COVID May Force Zambian Default

Zambia may be the first African government to default on its sovereign debt because of the Covid-19 pandemic. Zambian President Edgar Lungu’s government is seeking “the suspension of debt service payments for a period of six months” from private creditors holding around $3 billion in international bonds. Zambia blamed “a combination of declining revenues and increased unbudgeted costs caused by the Covid-19 pandemic.” Bondholders will meet with Zambian officials on October 20 and consider Lusaka’s request that interest payments be deferred until next April. Fitch reduced Zambia’s credit rating to C.

Zambia’s debt crisis was predicted. Media had reported in July that its public debt was set to cross 100% of GDP before year-end. Zambia was a frontrunner among a wave of poor nations that issued sovereign bonds to Wall Street about a decade ago. Zambia issued its first bonds to private investors in 2012. But this has meant many least developed countries owe more debt to private creditors than to multilateral institutions, a reversal of past practice.

Zambia had a number of economic ills even before the pandemic struck. But the fall in commodity prices, loss in government revenue, disappearance of tourism and even the inability to meet creditors face-to-face has aggravated its severe financial problems.

Several other African countries are suffering a similar debt crisis including Angola, Ghana and Tanzania. Of 24 low-income countries that have issued foreign-currency bonds since 2000, raising a total $135 billion, at least half are now at high risk of debt distress or already in distress, says the IMF.

A further complication is that many African governments have also borrowed from China. A large portion of Zambia’s $ 11 billion external debt is owed to China. Because most Chinese loans come from state companies and banks it is unclear whether they are prepared to participate in government-backed debt relief measures, though Beijing recently labelled some of these banks as "private". The Chinese factor has meant Western governments, quick to write off poor nation debt in the past, are today wary for fear their actions would benefit the Chinese government rather than private investors.

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Angola Secretly Bailed Out by China: Angola, one of the most debt-stressed African governments, has been bailed out by a mystery lender widely believed to be China. The mystery lender reprofiled Angola’s loans by restructuring $ 1 billion of debt and securing $ 765 million from the IMF. The IMF has declined to name the source of the funding only saying Africa’s second-largest oil producer had “reached agreements on reprofiling selected debt” with two of its big creditors and was “in discussions with them to finalise the operational modalities of these agreements”. Angola’s debt to GDP ratio will reach 123% by year-end.

Angola’s economy has been in recession for the past five years in large part because of low oil prices, the source of two-thirds of government revenue.

The IMF said a June debt reprofiling deal with one major creditor would provide a three-year moratorium on principal payments. The repayment of deferred principal – falling due between 2020 and 2023 – would now be repaid over seven years after the grace period. An agreement with a second large creditor was being worked out. Analysts believe the deals involve Chinese lenders, including China Exim Bank, China Development Bank (CDB) and the Industrial and Commercial Bank of China. Beijing has not made public any debt relief provided for Angola but its foreign ministry said it had received 20 requests for debt relief from various governments since the G-20 adopted a debt freeze agreement in April. REDD Intelligence analyst, Mark Bohlund, says the Chinese Government “is still opposed to reprofiling the loans from CDB without similar operations being undertaken on commercial debt from other nations”. The CDB provides loans at commercial rates which is why, presumably, it wishes to be treated on par with other commercial lenders.

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​​​​ONGC Pulls Out of Sudan 

ONGC Videsh Limited, along with its Chinese and Malaysian partners, have pulled out of their joint investment in oilfields in Sudan following the latter’s refusal to pay for extracted oil and other debts. Sudan has not paid the three foreign investors for oil it bought from them since 2011. OVL alone was owed $ 430.69 million for the oil and an additional $ 99 million for a 741-km long pipeline it built between Khartoum and Port Sudan. OVL initiated arbitration proceedings against Sudan to try and recover the dues. It has also terminated its exploration and production sharing agreement.

OVL acquired a 25% stake in the Greater Nile Oil Project in 2003 when Western firms sold their share over human rights concerns regarding Sudan. The oilfields were spread over the Muglad Basin, southwest of Khartoum. The pipeline was a separate contract under which the Sudanese government was supposed to pay 18 half-yearly instalments. The government stopped paying after the 11th instalment, leaving the $ 99 million pending.

Sudan has been reeling economically, in part because of sanctions imposed after being blacklisted for state-sponsorship of terrorism. There are indications Khartoum is considering joining other Arab countries like United Arab Emirates in recognizing Israel in return for sanctions being lifted.

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Zimbabwe Ticks Off Chinese Miner:  Zimbabwe last week banned Zhongxin Coal Mining Group and Afrochine Smelting, both Chinese, from exploring for coal at the Hwange national park after campaigners took the government to court. Hwange is home to more than 45,000 elephants. The government, in effect, cancelled exploring licenses it had already granted. The surprise death of dozens of elephants at the park from suspected bacterial infection occurred a few days before the ban.

China’s ambassador to Zimbabwe, Guo Shaochun, unusually urged the government to be more transparent and “use mining proceeds to develop itself and improve the lives of its people”. He called on the government to implement laws and regulations to increase corporate transparency in mining and promote sustainable growth of business. He said all mining firms should be monitored to ensure they followed laws on environment labour and traded in minerals through legal channels. Traditionally, Chinese diplomats do not comment publicly on the domestic policies of governments and even more rarely when Chinese firms are involved. China is the largest foreign investor in Zimbabwe.

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Mali & China's Development-Security Nexus

A detailed study by Johns Hopkins University on China’s engagement in Mali argues Beijing has a development-security model at the core of its approach to such countries. This is often missed because of an overemphasis on the military facet of China’s expanding global footprint.

China’s policy towards Mali, for example, has three main drivers. One is China’s role in MINUSMA, the UN peacekeeping force in that country. The induction of Chinese combat troops in Mali and South Sudan have inaugurated a new phase in China’s attitude to outside intervention in Africa. Two is China’s broad interest in the growing instability of the Sahel region, of which its naval base in Djibouti is the eastern anchor, and its impact on the African part of its Belt Road Initiative. Three is market access. Chinese firms have already been involved in infrastructure building in Mali. Their state-owned enterprises profit from post-conflict reconstruction efforts in other parts of the world.

The analysis notes China’s development-security nexus is far from perfect. Beijing does not place a special stress on helping central government regain control in a conflict region which means its development work is often attacked and disrupted by non-state armed groups. Though the Chinese ambassador in Mali has reached out to the country’s many religious leaders and other non-governmental stakeholders, Beijing remains overly centred on the capital city in its approach. “This renders China vulnerable to political transition.” China’s peacekeeping efforts in the form of engineering and medical assistance have been valuable, including emergency and trauma services provided by Chinese-run hospital, but its troops “are often perceived to be risk averse.”

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Mali’s transitional regime:  Mali’s transitional president appointed former minister of foreign affairs, Moctar Ouane, on September 28 as the new prime minister. A former defence minister and the head of the junta were earlier made part of the transition government holding the positions of president and vice-president. Restoring civilian authority was a key demand of the Economic Community of West Africa (ECOWAS) whose members imposed sanctions on and closed their borders with Mali after a coup overthrew President Ibrahim Keita on August 18th.

The UN independent expert on human rights, Alioune Tine, called on Mali’s junta to release government officials they detained after the coup. Tine is serving as a mediator between the junta and ECOWAS. There are presently 13 government officials still in detention while Keita has been flown to the United Arab Emirates for health reasons. The international community is concerned about Mali’s political stability because of a continuing battle in the north and east of the country against Islamicist groups allied to Al Qaeda and the Islamic State.

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Mozambique Asks EU for Military help

Mozambique, struggling to handle the rebels in its northeast, has asked the European Union for support. Portuguese news agency Lusa said last week that Mozambique had written to EU foreign policy chief Josep Borrell to ask for help in training its armed forces to battle the insurgents who are allied with the Islamic State. The government also asked for medical equipment and humanitarian assistance for victims of the conflict. Brussels confirmed the request and said it was preparing a reply. “The government of Mozambique and the EU have opened a policy dialogue, with a focus on humanitarian, development and security issues in Cabo Delgado," said an EU spokesperson.

Total, the French oil firm, signed a security pact with the Mozambique government to protect a $20 billion natural gas project that is quarter owned by a consortium of Indian companies. The project is the largest private sector investment in Africa. Initial production is slated for 2024. “This bolsters security measures and endeavours to create a safe operating environment for partners like Total which enables their ongoing investment in Mozambican industry,” said Ernesto Elias Tonela, Mozambican minister of mineral resources and energy. The rebels recently burned down a luxury tourism resort, Sita, on a Mozambican island in the Indian Ocean. The tourists at the resort fled in a boat with helicopter cover provided by a private security firm.

President Filipe Nyusi, speaking at the provincial capital of Pemba, admitted the rebels are being able to recruit fighters in part because of poverty. He said that despite the three northern provinces - Cabo Delgado, Niassa and Nampula - having great natural wealth and enormous agricultural potential, they have the country's highest levels of poverty. Mozambique's GDP has risen by more than 6% a year for the past 15 year thanks to investments in coal, titanium, hydro-electricity and other natural resources. Discoveries of a huge ruby deposit and the gasfield in Cabo Delgado in 2009-10 raised false hopes of jobs and a better life for many local people.

The World Food Programme said over 300,000 people had fled the violence in Cabo Delgado to neighbouring provinces. Amnesty International has accused the military of human rights abuses in the conflict area. The government claims the rebels often use government uniforms when carrying out their attacks.

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Crypto Currency Boom 

Africa is experiencing a boom in cryptocurrency usage thanks to Covid-19. The total value of retail bitcoin transfers (less than $10,000 per transaction) in the continent reached $316 million as of June, according to Chainalysis, a blockchain market intelligence firm. Growing volumes of transactions at local exchanges suggest the pace is unlikely to slow down. Luno, one of the oldest exchanges, says monthly trading volume for all cryptocurrencies in Nigeria and South Africa alone topped $549 million in August—a 49% increase since the year started. BuyCoins, a three-year old Lagos-based exchange, says it has processed $110 million in transactions so far this year, compared with $28 million for all of 2019.

The pandemic has provided a fillip to digital transactions while economic stress has made exchange rates for fiat currencies more volatile. The Nigerian naira, for example, has slumped badly against the dollar. Zimbabwe, with a history of hyperinflation, has a relatively well-entrenched bitcoin market. In 2017, Zimbabwe had the highest bitcoin prices in the world.  International trade, remittances and cross-border transactions have all seen sharply increased cryptocurrency usage in Africa.

Global investors are already putting in millions of dollars into this sector and related startups in Africa. However, much of this activity exists in a regulatory gray zone with many officials still waking up to the new technology. Many startups welcome regulation as it will ease investor concerns and address the problem of fraud. Fake cryptocurrency platforms pocketed over $ 8 million from African customers in June alone. Regulations would also help ease the conversion of cryptocurrencies into fiat currencies and vice versa.

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African Women for WTO Headship 

Two African women are among the five candidates left in the race to be the next director-general of the World Trade Organisation. Kenyan culture minister Amina Mohamed, former Nigerian finance minister Ngozi Okonjo-Iweala, South Korean trade minister Yoo Myung-hee, Saudi Arabia's former economic minister Mohammad al-Tuwaijri and former British trade minister Liam Fox made it to the second round of selections. The present WTO director-general, Brazilian Roberto Azevedo, is stepping down a year earlier than expected and has officially completed his reduced term. The WTO has never been led by either a woman or an African. In the next round, when member-states will announce preferences until October 6, number of candidates will be reduced to two. The winner will be announced in early November.

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http://go.pardot.com/e/827843/news-world-africa-54058640/75r5d/88351677?h=DsvwyiJvg7V7bI2-06VE6EgIhqh-KQmuh0cLbMD2stU

 

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(The views expressed are personal)
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About the Author

Pramit Pal Chaudhury

Pramit Pal Chaudhuri, Foreign Editor, Hindustan Times, and Distinguished Fellow & Head, Strategic Affairs, Ananta Aspen Centre

Pramit Pal Chaudhuri writes on political, security, and economic issues. He previously wrote for the Statesman and the Telegraph in Calcutta. He served on the National Security Advisory Board of the Indian government from 2011-2015. Among other affiliations, he is a member of the Asia Society Global Council, the Aspen Institute Italia, the International Institute of Strategic Studies, and the Mont Pelerin Society. Pramit is also a senior associate of Rhodium Group, New York City, advisor to the Bower Group Asia in India, a member of the Council on Emerging Markets, Washington, DC, and a delegate for the Confederation of Indian Industry-Aspen Strategy Group Indo-U.S. Strategic Dialogue and the Ananta Aspen Strategic Dialogues with Japan, China and Israel. Born in 1964, he has visited over fifty countries on five continents. Mr. Pal Chaudhuri is a history graduate from Cornell University.