OromianEconomist

China, African governments, Debt & Corruption May 12, 2014

The message is that African leaders now have licence to oppress their people, clean their national treasuries; and generally rob, loot, rape and plunder because their new masters will not hold them to account on how well or how badly they treat their subjects.http://www.nation.co.ke/oped/Opinion/The-Chinese-did-not-come-here-on-charity/-/440808/2312172/-/11rv0rwz/-/index.html

http://allafrica.com/stories/201405081353.html?utm_source=twitterfeed&utm_medium=twitter

 

‘Debt and Corruption are an awful mix: The appetite for debt by African governments is particularly concerning given that there does not appear to be any serious action to end the gross mismanagement of public funds. Getting into debt only makes sense if you plan to use the money properly. But if substantial sums of money end up in the pockets of faceless politicians, then Africa is ransoming future earnings with no future benefits. This is self-sabotage at its best. There is no need to belabour the point. Don’t take on billions of dollars of debt if corruption is still an untamed beast…the consequences for Africa’s economy and people will be dire….. ‘Many of the Chinese contracts in Africa lay down that repayments be made in natural resources, with complex institutional contracts that make repayments unpredictable in financial terms’. [2] How can we be comfortable with our governments getting into deals into the billions of dollars and yet these are shrouded in mystery? With no information at hand, we do not really know how deep of a hole we’re digging for ourselves.’

Step away from the debt plate Africa, you need to watch what you’re eating

POSTED ON MAY 12, 2014 @http://anzetsewere.wordpress.com/2014/05/12/step-away-from-the-debt-plate-africa-you-need-to-watch-what-youre-eating/

Africa is bingeing on debt and risks overeating at the buffet of financial offers from China, India, Brazil and many others. Kenya just recently signed a series of financial agreements worth billions with China during Prime Minister Lee Keqiang’s visit to the country this last weekend making it clear that we live in a multipolar world. In this new world order Africa is spoilt for choice with regard to who to partner with to fund development. But we (Africa) seem to have an insatiable appetite for this new money and do not seem to be fully aware of the implications of accepting all these tasty offers of cash. We also don’t seem to be thinking about whether we can, or how we can absorb these volumes of cash. Don’t get me wrong, Africa’s excitement at promises of billions apparently with ‘no conditions’ is understandable. Having spent the past decades grovelling at the doors of donors and investors from Europe and North America, many Africans felt we were giving away our pride for monies tied to what many felt were onerous conditions. So now, we are whistling our way to the bank with our new financials ‘partners’.

But is this truly smart? The reality is that all borrowing has conditions. So allow me to digress briefly and go slightly further with this point. China enjoys talking about about how it provides money with ‘no conditions’, but closer analysis reveals that this is not strictly true. The Chinese government, like any other government, will protect its investments; investments made almost exclusively with African governments…which seems to suggest that if China has to back up (even unpopular or despotic) African governments to protect its investments, it will. Look at the incriminating allegations that China funded Mugabe’s election ‘victory’ last year. Documents from Zimbabwe’s Central Intelligence Organization suggest that the success of Mugabe and his ZANU-PF party, ‘reflected direct intervention by the Chinese Communist Party’. (See more here and here). Perhaps for Zimbabwe the conditions that make China feel most secure in its investments is if Mugabe is in power. So maybe there are some conditions tied to money from China. The point I’m making is that it is important Africans analyse reality and not get spellbound by the rhetoric. But that is an aside; let’s get to the real problems behind Africa’s debt binge

1. We don’t really know the scale of the debt we’re getting into

By ‘we’ I mean Africans not on the inside corridors of power, but on whose behalf these deals are being made. It is absolute madness that in the case of countries such as China, we actually don’t know how much debt we’re getting into. Over the weekend Kenya and China signed several agreements but, ‘The two leaders did not disclose the actual financial value of most of the agreements and protocols signed but their aides said the deals run into billions of Kenya shillings.’[1] Why the secrecy? How much of this money from China is grants vs debt? What are the interest rates (there are references to ‘concessional loans’ but that’s about it), what are the terms of repayment, what are the penalties for defaulting? Also bear in mind that in the past, ‘Many of the Chinese contracts in Africa lay down that repayments be made in natural resources, with complex institutional contracts that make repayments unpredictable in financial terms’. [2] How can we be comfortable with our governments getting into deals into the billions of dollars and yet these are shrouded in mystery? With no information at hand, we do not really know how deep of a hole we’re digging for ourselves.

2. Do we have the absorptive capacity to handle all this money?

We are getting into debt to fund numerous development projects that range from infrastructure to agriculture, to security and wildlife but, pray tell, do we have the absorptive capacity to soak up these billions? Because whether we can absorb the money or not, we will be paying it back. Absorptive capacity here relates to the macro and micro constraints that recipient countries face in using resources, in this case money, effectively.[3] Does Africa have the physical, intellectual and systems-related infrastructure, expertise and culture to competently implement all these projects? For example, do county governments have the technical savoir faire to implement agriculture projects worth millions? One of the issues of serious concern is that investment in educational infrastructure rarely features prominently in these deals. There are very limited (if any) provisions for building the educational capacity of African countries especially at tertiary and vocational levels. So great, we’re getting money to build railways, but how many Africans can be effectively put to task on this, especially at managerial positions? Bear in mind that already, with regards to China, Africa has fallen into a trap where, 1) China is allowed to bring in Chinese nationals to provide labour and, 2) When African labour is used, it is cheap, unskilled labour.[4] This situation is untenable. Africa should be using every single government- funded project to hire Africans and build the capacity of Africans to do the job competently in the future. Africa cannot continue to so fundamentally rely on outsiders to do the basics for us such as building roads. But sadly, African countries seem to be happy with outsourcing all the large-scale projects, sometimes back to companies from the country that gave us the loans in the first place. This leads to the next point.

3. With limited absorptive capacity, Africa will continue to outsource big contracts

Africa is not being very bright. We get loans then outsource the implementation of the projects back to companies from the donor country. In short, we’re paying China to pay itself. Why? Generally however, using outsourcing as the default strategy for large-scale project implementation is problematic in at least two ways: 1) It hides and exacerbates Africa’s skills deficit and, 2) It pumps money out of the country. The first point is obvious, if we continue to rely on others to build our roads, we will continue to lack the skillsets and capacity to competently build and maintain our roads ourselves. But since the roads are being built, we never feel the weight of our incompetence in this area and therefore have no sense urgency to rectify this problem. Secondly, companies implementing projects in Africa make a profit then expatriate the profit. So we’re getting into debt and then haemorrhaging some of that expensive money out of the continent through outsourcing. This makes no long-term sense. Ideally we should use local contractors to implement projects however, as elucidated in point 2, we do not seem to have sufficient volumes of companies capable of absorbing this workload. But rather than fix that, African governments go to the default setting labelled ‘outsource’. We’re getting into a vicious cycle as follows: We don’t have the capacity to implement large-scale projects → we outsource but fail to ensure skills transfer → exacerbates the skills deficit → we don’t have the capacity to implement large-scale projects. African governments should essentially use the development projects led by non-Africans as structured training opportunities for newly qualified professionals as well as building more seasoned professionals into the management structure of projects.

4. Debt and Corruption are an awful mix

The appetite for debt by African governments is particularly concerning given that there does not appear to be any serious action to end the gross mismanagement of public funds. Getting into debt only makes sense if you plan to use the money properly. But if substantial sums of money end up in the pockets of faceless politicians, then Africa is ransoming future earnings with no future benefits. This is self-sabotage at its best. There is no need to belabour the point. Don’t take on billions of dollars of debt if corruption is still an untamed beast…the consequences for Africa’s economy and people will be dire.

5. Overleveraged?

This issue relates to point number 1. There is limited information on the scale of the debt Africa is getting into with certain parties so at what point will we in Africa know when we’re overleveraged? It seems like the answer to that is ‘not any time soon’. The scary part is that some African governments seem to think debt will fix all our problems with Heads of States expecting hearty praise when they secure even more debt for the continent. It is true that structures such as the Debt Sustainability Framework (DSF) exist which seek to stop lenders from lending more money to countries that have exceeded their debt ceilings. But, ‘to work well, the DSF needs close co-ordination between all creditors. This is hard enough to do between public and private lenders from the traditional partners, but is even more difficult with the new lenders [such as China].[5],[6]Sadly, African countries do not seem to be keen on tabulating public debt figures at either national or pan African levels, and sharing them.

Read more from the original sourcce: http://anzetsewere.wordpress.com/2014/05/12/step-away-from-the-debt-plate-africa-you-need-to-watch-what-youre-eating/