All the Mysteries of African Debts vs. China’s “no strings attached” strategy…

By Serafim de Oliveira, Washington D.C

  • Initially published on April 18, 2020.

  – The African sovereign debt crisis surfaced soon after the cold war; repressive and newly created liberal regimes previously aligned with the former Soviet Union or Western bloc were forced to resort to loans from the World Bank, IMF, or other western banking institutions, such as The Paris Club. When they were denied loans , these countries looked East to China, offering enticing aid and loan programs with “no strings attached.” 

A consensus-building process concerning African sovereign debt could explain the severe economic and financial chaos immersing most of the continent.The aim of this literature review is to analyze the rationale underlying corruption and extreme poverty in Africa.

  In an attempt to clarify the issues at stake, the following concepts will also be addressed here: debt forgiveness, recurrence of human rights violations vs. public funds mismanagement, media’s role in fighting state resources embezzlement, civic engagement and participation in the national decision-making processes, development of social dialogue and corruption, the idea of primitive accumulation of capital vs. implication to the newly rising billionaires in the continent, obstacles to secure new loans essential for the continent’s future economic growth. A question arises, are these African multimillionaires in a much better position to help their respective countries repay the sovereign debt as opposed to repayment by the wealthy in countries outside the African continent? Are Africans able to mitigate the mysteries surrounding the astronomical national debt internally and independently?

Despite socioeconomic changes, democracy in most African countries has been hampered by excessive government control and unrealistic and outdated foreign aid programs, which frequently “misunderstand the realities of governance in weak and fragile states” (Lierl, 2019, p. 1).Lierl (2019) has been an ardent apologist of reinforcement of the laws, regulations, and governmental policies that commit to the fight against corruption.

  As Lierl (2019) revealed, severe bureaucratic malfeasance, lack of civil public discourse in decision-making processes, over-centralized government systems, and concentration of power in a few individuals have served as breeding grounds for embezzlement of public funds. Undoubtedly, if the local municipalities had had more power to allocate resources at their disposal and distribute these resources transparently following specific needs, the poverty rate in several regions of the continent would not have become a pandemic crisis. As Lierl (2019) described, “Decentralization would allow donors to finance local-level public services directly, bypassing central government structures that were perceived as corrupt, inefficient, and sometimes undemocratic too” (p.6). 

Why Most African Countries Cannot Secure Low Rate Loans 

The question has become why most African countries cannot secure low rates loans and why they face many obstacles to secure new loans essential for the continent’s future economic growth? The answer is evident given these countries’ natural resources and mines “collateralizing” the national debt, typically large annual government budget deficits, high debt-to-Gross Domestic Product (GDP)ratios, multiple risks of default,poor business environments, along with corruption eroding these societies– the potential exists for candidate nations to become stateless countries which are havens for terrorism (Payne, 2020). Mihalyi, a senior economic analyst, concluded that most of the acquired “loans have often provided much-needed infrastructure, such as roads and hydro-dams. However, “in many cases, they have led to crippling levels of debt and the risk of losing collateral that is itself worth more than the value of the loan” (Payne, 2020, p. 5).

Even though several international and regional financial institutions use surveys to help identify corruption indexes, there is no set rule for measuring corruption on the African continent. Similar to other geographic locations,corruption originates from a very complicated process frequently involving “political and economic environment, professional ethics and legislation, as well as purely ethnological factors, such as customs, habits and traditions”(Šumah (2017, p.12). 

Perceptions of Different Types of Corruption

This literature review, on the other hand, will elaborate more on the perceptions of different types of corruption to demonstrate how these and other theories are interconnected, and if these theories might apply to the African continent contexts: 

1. Political and economic environment; these are – policies that over-regulate business tend to stimulate illegal practices “since individuals are willing to pay or offer payment to avoid restrictions” (Šumah, 2009, p. 13).

 2. Professional ethics and legislation – relating to the absence or lack of application of laws to punish corruption practices encourages the continuation of criminal behavior and throws legal institutions to national and international discredit, as indicated by Šumah. 

3. Habits, customs, tradition, and demography are related to cultural influences that vary across countries. Regardless of the cultural practices that might vary, – how corruption is viewed in each society depends on how they value standardized principles. “Everything is only a matter of ethics and morality; however, they can be very different in different areas and different countries,” asserted Šumah (2009, p. 24). 

4. The impact of corruption on the economy can be seen in its effects on GDP. 

GDP is a measure of economic strength significantly affected by corruption, leading to dysfunction of legal systems by increasing bureaucratic arbitrariness, distributing injustices and political instabilities, mischanneling taxpayers’ revenues to non-productive sectors and spending government funds unproductively and inefficiently (Ondo, 2017). 

Kimemia (2018) confirmed that local-level corruption had been eroded mercilessly all over the African continent with the complicity of global business investors. Kimemia’s primary concern was to raise public awareness on uncriticized and long-standing malpractices in business, thus calling into question the moral legitimacy the host nations of these multinational corporations have “to lecture African countries on how to deal with corruption” (p. 1).

 What is the Ramification of Corruption in the Daily Life of the Destitute and Poorest People? 

Although multiple efforts have been made to reduce corruption, many Africans believe that their governments are losing the fight against this social scourge and that their lives have increasingly worsened over time. Besides, many national governments are not the only ones failing African citizens in the fight against public funds mismanagement. Foreign companies and individual identities have been long known for playing a significant role in perpetuating and fostering corruption throughout the continent. Moreover, as unlikely as it might seem, the destitute and poorest people tend to pay bribes twice as much as the richest and are more likely to become victims of corruption and vicious bureaucratic systems. For instance, citing José Ugaz, chair of Transparency International, Veselinovic (2016) stated,“corruption creates and increases poverty and exclusion. While corrupt individuals with political power enjoy a lavish life, millions of Africans are deprived of their basic needs like food, health, education, housing, access to clean water and sanitation ” (p. 4).

Similarly,the African continent has become marked by pervasive corruption because of a “lack of independent legal, judicial and, institutional mechanisms; impunity for perpetrators; and a lack of will on the part of political leaders” (Olaniyan, 2014). 

Olaniyan’s remarks suggest the question why would some African leaders accept cheap Chinese labor in exchange for “debt- trap diplomacy.” 

Moreover, Kinyondo (2019) raised these issues and concluded that China might indeed be recolonizing Africa.

Alternatively, while Western societies claimed victory over the fall of the former Soviet republics, China immediately began to occupy the vacuum left by these powers, known as former members of the Warsaw Pact. Contemporarily, using predatory and calculated behavior, Beijing, together with Moscow, is engaging in military and economic dominance across Africa,- seeking a position in a daily battle to conquer new allies and engage hearts. As Spivak (2019) observed,“Russia can’t compete with China in terms of their influence in Africa, so Moscow’s attempts to make inroads there do not alarm Beijing. But as China asserts itself in the role of the major power in Africa, Moscow’s dual influence (such as selling weapons to different sides of a conflict in the same country) could become an impediment to stabilization” (p.1). 

China’s “no strings attached” strategy with Africa

China’s “no strings attached” strategy with Africa has some profound negative impact on combating public funds mismanagement. Kinyondo (2019) showed a considerable trade deficit in the Sino-African relationship and challenged the Chinese business core values in dealing on the continent by labeling it as ‘debt -trap diplomacy’, while at the same time appealing to the local governments “to ensure that they demand more from the cooperation.” 

Considering the financial magnitude and damaging consequences of these matters in Africans’ daily livelihoods, Kinyondo’s approach should be taken seriously to help elaborate some abnormalities on the Chinese direct investment in the continent, set forth policy recommendations to ameliorate the bilateral treaty. 

Is there any other way to tackle down African misappropriation of funds? 

Another way of tackling the misappropriation of funds in the Africa public service is to commit to upholding human rights obligations and implementing the rule of law vigorously and unequivocally, and applying these rights throughout the continent. For this specific purpose, the media’s watchdog role can become an outstanding performer in the fight against white-collar crime and corruption in helping educate their local audience on the impact of public funds’ mismanagement on daily life. Malfeasance and corruption revealed by the media should have been the immediate concern of all prospective lenders interested in financial fair play across Africa. 

Where are the Continent’s Newly Rising Billionaires?

Amidst all the concerns of corruption and growing national debt, what is the role of the continent’s newly rising billionaires? Are they able to help their respective countries repay the sovereign debt? The answer appears to be no, because Africa’s current outstanding loans are secured against resources as a form of collateral. Additionally, the details and terms of the contractual provisions signed by past or present national governments and their investors or lenders are relatively unknown in the public forum. The current lack of knowledge about Africa’s wealth accumulation and the details of investment and lending arrangements have historical and socio-political implications dating from the colonial era.

The current practices are rooted in the former rulers’ designs to favor the local- wealthy and privileged high society after independence from colonialism.In other words, “the political elites that took over African countries in the 1960s thus saw government as a source of power and personal enrichment” (Mbeki, 2005, p. 4).

As Mbeki (2005) concluded, some post-colonial leaders have consistently engaged in the practice of plundering due to their unlimited and unsupervised access to their country’s natural resources and ability to move all individual ill-gotten gains into offshore accounts and tax benefits, including relief funds, in collusion with the foreign banking sector.

Furthermore, Adegoke (2020) in a study with World Bank, cited that there is a total external debt amounting “nearly 150% to $583 billion in 2018 from $236 billion 10 years earlier,” the net worth of the new African billionaires will not even be enough to cover 35% of the continent outstanding debts (p. 2). 

Finally, a possible solution to alleviate the current debt trap is for those affected countries on the continent to appeal for comprehensive debt forgiveness without strings attached and to do this with a single voice in international contexts systematically and objectively. The time may have come for some foreign predatory lenders to assume some responsibility for aiding and abetting current and former corrupt African leaders, who turned once- promising economies into a calamitous financial system in their homelands. Clearly, those lenders helped create and shape the autocratic governments on the continent by providing vast amounts of unsupervised loans with high-interest rates.

Furthermore, much of the money hoarded from the continent’s public purse is not hidden in its national banks but foreign tax havens. A helpful step could be to repatriate these funds to the respective countries of origin because, for example, the return of the wealth could feed the many hungry people,build thousands of schools, hospitals, and improve many essential services, such as: clean water, food, hygiene, and public transport.

 References 

1) Adegoke, Y. (2020). World Bank, IMF worry on Africa rising debt to China, AfDB. MSN. https://qz.com/africa/1803280/world-bank-imf-worry-on-africa-rising-debt-to-china-afdb/#:~:tex t=Africa’s%20total%20external%20debt%20jumped%20150%25%20in%20the%2010%20years %20to%202018&text=Quartz%20%7C%20qz.com text=Both%20institutions%20are%20also%20worried,their%20weak%20economic%20balance %20sheet 

2) Payne, J. (2020, February, 26). Chinese commodity-backed loans crippling Africa and Latin America –report. Reuters. Retrieved March, 3, 2020, from https://www.reuters.com/article/commodities-loans-africa-americas/chinese-commoditybacked-loans-crippling-africa-and-latin-america-report-idUSL5N2AP3NL 

3) Kimemia, D. (2018). Multinational corporations as suppliers of corruption in Africa. Africa Insight, 48(2), 25-40. https://www.ajol.info/index.php/ai/article/view/184300 

4) Kinyondo, A. (2019). Is China recolonizing Africa? Some views from Tanzania. World Affairs, 182(2), 128-164. https://journals.sagepub.com/doi/pdf/10.1177/0043820019839331

 5) Lierl, M. (2019). Promoting good governance in Africa – three popular misconceptions. (GIGA Focus Afrika, 3). GIGA German Institute of Global and Area Studies – Leibniz- Institut für Globale und Regionale Studien, Institut für Afrika-Studien. https://nbnresolving.org/urn:nbn:de:0168-ssoar-63540-3 

6.) Mbeki, M. (2005). Liberate Africa from iIts pPolitical eElites . Cato Institute. https://www.cato.org/publications/commentary/liberate-africa-its-political-elites 

7) Olaniyan, K. (2014). Corruption and human rights law in Africa. Bloomsbury Publishing. https://doi.org/10.1163/22131035-00401005 

8) Spivak, V. (2019, October, 25). Russia and China in Africa: Allies or Rivals? Carnegie Moscow Center. https://carnegie.ru/commentary/80181

9) Šumah, Š. (2018). Corruption, causes and consequences. In Trade and Global Market. https://www.intechopen.com/books/trade-and-global-market/corruption-causesand-consequences 

10) Veselinovic, M. (2016). Why corruption is holding Africa back. CNN. https://www.cnn.com/2015/12/24/africa/africa-corruption-transparencyinternational/index.html

Author: angolatransparency

-Impulsionar os cidadãos angolanos a questionarem como o erário público é gerido e terem a capacidade de responsabilizar os seus maus gestores de acordo com os princípios estabelecidos na Constituição da República --Boost the Angolan citizens to question how the public money is managed and have the ability to blame their bad managers in accordance with the principles laid down in the Constitution of the Republic-------------- Prof. N'gola Kiluange (Serafim de Oliveira)

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