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VIDEO | THE POLITICS OF AFRICAN SOVEREIGN DEBT RESTRUCTURING – 2023 UPDATE

The specifics of African sovereign debt are incredibly nuanced and require a
deep dive into country-specific situations and multilateral relationships. To
get a better understanding of this subject, Trade Finance Global’s (TFG) Deepesh
Patel sat down with Robert Besseling, CEO of Pangea-Risk at ExCred International
in London.



By Robert Besseling, Brian Canup

Published On Friday March 24, 2023


Last modified Friday September 15, 2023



Estimated reading time: 6 minutes







International trade operates on financing and debt. Without lending and
borrowing, corporates would not be able to function, and countries would be
unable to develop or grow. Yet, many industry experts and experts see the rising
debt levels across the developing world as a cause for concern. 

According to a Bank of Canada and Bank of England report, in 2021, global
government debt stood at 98.3% debt-to-GDP. Holding this level of debt for a
prolonged period of time creates numerous problems, especially once an
unexpected shock hits the market.

Pangea-Risk and Acre Impact Capital’s whitepaper, “The Politics of African Debt
Restructuring”, reports that the African continent is especially vulnerable to
debt-related shocks, as private and public debt increased to more than $700
billion from 2000-2020. 

However, the specifics of African sovereign debt are incredibly nuanced and
require a deep dive into country-specific situations and multilateral
relationships. To get a better understanding of this subject, Trade Finance
Global’s (TFG) Deepesh Patel sat down with Robert Besseling, CEO of Pangea-Risk
at ExCred International in London.


A LOOMING EXPIRATION DATE

The accumulation of over $700 billion of debt over the past 20 years has created
an uneasy environment for many analysts. The IMF stated that 22 low-income
African countries are in or at risk of debt distress. Many of the loans are due
to be serviced in the next two years, creating some fear of further market
turmoil. 

Besseling said, “From 2024 onwards, we’ve got some really big Eurobond capital
repayments that are due, and even more so in the four-year outlook.”

However, these developments are not dire, as some African countries, such as
Kenya, Ghana, and Angola, have successfully restricted their debt in recent
years. According to Besseling, 2023 is the year to focus on further debt
restructuring.

Besseling said countries need to “retreat their debt naturally, not just
restructure with a haircut…our white paper argues that debt can be reprofiled,
it can be swapped, it can be treated in different ways.”

One of the most common misconceptions surrounding the African debt situation is
that there is a ‘Chinese debt trap’. This is a phrase one commonly hears from
television commentators, from politicians and academics. But by looking at the
numbers closely, it becomes apparent that there is not an overwhelming Chinese
debt trap.

Out of the $700 billion debt in Africa, $150 billion of it comes from China.
While a large number, it only represents roughly 21% of total debt. Besseling
pointed out that over one-third of the $150 billion came from Angolan pre-export
finance facilities for crude oil.

Simply stated, most of Africa is not exposed to Chinese debt. Besseling said,
“Five or six African countries are heavily exposed to China. That’s only 10% of
the African continent.”

Additionally, China has shown flexibility in restructuring loans or providing
debt relief. The Pangea-Risk and Acre Impact Capital whitepaper says, “between
2000 and 2019, China … cancelled at least $3.4 billion of debt in Africa”. In
the same period, China restructured or refinanced about $15 billion of debt in
Africa. There were no asset seizures, and China has not used legal recourses to
compel repayments.”

Though the “Chinese debt trap” may not be as prevalent or fatal as some might
think, 2023 will still be an important year to restructure African debt before
the large debt obligations are due.

There have been some efforts by multilateral institutions to help the African
debt issue. However, none of them proved to be successful. A “Common Framework”
was created with the G20, IMF and World Bank, looking to treat the Paris Club
concessions and the Chinese debt trap.

Besseling said this excludes “Eurobond holders, domestic bondholders, commercial
lenders, ECAs and banks.”

Besseling believes that there needs to be a different solution to debt
restructuring. “Multilaterals at the moment are offering a multilateral approach
to debt treatment, and there is no precedent of success for that.”


AFRICAN CLIMATE FINANCE AND POLITICAL INSTABILITY

According to multiple studies, Africa is the most vulnerable continent to
climate change. Besseling said, “It would make sense that the bulk of climate
finance should go to Africa.”

But in reality, roughly 11% of global climate finance goes to the African
continent, most of which is financed by concessional lenders and multilateral
development banks. According to Besseling, very little private sector money is
invested in Africa.

African Development Bank research shows a $100 billion annual financing gap for
critical infrastructure in Africa, such as electric grids, water supply and
sanitation, and transportation.

Why is this the case?

Besseling believes, “It’s because of the fear of African countries defaulting on
their sovereign debt and high political risk.”

The private sector is particularly concerned with perceived political, economic
and social instability. Countries that have had recent contentious elections or
military interventions are highly unlikely to receive private investment.

The African continent needs private investment to counter the climate crisis,
but lenders are more hesitant than ever. Besseling notes that the Pangea-Risk
and Acre Impact Capital whitepaper focuses on this conundrum.

“Our White Paper argues that there should be debt treatment on domestic debt,
sometimes also on Chinese debt or concessional debt. And if we follow that road,
then we can put more African countries on a trajectory in which they will treat
their debt in 2023, make it more sustainable, more affordable, avoid defaults
from 2024 onwards.”

Besseling believes that once African countries properly restructure their debt
and avoid a potential default, private investment will increase. As debt burdens
become more sustainable and affordable, their country-risk premium will decrease
in tandem. 

“I think it’s increasingly important to start looking at African debt from a
data perspective rather than from the narrative that is currently circulating.”
By looking at African debt through a data lens, one can see a sustainable future
for Africa.


KEY FINDINGS

After analysing the data, the Pangea-Risk and Acre Impact Capital whitepaper
summarised six key findings.

 1. Debt transparency, responsible monetary and fiscal policy and stable
    institutions are important criteria for debt treatment.
 2. IMF needs to play an important role as a lender of last resort and policy
    anchor.
 3. Credit ratings have restricted African countries’ access to private capital.
 4. The “Common Framework” is not a successful debt restructuring program for
    Africa.
 5. Chinese creditors will be impacted the most by debt defaults and
    restructurings.
 6. African governments are looking to prioritise domestic debt solutions to
    help internal stakeholders.

Read “The Politics of African Debt Restructuring” to learn more about
country-specific cases and the detailed takeaways. 



 
acre impact capitaldebtdebt restructuringexcred internationalIMFinternational
tradepangea-riskRobert Besselingwhitepaperworld bank


ABOUT THE AUTHOR(S)

ROBERT BESSELING

Robert Besseling founded specialist intelligence company EXX Africa in 2015,
after pursuing a decade-long career in political risk forecasting at
industry-leading firms in the UK and US.

BRIAN CANUP

Brian Canup is the Editorial & Research Assistant at Trade Finance Global (TFG).
He graduated with an MA in International Political Economy from King's College
London, and a BA in Political Science from the University of Wisconsin-Madison.


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