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DW: Africa’s new sovereign debt crisis March 25, 2017

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Africa’s new sovereign debt crisis


Mail & Guardian Africa, 21 March 2017


Mozambique is the first major African nation in recent times to become unable to meet obligations to international creditors

A decade after the last major debt write-down, African states are again in difficulties. (DW/M. Sampaio)
A decade after the last major debt write-down, African states are again in difficulties. (DW/M. Sampaio)

Finance ministers and central bankers from the G20 group of the world’s most influential industrialised and emerging economies met in Baden Baden, Germany on the 17/18 March. The German NGO Erlassjahr.de (Jubilee Germany), which campaigns for debt relief, saw this as an opportunity to draw attention to the growing debt problems of many developing countries. The NGO has identified as many as 40 African countries which are showing signs of heavy indebtedness.

“This is not surprising because today’s economic indicators are telling a story very similar to the situation in the late 1970s and early 1980s which led to the Third World debt crisis,” said Jürgen Kaiser, political coordinator at Jubilee Germany. In the wealthy industrialised countries, interest rates are very low, but in Africa investors can fetch returns of between seven and 15 percent.  This leads to large capital flows from the North to the South.

The debt trap: declining commodity prices
“The low interest rates encourage countries to take out big loans which they then have difficulty paying back,” Kaiser said. The situation becomes particularly precarious when commodity prices fall. This leads to a subsequent decline in tax revenue in economies that are dependent on oil, natural gas, coal or other raw materials.

This latest debt crisis may come as a surprise to some people because numerous developing countries had a large share of their debts written down under the Heavily Indebted Poor Countries (HIPC) Initiative.  However, commentators who were convinced at the time that that this initiative launched by the World Bank, the International Monetary Fund and the G-8 group of leading industrialised nations, including Germany, would solve the developing nations’ debts problems turned out to be wrong.

Mozambique insolvent again despite debt relief
Figures released by Jubilee Germany show how unsustainable the HIPC initiative was. Among the 40 African states where the indebtedness indicators were flashing red, 26 went through the HIPC program. One of those countries was Mozambique. In January 2017, the country ceased paying back its debts on time. In 2012, Mozambique’s obligations to its creditors amounted to 40 percent of Gross Domestic Product (GDP), they now total 130 percent. Banks and investment funds were keen to lend Mozambique money believing it would be safe because the country possesses huge reserves of coal and natural gas. Those investors have been left empty-handed.

Debt explosion in Angola, Ghana, Kenya and South Africa
“Mozambique is a very dramatic case. It is the first country to cease repayments in such an abrupt significant manner since HIPC debt relief,” said Jürgen Kaiser. “But countries such as Gambia or Ghana, which also have an abundance of natural resources, are in a very critical situation as well. Senegal, which does not have much in the way of natural resources, is also in difficulties once again,” he added.

On analysing World Bank data of African nations’ indebtedness with foreign countries, it quickly becomes apparent that a large number of African economies have recently acquired dramatic levels of new debt. Between 2005 and 2015 – the most recent year for which figure are available – Angola, Ghana, Kenya and South Africa have witnessed a threefold increase in their debt levels. Smaller countries such as Cape Verde also borrowed fresh capital during this time frame.

The solution: international insolvency proceedings?
Currently there is no internationally recognised set of proceedings to settle the affairs of a country which has become insolvent. Many countries have such mechanisms for individuals and companies, but all attempts to create insolvency proceedings for sovereign states have been blocked by a lobby consisting of banks and nation states.

IMF Managing Director Anne Kruger proposed the creation of a Sovereign Debt Restructuring Mechanism in 2001. It would have been administered by the IMF, but the proposal was blocked by the United States. It wasn’t the only proposal. In 2014, the UN General Assembly adopted a resolution “towards the establishment of a multilateral legal framework for sovereign debt restructuring processes.” There were 124 votes in favor, 41 abstentions and 11 votes against. This resolution was non-binding and the chances of it being implemented are slim. One of the 11 states that voted against it was Germany.

“That could have been a mechanism that could have helped us move forward right now,” said Jürgen Kaiser referring to Africa’s present debt crisis. “Insolvency proceedings would mean that it wouldn’t be just the creditors who would decide when debts should written down on or not. In the past that practice has led to debt relief being dispensed too late, on too small a scale, or not at all.

Sovereign debt restructuring was not on the agenda of the G20 meeting of finance ministers and central bankers at the weekend, but if more developing countries follow Mozambique’s example and default on loan repayments, then it could be that G-20 will be forced to tackle the issue of debts levels.

The Guardian: Ethiopia’s deadly rubbish dump landslide was down to politics, not providence March 25, 2017

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Fadila Bargicho believes divine intervention saved the life of one of her two sons when a landfill site collapsed near Addis Ababa. The reality is more prosaic

A rescue worker holds a photo of missing children following the fatal landslide at the Reppi rubbish dump on the outskirts of Addis Ababa
A rescue worker holds a photo of missing children following the fatal landslide at the Reppi rubbish dump on the outskirts of Addis Ababa. Photograph: Tiksa Negeri/Reuters

It was only a misplaced shoe that prevented Fadila Bargicho from losing a second child when an avalanche of rubbish crushed makeshift houses, killing at least 113 people in Addis Ababa earlier this month.

An impatient Ayider Habesha, nine, had left his older brother searching for his footwear. He headed to religious lessons in a hut next to the towering dump. Ayider was buried alive with his six classmates and teacher when a chunk of the open landfill gave way on the evening of 11 March. His body was recovered two days later.

While Bargicho sees divine intervention at play in the incident, the collapse at Reppi landfill was an avoidable, manmade disaster.

In 2011, the French development agency (AFD) gave Addis Ababa’s government 34.6m euros (£17.3m) to close and rehabilitate Reppi and build a new landfill site at Sendafa, about 25 miles outside the capital in Oromia state.

Oromia has been engulfed by violence since November 2015. The unrest has been fuelled by concerns over a masterplan to integrate the development of Addis Ababa – a metropolis of about 5 million people – with surrounding Oromo areas. While federal officials insist the blueprint would mean harmonious progress, activists cast it as another land grab that would mean the eviction of thousands more Oromo farmers as the capital expands.

The AFD funding also covers retraining for the hundreds of people who picked through the waste at Reppi for valuable items, some of whom died in the landslide.

Police and rescue workers watch as excavators dig in search of missing people at the Reppi rubbish dump in Addis Ababa
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Police and rescue workers watch as excavators dig in search of missing people at the Reppi rubbish dump in Addis Ababa. Photograph: Tiksa Negeri/Reuters

When Reppi was established in the 1960s, it was in the countryside. Now it is surrounded by shops and houses, which have encroached on an expanding rubbish mountain.

Rubbish started being sent to Sendafa, rather than Reppi, in January last year. But operations were suspended seven months later after protests by local farmers, who said the Sendafa site was poisoning water and killing livestock.

The trucks returned to Reppi, where rubbish had been dumped without being treated, compacted or otherwise managed for half a century. Authorities knew Reppi was unstable and over capacity when they resumed operations, according to Nega Fantahun, the head of the city government’s solid waste recycling and disposal project office, the responsible agency.

“One cause is the return to Reppi. It’s not the only reason, but it’s one cause, one reason, it aggravates it,” he says of the landslide.

The government hasn’t given up on Sendafa, a joint initiative of the city and Oromia region. But activity at the fenced-off site is limited to work on buildings and other infrastructure. Black sheeting covers a shallow bulge of rubbish to try to reduce the smell. An eight-metre high net was constructed to prevent waste blowing on to adjacent farmland but, when a gust of wind arrives, several plastic scraps soar into the air and tumble over the fence into the fields.

In rolling farmland next to the landfill, local opposition to the project is fierce. Gemechu Tefera, 40, a farmer, says maggots from the landfill have ruined food, cattle have died from toxic water, and a dog brought a human hand back from the site. Consultation was so inadequate that residents thought the site would become an airport, the group claims. “If they come again they will have to go through us. We will continue protesting. They will have to kill us first,” says Tefera.

The French financing included Sendafa’s construction and the closure of 19 hectares (about 47 acres) of Reppi’s 36 hectares between 2011 and 2013. Eventually, the plan is to transform the toxic site into a park. Seven hectares have been set aside for a separately funded $120m (£96m) waste-to energy plantowned by the state electricity company, which could deal with 75% of the city’s rubbish when it becomes operational later this year.

The AFD is waiting for notification from the city government to begin rehabilitating the remaining section of Reppi. That will only begin once the site is no longer being used for dumping, says Shayan Kassim, project manager at the French agency’s Addis Ababa regional office.

According to Kassim, consultants reported that the performance at Sendafa of the city’s contractor, Vinci Construction Grands Projets, was satisfactory and there were no irregularities in dealing with the impact on the community. Vinci worked with AFD and the authorities on improving Sendafa for a year after completion, and the government is undertaking more work following storms that caused some leakage into the nearby environment, he says.

The local administration responsible for the new landfill’s location supports the farmers’ pollution claims. Shimallis Abbabaa Jimaa took over as head of Bereke district government last year after the protests. He produced an October 2016 report from Oromia’s government that concluded water in a local well was not potable and the cause could be a river polluted by seepage from Sendafa. The area had been earmarked by the region as a productive cropping area and should not have been selected for waste disposal, says Jimaa.

The promised improvements could mean local acceptance of Sendafa but, given the strength of the resistance, that seems unlikely, he says. “No one agreed with the project so they rose in revolt.”