are used to finance social protection and industry, trade and services (World Bank 2019 Annual Report).

The country which has taken on the highest proportional share of external debt to GDP in this region is Jamaica. Jamaica has used the debt to combat the negative effects of a financial crisis. Although non-infrastructure spending is harder to assess, but the second-highest interest payment to GDP figure in the region (6.9% of GDP), looks to have been a necessary step to take.

The lowest share of external debt taken on by a country in Latin America and the Caribbean belongs to Paraguay. Most recently, Paraguay’s 15% debt to GDP ratio has been taken on to finance its budget.

Without any financing, even in the form of external debt stocks, world’s emerging regions would have had a much harder and longer path to development. Loans for development or financing of necessary operations, can uplift emerging regions if used properly and with accountability. Latin American countries are the best examples of debt used for development without going into too much indebtedness. However, in regions where corruption perception is higher, and governmental accountability may be lower, the once good solution to both financial and developmental problems can easily submerge the already struggling countries.

L'articolo Will External Debt Uplift or Submerge Emerging Regions? proviene da InsideOver.

Cameroon has discovered 300 new mineral mines, in a project sponsored by the World Bank. The Mining Sector Capacity Building Project funded the discovery of rich minerals, including gold, sapphire, zinc, rare earth minerals, uranium, nickel and manganese, across ten regions in the country.

Previously, only 40% of the country has been explored. The five-year exploration project, which began in 2014, aimed to expand the amount of territory in the country that had been checked for mining resources. An IDA credit of $26.9 million was loaned to Cameroon to conduct this project. A part of the World Bank, the International Development Association (IDA) aims to help “the world’s poorest countries.”

Cameroon’s Secretary of State in the Ministry of Industries, Mines and Technological Development, Dr Fuh Calistus Gentry, complained in 2013 about the “infancy” of Cameroon’s mining sector in the face of a huge reserve of minerals resources.

“Cameron is fast becoming a leader on the African mining scene,” he stipulated. “We are trying to make Cameroon a centre of excellence for negotiation mining business in Africa. What has delayed the maturity of our projects is the lack of relevant industries associated with mining, such as laboratories and drilling companies.”

The World Bank’s goal is for the project to “improve Cameroon’s efficiency and transparency of mining sector management and Cameroon’s frameworks for sustainable mining development.”

It “aims to reduce poverty by providing loans with zero to low-interest charges (called “credits”) and grants for programs that boost economic growth, reduce inequalities, and improve people’s living conditions.” Although it claims that “repayments are stretched over 30 to 38 years”, Cameroon’s loan repayment is stretched over 25 years.

Unlike the 1980s, the World Bank claims it no longer loans money to lower-middle-income countries by forcing them to dismantle state involvement, and implement a free market under private investors. This was known as “The Washington Consensus”, a neoliberal economic policy that would further plunge Africa into poverty, as Western private companies began to exploit the continent’s resources for enormous profit. Nevertheless, despite claims to the contrary, the Washington Consensus is still alive, and has been used by the IMF in Portugal, Greece and Venezuela.

As it was funded by the World Bank, Cameroon’s mineral resources are not solely under the control of the Cameroonian government. It is highly feasible that the discovery of new mineral resources will remain exploited for the wealth of a few.

The Democratic Republic of Congo: A Case Study

As one of the world’s wealthiest nations, in natural resource terms, the Democratic Republic of Congo has suffered under Western rule, beginning in 1885 when Belgian King Leopold established the nation, Congo, determined to extract all of the region’s wealth for both himself and Belgium.

Called “one of the worst man-made humanitarian disasters of the turn of the 20th century”, Leopold’s governorship was tyrannically brutal. Genocidal, torturous and exploitative for Congolese natives, his leadership has often been compared to Hitler’s and Stalin’s.

In 1960, when the DRC gained independence from Belgium, the United States of America swiftly engrossed itself in the nation’s politics, aiming for imperial control. Patrice Lumumba, Congo’s socialist, democratically-elected Prime Minister, would be assassinated in 1961 by the CIA. Backed by the US, France and Belgium, Mobutu Sese Seko would then become another tyrannical, kleptocratic dictator for the next 30 years.

Under Mobutu, the international community would have unlimited access to the country’s resources (worth $24 trillion today), including 3.2 trillion cubic feet of natural gas, large deposits of iron ore, platinum diamonds, gold and uranium. The control over the county’s resources would plunge the country into war and violence, violence which continues today.

Like the DRC, Cameroon is rich in mineral resources. More than 60% of the world’s cobalt, a main component used in our technological products, from drones to mobile phones, is mined in the Democratic Republic of Congo. Like the DRC, Cameroon is in the midst of its violent uprising, where, the US has been accused of meddling in its democratic elections.

A Francophone Cameroonian, President Paul Biya has ruled the nation for 37 years, abusing public funds for his private use. Accused numerous times of corruption, he has developed his Francophone region of Cameroon, to the detriment of the Anglophone region. This has presently led to Anglophone “Amba” soldiers demanding a secession of the Anglophone region, in the Ambazonia War.

As the political similarities between the DRC and Cameroon forecast, Cameroon’s recent mining discoveries will prove the opposite of developmental for a country already on the brink of implosion

L'articolo Cameroon’s Mineral Discovery Could Worsen its Political Climate proviene da InsideOver.