The economic blow dealt by the coronavirus pandemic has reignited a sentiment that Africans have shared for years: Their growth is inhibited by widespread discrimination by the international investor community.
As the virus batters the continent’s economy and throws government budgets into chaos, the spotlight has shifted onto the exorbitant amounts of money that African nations spend on debt repayments even as large creditors like China, the International Monetary Fund (IMF), and the G-20 nations offer debt relief to deal with the current predicament.
African countries on average spend more on interest payments than on doctors and clinics at home, with Ghana spending five times its health care budget on servicing debt. Africa’s top oil producer, Nigeria, which is reeling from a crash in oil prices, could only manage to collect revenue equal to its debt-servicing costs in the first quarter.
Amid the economic pain, African leaders and experts are flagging the “unfair” risk premium put on African countries — which results in them having to pay more for debt than other emerging nations — as an unnecessary burden. They say the risk premium is rooted in bias and is often based on a misplaced presumption of risk by international investors.
“When you look at the risk premium put on African countries you just question, why,” Ken Ofori-Atta, Ghana’s finance minister, told Bloomberg in July. “There is no basis for us borrowing at 6%, 7%, or 8% while other countries borrow at cheaper rates.”
Africa has its problems: conflicts, political instability and rampant corruption in certain countries, lack of infrastructure, and stifling bureaucracy and regulations. But experts say that even if one accounts for all these factors, a 2.9% risk premium, as was revealed by a 2015 report, is unjustified.
Argentina vs. Angola
They cite the example of Argentina to stress their point. The Latin American country, which has reneged on its debt on nine occasions, issued a 100-year bond in 2017 with a coupon of 7%, which to the surprise of many was oversubscribed. By comparison, Angola hasn’t defaulted since the end of its civil war in 2002 and yet is charged a higher rate of over 9% that too for much shorter-dated bonds.
“If this is a country [Argentina] with a history of defaulting on its loans, this is a country that’s at junk status and is still capable of issuing $2 billion in debt that’s oversubscribed up to $9 billion, and they don’t have to pay back for 100 years. So, what exactly is the risk that is being built into the model when it comes to the African countries,” said Gyude Moore, a senior policy fellow at the Center for Global Development and former minister of public works in Liberia.
African economic powerhouse South Africa is also a victim of this alleged bias. The country is charged higher rates by bondholders than say a Brazil, which is assigned a similar credit score by S&P Global Ratings. Similarly, Kenya pays more for a 10-year dollar debt than similarly rated Bolivia.
Mma Amara Ekeruche, a research associate at the Center for the Study of the Economies of Africa (CSEA), says this discrimination was one of the factors pushing African nations to borrow from China, which offers better rates than private creditors and lays down less stringent conditions than multilateral institutions like the IMF.
Africa’s checkered credit history
One reason that experts give to justify this disparity is that the continent has a limited credit history and that too is checkered with credit reliefs, renegotiations and debt restructuring.
“Even though the entire world was hit by the virus, it’s only African countries that have come out to say that they can’t pay their debts,” Ekeruche told DW. “It just speaks to their sentiments. Investors…