Across Africa, rising debt burdens and the high cost of borrowing have renewed concerns about the terms under which governments take loans and how those debts are managed.
For instance, Nigeria’s public debt stood at N159.35 trillion as of 31 March, according to the Debt Management Office (DMO). Of this amount, N87.40 trillion was domestic debt, while N71.95 trillion was external debt.
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PREMIUM TIMES reported that African countries spend about $90 billion every year servicing debt and pay another $75 billion in additional interest because of the high risk premium attached to borrowing,
At the sixth African Conference on Debt and Development (AfCoDD VI) held in August in Nairobi, Kenya, the African Forum and Network on Debt and Development (AFRODAD) called for African countries to work more closely together in their dealings with creditors.
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In many African countries, the cost of the debt is forcing governments to make difficult choices between servicing debt and spending on health, education and climate resilience, even as the continent requires about $1.3 trillion annually to achieve the Sustainable Development Goals.
AFRODAD’s Policy, Advocacy and Research Manager, Theo Jong, argues that African countries weaken their bargaining position when they negotiate with creditors separately.
In this exclusive interview with PREMIUM TIMES on the sidelines of the conference, Mr Jong, a Cameroonian development professional, academic, and researcher, spoke about the problems in sovereign loan agreements, debt transparency, resource-backed borrowing, and why he believes African countries need a common position when negotiating with creditors.
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He said better debt governance, transparency and accountability are critical to finding a solution to the debt crisis on the continent.
Read excerpts from the interview below.
PT: AFRODAD has studied sovereign loan agreements in several African countries. What loan terms are most worrying, and can you point to a specific agreement where a clause disadvantaged a country?
Jong: AFRODAD has studied sovereign loan terms, and there are several issues of concern. I’ll focus on two that are particularly important.
The first is transparency. There are often confidentiality clauses in these loans, which means the terms are not available for citizens, the media and parliamentarians to scrutinise.
That creates problems for transparency and accountability and for ensuring responsible borrowing. Borrowing should serve African citizens rather than put countries under economic stress.
The second concern is that many of these contracts can only be litigated in foreign jurisdictions. If there is a dispute, it may be heard in London, Paris or New York rather than within the jurisdiction of the African country that borrowed the money.
Many of these loans are also governed by the laws of foreign jurisdictions, which is another important concern.
There are also issues around the currencies in which African countries borrow. They borrow in dollars, euros, Japanese yen or Chinese yuan. This creates a challenge because countries have to earn those foreign currencies before they can service the debt.
When there are problems such as inflation or currency devaluation, debt servicing becomes even more difficult.
Another problem is that some contracts are signed in languages that parliamentarians and government officials cannot read. For instance, we have had contracts signed in Chinese. How many of us can actually read Mandarin?
When clauses that could increase debt distress are contained in such contracts, it becomes difficult for governments to deal with them if they do not fully understand what they have signed.
Borrowing itself is not the problem; we have heard that throughout this conference. The bigger questions are what countries are borrowing for and whether they have proper debt governance.
The problem is also the lack of coordination. Nigeria talks to China on an individual basis. Cameroon, Chad, Benin, Zimbabwe and Zambia do the same.
Debt is governed by rules that have shaped the global financial system and debt architecture. If African countries want to reform those frameworks and secure better borrowing terms, they need to reform the system.
But when governments negotiate with creditors individually, they become more vulnerable. They lose the opportunity to negotiate collectively and strengthen their bargaining power to change some of the terms on which African countries borrow.
PT: There is growing discussion about debt transparency. What are African governments still not telling their citizens? Can you give a specific example of a loan, creditor or liability that has been difficult for the public to identify?
Jong: African countries have had several instances of hidden debt.
Senegal is one example. A large amount of debt was contracted under the previous government and was later identified and inherited by the current government.
That raises questions about transparency and accountability in how governments borrow.
We have also seen confidentiality clauses in debt negotiations under the G20 Common Framework, including in the cases of Zambia and Ghana. Some terms are not made public to citizens and parliamentarians.
At the end of the day, people can find themselves carrying a very large debt without knowing the exact amount, the terms under which it was contracted or the purposes for which it was borrowed.
Those are common problems in African countries and have contributed to the continent’s debt challenges.
PT: Resource-backed borrowing has been discussed at AfCoDD VI. How does it work, and what could go wrong when countries use oil, minerals or future resource revenues as security?
Jong: Resource-backed borrowing is not necessarily a problem if the rules around it are transparent.
We need to know how much of a country’s resources have been committed against how much borrowing. The problem is often transparency and accountability.
We have heard of resource-backed borrowing scandals, including the Tuna Bonds case in Mozambique and the case in Chad. Some of these arrangements were contracted under unclear terms and circumstances and contributed to the problems those countries faced.
A report by the Natural Resource Governance Institute also documents resource-backed borrowing involving a number of African countries.
One risk is that countries may not be able to negotiate favourable terms, particularly when the value of their resources rises on the international market. They may continue selling resources at the rate at which they were valued when they were pledged as collateral.
Another challenge is that the terms of these arrangements and the reasons for taking on the borrowing are not always clear.
For us to get out of this situation, debt governance, transparency and accountability must be central to discussions about how African countries borrow, what they borrow for and the terms attached to those loans.
This also goes beyond individual countries. It requires a coordinated approach at the regional level so African governments can influence the global debt system.
PT: AFRODAD has proposed tools for tracking resource-backed loans and public registers showing who governments owe. Why have African countries struggled to establish such systems? Is the problem capacity, political resistance or unwillingness to make borrowing public?
Jong: The problem is not a lack of technical capacity. There has been a lot of policy advice from the IMF, the World Bank and civil society.
The problem is implementation.
This is more than a technical issue. It requires political will to implement policies that serve African countries and African citizens rather than policies that serve the global financial system.
For instance, the current G20 Common Framework, which Ghana, Zambia and Ethiopia have used, does not, in my view, address the structural causes of the debt. It addresses the effects and symptoms.
Credit ratings are one of the factors behind why African countries borrow at higher interest rates than countries in Europe or the United States.
Credit-rating agencies, interest rates and the power dynamics surrounding debt restructuring are all part of the rules that determine how the system works.
African countries are not in a position to redefine those rules. They are largely rule-takers rather than rule-makers because of these power asymmetries.
That takes the issue beyond a purely technical problem. It is also a political issue.
This is why political coordination and a common African position are important. If African countries want to rewrite the rules and have greater influence, they need political coordination.
We are not short of ideas. The issue is not a lack of money. The issue is that we have not been able to figure out how to work together as one continent to deal with the global financial system.
PT: Zambia, Ghana and other African countries have gone through debt restructuring, yet debt problems persist. What has restructuring failed to address?
Jong: The problem with the current framework, the G20 Common Framework, is that restructuring does not address the structural causes of the debt. It addresses the effects and symptoms.
Credit ratings, interest rates and the power dynamics surrounding debt restructuring are part of the rules that determine how the system works.
African countries are not in a position to redefine those rules. They are largely rule-takers rather than rule-makers because of the power asymmetries.
If we want to rewrite those rules, we need political coordination. We need a common African position.
READ ALSO: Poor debt data, weak oversight threaten Africa’s debt management — Experts
PT: Africa is discussing its own debt institutions and negotiating mechanisms. What is the biggest obstacle in practice — money, political will, disagreements among governments or pressure from creditors?
Jong: We have seen it happen in Africa where leaders who had that political will were brutally taken out — political assassinations, what happened to Lumumba, what happened to Thomas Sankara and what happened to former Ghanaian President Kwame Nkrumah.
These were people with a Pan-African vision who warned against some of what we are experiencing today.
It requires more than technical knowledge to understand these issues. It requires political understanding — an understanding that debt and economic issues are not just technical issues. They are also deeply political.
To address them, we need coordination. We need to generate the political will required to move beyond simply producing policy recommendations that are not implemented.
PT: After everything you have seen in African debt negotiations, what is one thing governments still do that leaves citizens vulnerable to another debt crisis?
Jong: The issue is not simply that we are carrying debt burdens that are heavier than us. The issue is that we have not been able to figure out how to work together as one continent to deal with the global financial system.
It is a system of rules. If we are able to come together and rewrite those rules, the truth is that we will always have restructuring to clear the debt. But as we clear the debt, it creates room for more debt to come in.
Debt is not just a technical issue. It is not purely an economic issue. It is also a political issue.
It takes political will to do the right thing.
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