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Africa’s debt crisis: Who is to blame?

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Africa’s debt crisis: Who is to blame?
Africa’s debt crisis: Who is to blame?. picture-alliance/imageBroker/F. Waldhäusl
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Mozambique's population knows what a debt crisis feels like. Teachers aren't getting paid; schools can't provide furniture for the students. "In our hospitals the doctors tell the patients: You came here for nothing. We don't have the drugs," says Eufrigina dos Reis, a Mozambican human rights activist.

Mozambique's coffers are empty, drying up all funding for education or health. In 2017, the country's debt made up 102 percent of its gross domestic product (GDP). According to the International Monetary Fund (IMF), even having a debt worth of 50 percent of a country's GDP is dangerous. According to the 2017 figures, Africa's average debt equaled nearly 46 percent of its economy. Almost half of all African countries on the continent are therefore at risk. "We are very concerned," says Julius Kapwepwe form the Uganda Debt Network.

Billions bypass parliament

But who is to blame for the debt crisis? At first glance, the answer seems straightforward. In Mozambique, state firms borrowed almost €2 billion ($2.27 billion) from international banks. Part of the money was supposed to be allocated to building a fishing fleet, but large amounts of that money disappeared. Neither the public nor parliament were aware of the loss. But Mozambique also has other debts connected to major infrastructure projects.

Read more: Panama Papers: Africa's elite are plundering their countries

"Foreign countries also have a role to play in this," says Fanwell Bokosi, who heads the African Forum and Network on Debt and Development (AFRODAD). Most of the money was, after all, borrowed by African governments from private creditors. Directly after the credit crunch in 2008, borrowing money became much easier. "So on one hand, you had creditors who had capital that was lying idle in the banks and on the other hand, you had a continent that needed a lot of development in terms of infrastructure," explains Bokosi. Africa became an attractive investment location. According to AFRODAD, at least 12 African countries placed government bonds on the market. Last year, they received $27 billion (€23 billion) through this.

Yet the creditors also want their money back with interest. So while the interest rates rise, and prices of raw materials fall, more and more countries are caught in the debt trap. Bokosi argues that the creditors should have taken such risks into account. "African sovereign bonds didn't become attractive because the countries became better at managing their debt. They became attractive because there were no other lucrative markets available to investors."

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More risk through "Compact with Africa"?

However, public lenders have also made mistakes, say the activists. "There should only be credit for countries which are well-governed," says dos Reis. "Each country has a parliament, a civil society and courts. If the government doesn't respect these institutions, more credit won't help."

Her colleague Kapwepwe holds a similar view. "We are in Germany to alert you, the Germans: Do not simply deal with the governments through secret mechanisms," he says. "The rest of us, the citizens, need to know what is happening so that we can have the meaningful conversation."

The activists have a particular focus on Germany because of its "Compact with Africa" initiative that is trying to strengthening business ties with Africa. In October 2018, Chancellor Angela Merkel invited 11 African heads of state to Berlin.

The Compact program specifically aims to strengthen private investment in Africa, as well as focus on infrastructure projects — roads, bridges and railway lines.

Read more: Angela Merkel's African business summit marred by protest

The activists, however, are skeptical about Germany's enthusiasm. "You have huge infrastructure projects that will be done through public-private partnerships," Bokosi says. "We know that even in Europe, public-private partnerships have huge problems and eventually for government to meet its part of the obligations, they will have to borrow. The problem than is that if the project works, the profit goes to the private player, but if the project fails, all the risks and the costs come back to the public."

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