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

Posted by OromianEconomist in Uncategorized.
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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.

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Ethiopia is among the top 10 African countries in terms of being a source of illicit financial flows (IFFs), most of which makes ways to the developed world. #Africa February 10, 2015

Posted by OromianEconomist in Africa, Africa and debt, Illicit financial outflows from Ethiopia.
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 OIllicit financial outflows from Africa Ethiopia makes among top 10

 With Nigeria leading the pack of top loser counties in Africa, Ethiopia alone lost a cumulative of USD 16.5 billion between 1970 and 2008. But, since 2010, Ethiopia more likely lost USD 10 billion which could have shortened significantly the 13 years journey that the country have taken to achieve MDG4 (reduce child mortality by two thirds ) to nine years. In addition to that, the panel found out that failing to curtail illicit financial flows cost the country some six percent of its GDP annually.

Ethiopia: Panel Names One of Ethiopia Top Sources for Illicit Financial Flow

By Berhanu Fekade,  All Africa

 

A high level panel delegated by the African Union (AU) and chaired by Thabo Mbeki, the former president of South Africa, has found Ethiopia to be among the top African nations in terms of being a source of illicit financial flows (IFFs), most of which makes ways to the developed world.

The panel was tasked to find out how prone Africa is for a systematic financial theft which mostly is orchestrated by giant multinational companies operating in the continent. The panel’s report dubbed “track it, stop it and get it” found that in five decades alone, the continent is estimated to have lost one trillion dollars; and currently nations including Ethiopia are losing some 60 billion dollars due to illicit financial flows across the board. With Nigeria leading the pack of top loser counties in Africa, Ethiopia alone lost a cumulative of USD 16.5 billion between 1970 and 2008. But, since 2010, Ethiopia more likely lost USD 10 billion which could have shortened significantly the 13 years journey that the country have taken to achieve MDG4 (reduce child mortality by two thirds ) to nine years. In addition to that, the panel found out that failing to curtail illicit financial flows cost the country some six percent of its GDP annually.

This figure puts the country among the top ten losers; rather creditors via illicit financial flows. Next to Nigeria, countries like Egypt, South Africa, Morocco, Angola, Algeria, Cote d’Ivorie, Sudan, Ethiopia and the Democratic Republic of Congo are the top ten countries which are still losing out billions of dollars in form of “illegally earned, transferred or used” money as it (illicit financial flow) is defined by the panel. Names of the top illicit finance receiving nations include the US, China, India, Spain, France, Japan, Germany, South Korea, Mexico, and the like.

During the summit of heads of state and government which was concluded late last week, the panel appeared before the leaders to present its report on the findings of the three-year-long study that the panel has conducted. In its 15 main findings, the report made it loud and clear that the amount of money leaving Africa via IFFs is muscling up over the years. In 2010, the sums of dollars that flew out of the continent are estimated to be 60 billion dollars. Hence, the report went on to indicate that time has come to prompt the continent to the fact that illicit financial flows are political issues. According to Mbeki, the leaders have decided to adopt the report during the 24th ordinary summit.

The report basically made three classifications regarding the way illicit finances are flowing: via commercial activities, falsification of prices (trade mispricing), quantities and qualities of traded goods. Transfer pricing, profit shifting, tax evasion and the tax incentives which lack cost benefit analysis are some of the systemic commercial thefts the high level panel reported upon. Arms and drugs smuggling, human trafficking, poaching, oil and mineral theft are the criminal activities facilitated by illicit financial flows, the panel argued. Corruption and nontransparent deals are also the impeding factors to curtail the flight of finance from Africa. However, some studies allude to the fact that it is corruption which is extremely bleeding the continent really bad. These studies indicate that, up to 150 billion dollars annually is lost due to corrupt systems along the board in the continent.

To make matters worse, the continent faces huge gaps to finance infrastructural requirements as well as human development issues. The illicit flights alone largely exceed the official development assistants many African nations receive, Mbeki noted.

 

Read More at:

http://allafrica.com/stories/201502090215.html