Irresponsible government borrowing has caused debt in many African countries to reach crisis level. Over the past 10 years, more than $80 billion in bonds have been issued to thirsty European investors by governments in Africa south of the Sahara, with public debt now making up about half of GDP. Bilateral loans, especially from China, add to the crisis. Now, a decade after a continent-wide write off, the debt is increasingly looking toxic with each passing day thanks to rampant corruption within governments, a cost that citizens are often forced to bear through higher taxes.
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Africa’s Debt Problem Hitting Crisis Levels, as Continent Signs Away Resources to China
African governments have a taste for the finer things of capitalism, which often involves putting citizens up for austerity and signing away strategic resources as collateral to offshore loan sharks. In the early 1980s, governments borrowed heavily from the World Bank, the International Monetary Fund and the Paris Club until they were blacklisted for failing to honor their obligations.
But this has not discouraged them from borrowing. A willing lender, China, is in town, casually flying loans to eager African leaders. Loans from the Asian economic giant are especially appetizing to most regimes because they come with no strings attached as far as issues of human rights, governance and democracy are concerned.
China’s aggregate loans to Africa reached $124 billion by end of 2016 from just a few millions 16 years earlier, according to figures compiled by the China-Africa Research Initiative (CARI) at Johns Hopkins University School of Advanced International Studies in the United States. Several African countries such as Angola, Ethiopia, Sudan, Kenya and the Democratic Republic of Congo, topped the loan beneficiary list.
Angola received about $21.2 billion, much of it going into the oil sector, building new cities and other infrastructure developments. To better manage its natural resource wealth, like oil, and to help facilitate social and economic development, Angola set up a sovereign wealth fund.
This is the fund, which Jose dos Santos, son of former president Eduardo, who managed it, is accused of pilfering to the tune of $500 million. Dos Santos has since been arrested and placed under “preventive detention.” However, the allegations against him reflect more a widespread continental problem, in which high ranking public officials help themselves to state funds, putting the country at risk of defaulting on external debts. Often, citizens are forced to pay for indiscretions by a few corrupt individuals in government through higher taxes.