Issues of rising debt in Africa

Debt is part of human life and existence. Debt is also as old as man and so are defaulters.

Most of the time, debt is not a major problem, but sometimes it can become catastrophic.

According to the International Monetary Fund (IMF) database, there is only one country in the world that is debt-free. That country is Macau Special Administrative Region (SAR) of greater China.

Seven of the world's big economies rank among the 20 countries with the highest external debts. These are: United States (28.9 trillion dollars), Russia (280.1 billion dollars), United Kingdom (2 trillion pounds), France (3 trillion dollars), Germany (5.9 trillion euros), Japan (12.2 trillion dollars) and China (7 trillion dollars).

African countries are not left out. Many of them are collecting loans from the World Bank, the IMF, China and other countries of the world to fund various development projects, but the trend has become a source of great concern among analysts.

The concern among the analysts is borne out of the increasing indebtedness of many countries in the continent.

They are quick to raise questions about the implications of this huge debt on the lives of Africans and future generations.

According to the Economic Times, Africa's debt to China exceeded 140 billion dollars as at September 2021.

Meanwhile, the IMF estimates that additional financing of up to 285 billion dollars would be needed from 2021 to 2025 by African countries to step up their spending response to the coronavirus pandemic.

Foreign affairs experts say that while China's role in global trade is highly publicised and politically polarising, its growing influence in international finance has remained more obscure, mostly due to lack of data.

Over the past two decades, China has become a major global lender, with outstanding claims now exceeding more than five per cent of global Gross Domestic Product (GDP).

According to the analysts, research, based on a comprehensive new data set, shows that China has extended more loans to developing countries than previously known.

This systematic underreporting of Chinese loans has created a "hidden debt" problem – meaning that debtor countries and international institutions alike do not have a complete picture of how much countries around the world owe to China and under which conditions.

In total, the Chinese state and its subsidiaries have lent about 1.5 trillion dollars in direct loans and trade credits to more than 150 countries around the world.

This has turned China into the world's largest official creditor – surpassing traditional, official lenders such as the World Bank, the International Monetary Fund (IMF), or all creditor governments of the Organisation for Economic Cooperation and Development (OECD) combined.

According to the IMF, more than 20 low-income African countries are in debt distress or at risk of debt distress between September and December 2021.

The fund identified Mozambique, Somalia, Sudan and Zimbabwe as some of the countries that have had long track records of development distress and have had to continue to borrow and invest.

The debt of low- and middle-income countries in sub-Saharan Africa increased to a record 702 billion dollars in 2020, according to a new World Bank report released on Oct. 11, 2021.

This is the region's highest debt in a decade.

In 2010, sub-Saharan Africa's debt stood at around 305 billion dollars.

According to informed sources, since 2010, Chinese financial institutions have funded an average of 70 projects every year in Africa with an average value of 180 million dollars.

The resource guarantee infrastructure financing has been focused on minerals and hydrocarbon-rich African states including Zambia (copper), Kenya, Nigeria, Ghana, Angola, Algeria, Mozambique, Egypt, Sudan (oil & gas), South Africa and Tanzania (gold).

China currently is a leading bilateral lender in 32 African countries and the top lender to the continent as a whole.

In 2020, the African countries with the largest Chinese debt were Angola (25 billion dollars), Ethiopia (13.5 billion dollars), Zambia (7.4 billion dollars), the Republic of the Congo (7.3 billion dollars) and Sudan (6.4 billion dollars).

As at 2021, the total external public debt in West Africa amounted to around 164 billion U.S. dollars.

Nigeria and Ghana recorded the highest levels of debt in the region, at approximately 79.54 billion dollars and 21.91 billion dollars, respectively.

But the debts have been triggering repayment crisis. China owns around 72 per cent of Kenya's external debt which stands at 50 billion dollars.

Over the next few years, Kenya is expected to pay 60 billion dollars to the China Exim Bank alone, sources informed.

Mombasa port could be lost if Kenya defaults on the loan re-payment, according to Kenya's own auditor general.

The National Treasury Cabinet Secretary Ukur Yatani, denied that Kenya had offered the strategic national asset as collateral for the 3.2-billion-dollar loan sourced from the Export Import Bank of China (Exim China) to finance its Standard Gauge Railway (SGR) project.

Although he maintained that the government was servicing the SGR loans, concerns are mounting that runaway public debt could see Kenya default on its loan obligations, a risk that could expose the port to seizure by China.

In a report to parliament, the auditor general said that the assets of Kenya Ports Authority (KPA) and Kenya Railways Corporation (KRC) were used as collateral for the SGR loans.

In 2015, it was reported that there was widespread discontent in Angola because of oil repayment loans from China, leaving Angola with little crude oil to export.

The Ugandan government also had to postpone the construction of 'Kampala-Entebee expressway after the political opposition raised concerns over the country's rising debt profile.

In Djibouti, China has provided nearly 1.4 billion dollars which is 75 per cent of the country's GDP, according to reports.

Between 2010 and 2015, Nigeria's debt to China grew by 136 per cent from 1.4 billion to 3.3 billion dollars and the country had to spend 195 million dollars in 2020 as debt repayment to China.

Meanwhile, Credit rating agency, Agusto&Co, in its Economic Newsletter January 2022 edition said that Nigeria's foreign debt could rise from about N15 trillion to N18 trillion if the Central Bank of Nigeria (CBN) devalued the naira at about 20 per cent.

The firm added that Nigeria has assumed a hawkish foreign exchange policy stance since 2015 and this has been elevated from 2020 to date.

"We project foreign debt could rise from about N15 trillion to N18 trillion if the CBN devalues at about 20 per cent.

"However, we note that the Federal Government's borrowing stance creates a disincentive to review this hawkish foreign exchange policy stance,'' the firm said.

Today in Nigeria, Socio-Economic Rights and Accountability Project (SERAP), a civil society organisation is demanding probe into the lending practices in the country and calling for a review of 'sovereign guarantee clause' in loan agreements with China.

Again, Nigeria has to repay 400 million dollars on a loan provided by China for the 'Nigerian National Information and Communications Technology Infrastructure Phase – II Project,' signed in 2018.

Former Chairman of the Senate Committee on Foreign and Local Loans, Sen. Shehu Sani said loans were indispensable in the 21st century economic development but "we should only borrow when it is necessary.

"It is impossible to say you want to develop your country without borrowing, but as a developing country, there is a need to prioritise borrowing.

"It was just a decade and a half ago that Obasanjo's administration worked hard and gracefully freed Nigeria from the burden of debt and today, we have moved from zero debt to where we are today.

"Economic experts will always argue that we are within the threshold of a safety net, whereby we can still borrow, because we can pay.

"But if you continue to borrow there will be a time when you will not be able to pay.

"This is what is happening to Argentina; this is what is happening to Lebanon. We should borrow only when it is absolutely necessary.

"You want to borrow to build an airport, when you know very well that you can devise a mechanism, where the private sector can build an airport and you concession it to them and collect royalties from them later?

"You want to borrow to build a dam. But have you explored the possibility of foreign or local investors building a dam for electricity or for agricultural purposes and you go in to enter into a partnership with them?

"That is the question, we have what is called debt management Act, where conditions for borrowing are clearly stipulated.

"Before you borrow, we first want to know how much do you want to borrow. What you want to use the loan for, and what are your debt servicing plans?

"If you are heavily indebted and if you still want to borrow, you are strangulating the economy, the state, or the country?,'' Shehu said.

He added: "Of less concern is the borrowing from China, it is easier to borrow from China than to borrow from the rest because when China lends you money, they will simply be expecting you to pay back.

"But when western institutions are to lend you money, they have to check your finances, financial discipline, stability of your government, impact of the project you are borrowing \for on the community.

"Sometimes they look into your human rights record. But ask yourself, how long will it take to service such loans and at what costs? Lebanon today is strangulated because of a 100-million-dollar loan it took.

Meanwhile, DMO's Director-General, Mrs Patience Oniha has faulted the IMF report and a similar one by foremost Pan-African Credit Rating Agency, Agusto & Co.

She said that both reports failed to consider the challenges experienced by Nigeria in recent times.

"There were challenges such as two recessions, sharp drop in revenues and security challenges.

"Even more, the analyses do not acknowledge the improvements in infrastructure which have been achieved through borrowing, as well as, the strong measures by the government to boost revenues," she said.

She reiterated the fact that the Federal Government was already implementing policies towards increasing revenues and developing infrastructure through Public Private Partnership arrangements, both of which will improve debt sustainability.

She noted that the Federal Government had active and regular engagements with the IMF on borrowing and debt management.

The DMO explained that the country's total debt of 92.9 billion dollars, and a debt to Gross Domestic Product (GDP) ratio of 35.51 per cent were within sustainable limits.

The DMO clarified that Nigeria's loans from China stood at 3.59 billion dollars (or 9.4 per cent) of the country's total foreign debt stock.

It also clarified that the loans were largely concessional, as no national asset was tagged as collateral.

She explained that before foreign loans were contracted, very sensitive steps were taken by multiple institutions of government to ensure that they were beneficial to the nation.

"Before any foreign loan is contracted, including the issuance of Eurobond, they are approved by the Federal Executive Council and thereafter, the National Assembly.

"An important and extremely critical step is that the loan agreements are approved by the Federal Ministry of Justice.

"An opinion is issued by the Attorney-General of the Federation and Minister of Justice before the agreements are signed.

"Several measures which operate seamlessly have been put in place to ensure that data on debt are available and that debt is serviced as at when due. Provisions are made explicitly for debt service in the annual budgets,'' she said.

Meanwhile, China's Foreign Minister Wang Yi has rejected allegations that Beijing was luring African countries into debt traps by offering them massive loans, dismissing the idea as a "narrative" pushed by opponents to poverty reduction.

Wang who spoke ahead of tour of Beijing funded projects in Kenya in January, said China's considerable lending to Africa was "mutually benefiting" and not a strategy to extract diplomatic and commercial concessions.

"That is simply not a fact. It is speculation being played out by some with ulterior motives," he told reporters in the Kenyan port city of Mombasa.

"This is a narrative that has been created by those who do not want to see development in Africa.

"If there is any trap, it is about poverty and underdevelopment," the minister who spoke through an interpreter stressed.

Available records showed that at least 18 African countries have been re-negotiating their debts, while 12 others are in talks with China for restricting an approximate 28-billion-dollar loans.