In the 2020s, African countries had to repay a particularly large number of Eurobonds. Some are already busy, others could have problems. How can government bonds be better organized?

African countries have borrowed large amounts of money in recent years – in the form of Eurobonds. These are government bonds issued in US dollars outside the United States, which is named after the historically second-largest lender in Europe. Today China is the largest donor in the global south – but its investments are again running according to their own rules.

For many of the Eurobond debtor countries in Africa, repayments are now due to their creditors because many money bonds will expire in the next few years. Countries like Mozambique or Zambia face a dilemma because they cannot repay their debts. Others have already started paying off, including South Africa, Morocco, Gabon, Ghana, Kenya, and Nigeria.

Mozambique after the cyclone (Lena Mucha)Mozambique is one of the poorest countries and cannot repay its debts.

Over the past decade, many African governments have been heavily indebted to Eurobonds – there has been a wave of payments to a number of countries in the south. South Africa was the first African country to borrow money through Eurobonds in 1995 – setting a trend. Credit volumes have increased since the global financial crisis in the late 2000s. According to the British fund company M&G, 21 countries are in chalk with a total of $ 115 billion. 

There are always risks

At the turn of the millennium, major donors decided to reduce the debt burden on the world’s poorest countries. “The major debt relief initiative of the past twenty years was aimed at making the federal states fit for the capital market again, or for the first time ever,” says Jürgen Kaiser, political coordinator of the “erlassjahr.de” alliance in Düsseldorf. The alliance is currently supported by over 600 church, political and civil society organizations nationwide and is part of a global network of national and regional debt relief initiatives. It is committed to ensuring that poor countries can receive debt relief in a fair and transparent process in the event of future debt crises.

After the debt relief initiatives of the 1990s and 2000s, countries took out new bonds in the form of Eurobonds. There were also success stories, Kaiser says in a DW interview: “In such cases, countries had the opportunity to issue government bonds and were also able to productively invest their earnings.” He cites Senegal, Kenya, and Nigeria as examples.

But with every loan, there is always the risk that there will be difficulties with repayments. Kaiser sees no problem in this: With debt in government bonds, it is normal – when the bond matures – to refinance it with new bonds. If it goes well, then new bonds will be a little cheaper than the old ones and you will be better off than before. “At the moment, however, African countries are still paying remarkably high-interest rates given the low global interest rates.” Your government bonds are particularly attractive for investors – which is why they are often oversubscribed, meaning that there are more buyers than the offer can offer.

Angola Foreign Exchange Black Market (DW / P. Borralho Ndomba)African countries pay high-interest rates on their Eurobonds. The money is supposed to boost its economy.

Interest rates too high in Africa

According to Kaiser, interest rates in Africa are too high: “They do not represent a market reality because there are many countries that have no payment difficulties at all.” Kaiser added that certain countries should not have been sold in countries that are experiencing difficulties and have also been classified as indebted by the International Monetary Fund. “Mozambique is such a classic case, but even in Zambia the creditors would not have been tempted by the high-interest rates that Zambia offered.”

Who are the good guys’ Countries that grant government bonds on a large scale include Kenya and Nigeria, says Kaiser? “They have no problems now, and Senegal, with over $ 4 billion, has no repayment problems and no general debts.”

Eurobonds lucrative for Africa

Many of the 21 countries named by the British fund company M&G are able to pay off the debts, says Misheck Mutize. He is a financial expert at the University of Cape Town. “Ghana left the Eurobond market a few weeks ago. The country is in good economic shape, also with a view to the political guidelines,” Mutize said in the DW interview. Mutize adds that interest rates on its Eurobonds are very high at eight percent. “Ghana had pushed itself into a corner, the Eurobond was oversubscribed five times.”

Ghana Project BG Ghana's many faces Accra (Imago / photothek / T. Imo)Ghana paid its debts and left the Eurobond market.

Can the mountains of debt be avoided? Local financial markets are not an option, says Mutize. “They are underdeveloped and the trading volume is small.” He thinks the Eurobond is a lucrative offer. “They bring a lot of leeway with regard to the political requirements – compared to other money providers.” The only problem: With their high-interest rate promises, the countries put themselves under too much pressure to repay bonds in five to seven years. They often invest in long-term infrastructure projects.

Debt crisis exaggerated

Mutize says the debt crisis in Africa is exaggerated. “The value of Eurobonds is not very important compared to Africa’s income. At the moment, Eurobonds make up one percent of the average gross national product of four percent in Africa.” But there would have to be more competent consultants at the negotiating table who could negotiate the optimal results from the perspective of the African countries. “Countries shouldn’t borrow money if their own currency is very weak.”

If governments are insolvent, all that remains is a new breakdown of debt. This reduces the power to negotiate well with money lenders and the problem is shifted into the future. “In the end, these situations have a huge impact on the population, because if the national budget shrinks, the poor will suffer,” says Mutize.

Jürgen Kaiser of erlassjahr.de also confirms: Nobody can reliably avoid the mountains of debt. He calls for an orderly process to reduce debt. This happens when a crisis arises: due to poor governance, corruption, deteriorating export prices or natural disasters.


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