Ethiopian Prime Minister Abiy Mohamed was among the first African leaders to issue an urgent appeal for debt relief back in March even before COVID-19 had become a serious public health issue on the continent.“COVID-19 poses an existential threat to the economies of African countries,” said Prime Minister Abiy in a letter addressed to G20 leaders:
Since then, despite significant economic deterioration in countries across Africa, there hasn’t been a lot of progress. Part of the reason for the delay is due to the fact that the debt portfolios of most African countries are now much more complex than they were in previous economic crises. In the 80s and 90s, African countries largely borrowed from multilateral institutions like the World Bank and the International Monetary Fund among others, so negotiating debt settlement deals was rather straightforward.
Not any more.
Those multilateral agencies are no doubt still very important, but they’re not as dominant as they used to be. Today, African states have borrowed a lot more from other countries, primarily the Chinese, and private creditors. And this is why it’s turning out to be much more difficult to answer Prime Minister Abiy’s call for rapid debt relief as countries struggle to repay their loans while simultaneously increase spending on public health efforts to contain the spread of COVID-19.
While the Prime Minister and other African leaders have requested a continental-wide debt relief solution, both the Chinese and a coalition of private creditors, known as the Africa Private Creditor Working Group (AfricaPCWG), have said they’re not going to do that and instead will negotiate separate arrangements with each African country.
“The AfricaPCWG understands that private-sector creditors have an essential role in assisting some of the world’s poorest countries to contain the economic impact of COVID-19, and stands ready to buttress efforts being made by the multilateral and bilateral sectors by offering its collective institutional experience to provide guidance and support on a case-by-case basis.”
AfricaPCWG press release
Although that approach makes a lot of sense for creditors who insist that a one-size-fits-all response is not practical, it’s a story for borrowers who are now facing enormous pressure as their currencies devalue, foreign exchange reserves diminish and their credit ratings come under new pressure.
Renaissance Capital’s Global Chief Economist Charlie Robertson agrees. Across the board debt relief, he said, “is not the right tool to address this public health crisis” given that some countries in Africa are indeed seeing rapidly increasing COVID-198 infection rates while others are not.
Charlie joins Eric & Cobus from London to discuss the current state of debt relief in Africa and how he proposes both multilateral and private creditors should approach the issue.
Show Notes:
- Al Jazeera: Private creditors reject blanket debt relief for African nations
- Vanguard (Nigeria): China will work to ease Africa’s debt burden – Wang Yi
- Bloomberg: China May Agree to Delay, Not Forgive, $150 Billion Africa Debt
Charles Robertson, a leading emerging markets specialist, is Renaissance Capital’s Global Chief Economist and Head of the Firm’s Macro-strategy Unit. Charlie covers the global economic themes having the greatest impact on emerging markets, including democratization, demographics, education, electricity, ESG, fertility, pension funds, savings, terrorism, as well as key ways to examine exchange rates in emerging and frontier markets. Charlie is the lead author of The Fastest Billion: The Story Behind Africa’s Economic Revolution (www.fastestbillion.com), published in October 2012, and is often found on twitter @RenCapMan. Charlie was voted the #1 Frontier analyst in the Extel survey in 2016, 2017, 2018, and 2019, #1 Frontier analyst in Institutional Investor in 2019, and Renaissance Capital was the #1 rated Frontier firm in both 2016 and 2017. He was previously ranked the number-one economics and macro analyst for emerging Europe, the Middle East, and Africa in the Extel survey in 2007, 2008, 2009, and 2010. In addition, the team he led was ranked the best macro team in Extel’s 2010 survey of equity investors. Another of Charlie’s teams took 1st place for SSA coverage in the institutional investor survey for 2012. Charlie graduated from the London School of Economics in 1993 and worked at a UK parliamentary defense think-tank and a research boutique until joining the financial services industry in 1998.