JOHANNESBURG, South Africa – Zimbabwe’s former finance minister and MDC vice president Tendai Biti spoke at an OSISA-organised conference on ‘Southern Africa’s Debt Conundrum’ in Johannesburg on Tuesday.
Biti warned that African countries face a cataclysm in 2024 when billions in Eurobonds become due, as he highlighted the growth of “insidious players” who practise unethical lending to Africa, led by China.
Here is an abridged version of what Biti had to say:
“I want to start with the first question that you have asked. What have we learnt from the debt crisis as Africans? The answer to that is that we have not learnt anything. If anything, we seem to be addicted to debt as African nations and the fact that debt is a moral hazard doesn’t make any difference to any one of the African countries.
One of the solutions that is now there is this continuous process of rolling over your debt. So you owe a huge amount of money to the Paris Club of lenders, to the IFIs, to China, the solution these days appears to be let’s give you more debt to pay these old debts. So you borrow from Peter to pay to John. It’s almost like trying to resolve the problems of an alcoholic by putting the alcoholic in what we call back at home a bottle store, and lock the bottle store and throw away the key, which is unsustainable.
Debt is increasing. You mention 18 countries that are in the red, but if you look at those 18 countries the bulk of those countries are struggling with traditional debt which is contracted from traditional sources – the London club of creditors, the Paris club of creditors and the IFIs, in particularly the World Bank, the IMF and the African Development. But the structure of loan contracting has changed, there are now players, insidious players that have entered the market in a big way. The first one I want to mention is of course China.
China has very unorthodox methods of lending to African countries. They also tend to take some shortcuts; their due diligence is a mixture of politics and economics. So there’s no set objective standard when it comes to Chinese loan contraction, but Chinese debt is huge and Chinese debt is now populating the balance sheets of most of these African states.
The problem with Chinese debt is that it escapes the traditional scrutiny of the IFIs, in particular the IMF which has played the de facto role of a debt enforcer on behalf of the Paris club of lenders, the London club of lenders, the World Bank and so forth. China is outside that. In other words, China can lend to a country notwithstanding that its debt to GDP ratio is unsustainable, the net present value of exports to GDP is unsustainable and that has been happening, Zimbabwe is a good example.
The second entrance on the market is the Eurobond, it’s huge. As of June 2019, the total stock of Eurobonds learnt to Africa is US$104 billion. The majority of this debt will mature in 10 years’ time in 2024. There have not been defaults except in the case of Mozambique and Zambia, but come 2024 Africa will have this huge obligation to repay of US$104 billion. And it’s easy money. Just this year alone, three countries have been on the market to source about US$10 billion Eurobonds, and Egypt has actually been there twice.
The problem with Eurobonds is that there is no social connection at all, there’s no social impact at all – it’s just a financial transaction. They look at the ratios, and use three weights alone: Is this loan below weight? If it is below weight, the return is low so you find Zambia and Mozambique there. Is it market weight? In other words is it market neutral? Or is it overweight? You find Senegal and Nigeria there, they say they are overweight. They look at indices that are purely commercial, purely market.
So in my respectful submission, the implosion will come in 2024 when this US$104 billion literally becomes due.
I’m speaking on the changing structure of debt. An increasing form of debt now is domestic debt. In my country, for the first time in the history of Zimbabwe, domestic debt which is now around US$11 billion now actually exceeds external sovereign debt of US$9 billion. But oftentimes the difference between domestic debt and external debt is just academic. In the case of Zimbabwe all the debts are expressed in the United States dollar, and in South Africa all the debts are in the rand. So the classification of debt between domestic and external sovereign is just academic, but it’s increasing the debt burden.
There is also tampering of these ratios which is why we can’t trust them, the debt to GDP ratios. In many of the African countries there’s this fad now of rebasing the GDP, of recalibrating the GDP – Nigeria did it, Kenya I think has done it and every African country is doing it. But it’s just an academic nominal exercise, it doesn’t change your real ratios. In Zimbabwe at the present moment our GDP has been rebased, first we went to US$25 billion then it was recalibrated, we are now a US$42 billion economy… but we are not! The per capita income in Zimbabwe is US$280, at least 79 percent of Zimbabweans live below the poverty datum line surviving on less than US$0.35 a day. So to say Zimbabwe is middle income, Zimbabwe has got a GDP is absolute fiction. Our minister of finance should be writing fiction novels, not budget statements.
But here is the thing now. In the 1980s and 1990s, debt was on the forefront and there were movements like the Jubilee movement contesting debt. But over the years with the prima facie success of the multilateral debt relief programme, debt has fallen off the political landscape, what Brian Kagoro calls the depoliticisation of the debt. This has given licence, this has given a blank cheque now to the executive in most of these African countries to go on a binge, on a drinking spree oblivious of parliaments. So much of public debt is contracted outside constitutional provisions that require parliament to approve before the debt is contracted. Much of this debt is contracted outside public debt contraction laws that require the role of parliament. Much of this debt is contracted outside public finance management laws that require the oversight of parliament. Much of this debt is not located in government per se but in state-owned enterprises, in local authorities. So it escapes – for the purposes of debt sustainability analysis (the net presence value of your debt to GDP, the net present value of your exports to GDP) – it escapes the traditional IMF/World Bank criteria, so the citizen becomes so disempowered.
The citizen is disempowered in another way. If you look at the countries that benefitted from HIPIC (Heavily Indebted Poor Countries), there’s a connection with their level of repression, with their level of misgovernance, their capacity to steal elections, their capacity to imprison their citizens – there’s a relationship. Virtually every country that benefited from HIPIC at the initial stage was repressive, was autocratic, was undemocratic. There’s a corresponding relationship. But these are the same countries that are back again now, including my own country Zimbabwe.
Whilst in many of our country we have strong civic society from your traditional human rights perspective, there’s weakness now when it comes to financial civic society. They are non-existent or week. In Zimbabwe I can only talk of ZIMCORD. That again lets the executive off the hook. But the most critical stage of oversight of course is the election, but African elections are not issue-based elections, it’s about incumbency, it’s about the power retention agenda. In fact in the case of Zimbabwe the more you steal, the more you are likely to get re-elected. So there’s no connection between financial prudence, financial probity, good governance and your capacity to be reproduced. So democracy is not self-correcting, you can borrow it doesn’t matter. FRELIMO (in Mozambique) has been in power since 1975 but with all the scandals that it has done under ordinary circumstances it would have resigned, but they are not the only ones. I can go to Angola, I can go to Zambia, I can go to Tanzania, I can go to a lot of the other countries a lot of you are coming from but I still want to go back home, so I won’t mention.
To conclude, debt is increasing but our capacity to control the elite that are contracting this debt is very minimal and we are losing it by the day. Debt itself is changing, the debt itself is becoming more sophisticated. Adebayo (Professor Adebayo Olukoshi) spoke about securitisation, minerals are being mortgaged and securitisation is very dangerous. You can understand a little bit of it when it comes to countries with hydrocarbons because if a country produces two million barrels of oil like Nigeria, like Angola, you can quantify it and securitise it. But it’s dangerous, you can’t do it for diamonds, you can’t do it for gold or platinum yet every other African country is being told to follow the model of securitisation which can work with some measure of trepidation on hydro-carbons but not on other raw materials.
So, Africa is getting a raw deal. It’s also getting a raw deal because we don’t have the lawyers, the accountants, the sophistication to match those that are leading to us. Our knowledge and capacity is in its infancy, which is why it’s so understandable that when it comes to election times you will find many political parties say we are going to tear up all the resource contracts that have been contracted, and it’s correct and it’s understandable.
(Transcript by ZimLive.com)
