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African Debt and International Discrimination
Abidjan, Cote d'Ivoire

African Debt and International Discrimination

22. July 2021 Archive, Op-ed

African countries on average spend more on interest payments on their debt than on their public health programmes. But Africa’s overall level of debt is tiny in comparison to levels notched up by the developed world. The debt-to-GDP ratio in most African countries is below the IMF’s suggested 55% threshold as well as far below that of many European countries and the USA.  Why this unfairness in the treatment of debt?

It’s about the size of the interest charged on the debt, which is far more for Africa than for any other region in the world. As the impact of Covid-19 hits economies and national budgets around the world, it’s worth remembering this inequality of treatment.

African nations spend far more on debt repayments because they are subject to an additional risk premium, which is based on a high presumption of risk by international investors and a bias in which the IMF and the World Bank are equally complicit in perpetrating. This means that economic growth in Africa is inhibited by widespread discrimination by the international investor community.

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 risk premium for African investments averaging almost 3 percentage points is still wholly unjustified.

This discrimination was one of the factors that led to African nations borrowing from China, which offered better rates than private creditors and laid down less stringent conditions than multilateral institutions like the IMF.

One reason that experts give to justify this disparity is that the continent has a limited credit history marked by credit reliefs, renegotiations and debt restructuring. The presumption of risk also emanates from a lack of credible information and data that investors in the West have about Africa, often prompting them to paint the entire continent with the same brush.

It’s the same old story of discrimination against an Africa that has recently been seeking to convert itself into a free trade area. This is a genuine win-win strategy. The rest of the world should encourage Africa to make more progress in doing so and help it by arresting the vicious cycle of debt, renegotiation, surcharge, debt.

Tags: investmentreliefIMFChinaAfricaEuropedebt
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Lionel Stanbrook is an editor, diarist, journalist, writer, re-writer, word designer, and content creator. This site contains the best of Lionel’s articles, prose, poetry, blogs, musings and perspectives, as well as a writer’s folio, a recent CV (perhaps the most creative part of all his work), and the monthly diary Ahem, written about his personal life, work, travel, emotions and experiences since 2004.

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