OUR SOVEREIGN DEBT CRISIS
In 2009, the Zambian-born economist Dambisa Moyo published the instant bestseller Dead Aid. (Dambisa Moyo, Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa (New York: Farrar, Straus, and Giroux, 2009)). Moyo’s main argument in the book was that there was little to show for the hundreds of billions of dollars in foreign aid that had been given ĺto the African continent since 1970. Rather than spurring development, she said, aid had financed grand-scale corruption and civil wars, which in turn thwarted economic growth on the continent. Moyo’s case against aid was not a new one. Her book’s arguments were inspired by the Hungarian-born British conservative economist Peter Bauer, in whose memory Moyo dedicated her book. Bauer made a career singling out foreign aid – not colonialism or neocolonialism – as the chief architect of Africa’s underdevelopment.(Peter Bauer, ‘The Case Against Foreign Aid, Intereconomics’, Verlag Weltarchiv 8, no. 5 (1973) 154–157).
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What was new about Dead Aid was Moyo’s prescription? In a chapter titled ‘A Capital Solution’, Moyo called for the substitution of aid with private market debt. That is, she called on Western countries to significantly reduce their aid to Africa and at the same time called on African governments to make up for the shortfall by borrowing from private creditors and bondholders such as hedge funds, banks, and so on. For Moyo, this was an elegant solution to the problem of corruption, which had historically bedevilled the foreign aid industrial complex. Money sourced from private debt markets was unlikely to fuel corruption in Africa because, Moyo argued, private creditors were sophisticated enough to not invest in countries likely to engage in corruption. After all, corruption acted as a drag on economic growth, which in turn threatened the prospects of debt repayment. On the other hand, to access much-needed private credit, African governments would need to demonstrate to private creditors that they were committed to fighting corruption and to investing the proceeds in growth-enhancing activities. Moyo’s policy solution was, therefore, a supposed win-win for all concerned.
Moyo’s ‘capital solution’ provided the intellectual cover for the financialisation of capital flows to Africa through the issuance of so-called Eurobonds (i.e., the issuance of bonds in US dollars and Euros), whose meteoric rise would engulf the continent in a new debt crisis by 2020. Ghana’s first issuance of a Eurobond in 2007 was a turning point for the continent. The country’s debut bond of $750 million was issued to much fanfare and was highly sought after by financial investors in New York and London. (Reuters, ‘Huge Demand for Ghana’s Debut Eurobond’, Ghana Web, 27 September 2007, http://www.ghanaweb.com/GhanaHomePage/business/artikel.php). In a quest to satisfy investors’ appetites, Ghana followed up by issuing two additional Eurobonds totalling $2 billion in 2013 and 2014. Other countries in Africa soon followed suit. (Vivian Kai Mensah, ‘Ghana Issues Third Eurobond’, 11 September 2014, Citi 97.3 FM, http://citifmonline.com/…/ghana-issues-third-eurobond/….).
In 2011, Zambia obtained its first sovereign credit rating (a credit score of sorts) from the ratings agency Fitch. Shortly thereafter, the country issued two Eurobonds in quick succession in 2012 and 2014, a scenario that increased Zambia’s external debt by an incredible 300% in three years. (Grieve Chelwa, ‘It’s Time to Treat Commodity-Backed Loans to African Countries the Same Way We Treat Equity’, Quartz, 2 June, 2015, http://qz.com/…/its-time-to-treat-commodity-backed…; Grieve Chelwa, ‘The “Truth” about Zambia’s Debt’, Grieve Chelwa (blog), 15 October 2020, http://gchelwa.blogspot.com/…/the-truth-about-zambias….). Kenya likewise jumped on the bandwagon, issuing three Eurobonds between 2014 and 2019 that totalled around $5.5 billion.(Paul Wafula, ‘Kenya: Eurobond Dossier Reveals Kenya’s Deep Economic Ties to China, IMF’, AllAfrica, 17 June 2021, http://allafrica.com/stories/202106170380.html.).
Eurobond issuance on the continent grew at an incredible pace in the second decade of the twenty-first century: by 2020, twenty-one African countries had issued Eurobonds (several, in many cases). According to the World Bank’s International Debt Statistics handbook, the stock of Eurobond debt for sub-Saharan Africa grew from about $32 billon in 2010 to $135 billon in 2020, a 322% rate of increase. (World Bank, International Debt Statistics 2022 (Washington, DC: World Bank, 2022),http://openknowledge.worldbank.org/server/api/core/bitstreams/2d6b3d72-a763-5db8-bd8b-209a6a7fb384/content )
In other words, the stock of Eurobond debt had more than tripled in just ten years.
The rate of increase in the stock of Eurobond debt between 2010 and 2020 far outstripped other sources of foreign currency debt in Africa. For example, multilateral debt from the World Bank, IMF, African Development Bank, and other institutions increased by about 144% over the same period, a rate that is less than half that of the increase in Eurobond debt.
Fred M’membe
President of Socialist Party Zambia