WEBVTT - Why African Banks Are Playing Hardball On Debt

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Africa's development banks remain locked in a dispute over plans

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<v Speaker 2>to restructure debt from countries such as Ghana, Zombia and Malawi.

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<v Speaker 3>That's stump that we used to carry on the back

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<v Speaker 3>of our shirts. Zambia as a devoter, Zambias a devoter,

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<v Speaker 3>Zambia's devoter. Therefore, don't go into investigator devoting country. That

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<v Speaker 3>stump is getting washed off.

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<v Speaker 2>While the countries do deals with foreign governments. The African

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<v Speaker 2>banks worn being forced to take losses sets a dangerous

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<v Speaker 2>precedent for the continent.

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<v Speaker 4>We Africans are now muscling in on teletreyaders to be

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<v Speaker 4>held by others. That's right, you know they were the

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<v Speaker 4>all is coming around to save Africa. Now Africans are

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<v Speaker 4>saving themselves. I'm drinking much better job. This is the

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<v Speaker 4>syndrome of the thread. These are the last kicks off.

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<v Speaker 2>On this week's Next Africa podcast, we look at why

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<v Speaker 2>African lenders are being asked to take big losses and

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<v Speaker 2>whether the whole process of debt restructuring could end up

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<v Speaker 2>making the situation worse for African investment. I'm Jennifer's abasajab

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<v Speaker 2>and this is the Next Africa Podcast, bringing you one

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<v Speaker 2>story each week from the continent driving the future of

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<v Speaker 2>global growth with the context only Bloomberg can provide. Joining

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<v Speaker 2>me to discuss this today is Bloomberg reporter Matthew Hill,

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<v Speaker 2>who has been following the story very closely. Matthew, thank

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<v Speaker 2>you so much for joining us. This is a topic

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<v Speaker 2>that you and I frequently speak about. The newsroom is

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<v Speaker 2>talking about, and it's really on the minds of many

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<v Speaker 2>leaders across the continent when it comes to debt and

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<v Speaker 2>a lot of these countries handling the debt loads that

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<v Speaker 2>they have had. Before we get into the heart of

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<v Speaker 2>the current dispute, maybe you can explain to us what

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<v Speaker 2>countries like Ghana, Zambia and most recently Malawi are needing

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<v Speaker 2>to do about their unsustainable debt levels.

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<v Speaker 5>So let's dial it back to twenty twenty. Right after

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<v Speaker 5>the pandemic. We had a number of African countries that

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<v Speaker 5>had already built up pretty high debt levels that some

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<v Speaker 5>were struggling to repay, and then the pandemic came along

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<v Speaker 5>and knocked out big chunks of their government revenues and

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<v Speaker 5>made it even more difficult. So we had the Group

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<v Speaker 5>of twenty or the G twenty coming up with a

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<v Speaker 5>plan to help poor countries deal with unsustainable debts. It's

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<v Speaker 5>called the Common Framework. So in February twenty twenty one,

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<v Speaker 5>Zambia applied to its creditors for what's known as a

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<v Speaker 5>debt treatment basically debt relief, using the Common Framework. Ghana

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<v Speaker 5>followed in December twenty twenty two, and Malawi also is

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<v Speaker 5>having to restraint its debts, although it's not following the

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<v Speaker 5>Common Framework process. We saw this just this week how

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<v Speaker 5>big its problem is. Where the International Monetary Fund pointed

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<v Speaker 5>out that if you strip out the money that it

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<v Speaker 5>needs to pay creditors and other aspects, Malawi is essentially

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<v Speaker 5>sitting with this year negative international reserves, negative net international

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<v Speaker 5>reserves of about two billion dollars, and if you compare

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<v Speaker 5>that to the size of its economy, which is only

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<v Speaker 5>about eleven billion dollars, it just shows the scale of

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<v Speaker 5>the problem that it's facing. Two.

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<v Speaker 1>You've been following this very closely for years.

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<v Speaker 2>You mentioned dating back to Zambia and the foreign investors

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<v Speaker 2>that we know of the Paris Club, right, but now

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<v Speaker 2>there's a lot more talk about African development banks and

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<v Speaker 2>the raw that they're playing in this restructuring. It's a

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<v Speaker 2>topic of heart debate right now. Can you talk about

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<v Speaker 2>where a frection bank and TDB fit into this picture?

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<v Speaker 5>This is really the crux of where we are at

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<v Speaker 5>at the moment. There is a massive amount of controversy,

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<v Speaker 5>a lot of tension, and emotions are already running quite

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<v Speaker 5>high because, as you point out, we've got lenders like

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<v Speaker 5>the Africa Export Import Bank that has provided money to

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<v Speaker 5>countries like Ghana and Zambia, and of course the Trade

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<v Speaker 5>and Development Bank too, And while pretty much all the

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<v Speaker 5>other creditors to these countries have agreed to restructure their debts,

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<v Speaker 5>a FRECSM Bank and to an extent, Trade and Development

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<v Speaker 5>Bank or TDB have not. And this has now turned

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<v Speaker 5>into a really really big point of contention. Just to

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<v Speaker 5>give a very broad overview of the situation at the moment,

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<v Speaker 5>AFRECSM Bank, which has the African sovereigns African States among

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<v Speaker 5>its shareholders, it also has private creditors too, and that

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<v Speaker 5>bank is arguing that it is a multilateral development bank,

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<v Speaker 5>it's providing money to help these countries to help its

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<v Speaker 5>members develop, and it says it's often lending money to

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<v Speaker 5>these countries where others won't. On the other hand, we've

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<v Speaker 5>got the other side of the equation where creditors, including

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<v Speaker 5>the Paris Club and others are saying AFFRECSM Bank isn't

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<v Speaker 5>a pure multilateral development bank because it's not lending money

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<v Speaker 5>the same way that the International Monetary Fund does or

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<v Speaker 5>the World Bank does at concessional rates. It's lending money

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<v Speaker 5>at commercial rates mostly and often these are pretty high.

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<v Speaker 5>So we've now got a situation where countries like Ghana

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<v Speaker 5>and Zambia have at the request of their other creditors,

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<v Speaker 5>really told Afresen Bank and TDB that they need to

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<v Speaker 5>restructure their loans to these countries and offer what's known

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<v Speaker 5>as comparability of treatment. So essentially, at once Affrecsen Bank

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<v Speaker 5>and TDB to provide as much debt relief as the

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<v Speaker 5>bilateral creditors have. Those are the ones from the Paris Club,

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<v Speaker 5>plus of course China, India, Saudi Arabia and the bondholders.

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<v Speaker 5>The eurobondholders have also agreed to provide significant debt relief,

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<v Speaker 5>and they are also saying that AFFRESM Bank must come

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<v Speaker 5>to the table likewise.

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<v Speaker 2>And matt I recently spoke with Amasu Today say. He's

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<v Speaker 2>the president and managing director of TDB, which you're speaking about.

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<v Speaker 2>They're one of the banks that are involved in the negotiations.

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<v Speaker 2>He told me he's unhappy about the current situation right now.

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<v Speaker 1>Let's take a listen really quick.

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<v Speaker 6>I think the one thing that that's very problematic is

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<v Speaker 6>is the way that some of these processes have been handled.

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<v Speaker 6>And I think the reason it's been messy and it's

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<v Speaker 6>been generating a lot of noise is because you know,

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<v Speaker 6>the global financial process has not taken adequate consideration of

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<v Speaker 6>African lenders in the process, and some of these restructurings

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<v Speaker 6>happen and we're not consulted, We're not in the picture,

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<v Speaker 6>and it happens as an afterthought. Assumptions are made and

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<v Speaker 6>those assumptions are wrong.

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<v Speaker 2>So, Matt, what did you make of what mister today

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<v Speaker 2>Say had to say. Why is it that the African

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<v Speaker 2>Development Banks are so opposed to taking losses on some

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<v Speaker 2>of these loans compared to some of the other bigger

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<v Speaker 2>creditors out there.

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<v Speaker 5>I mean, that really hits the nail on the head

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<v Speaker 5>where we are at the moment. I mean, TADESA has

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<v Speaker 5>complained that they are only being brought into the process

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<v Speaker 5>kind of as an afterthought. And to be clear, TDB

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<v Speaker 5>has been more constructive and shown that it is willing

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<v Speaker 5>to engage. It is willing to talk about restructuring its debts,

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<v Speaker 5>whereas Affresen Bank has pretty much said that it won't.

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<v Speaker 5>That it has something that's known as preferred creditor status

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<v Speaker 5>built into its establishment treaty when it was founded back

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<v Speaker 5>in the nineties and that precludes it from restructuring any

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<v Speaker 5>of its debt. Now, these banks, TDB, Affrecsen Bank and

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<v Speaker 5>others have formed what they are calling or referring to

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<v Speaker 5>the Africa Club. That's a group of African development banks

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<v Speaker 5>that they've set up to basically protect their rights and

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<v Speaker 5>make sure that their voices are being heard that they

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<v Speaker 5>do get a set at the table.

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<v Speaker 2>Hold that thought, Matthew, We're going to take a quick

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<v Speaker 2>break and when we come back, we'll talk about what's

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<v Speaker 2>at stake in these negotiations and what they could mean

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<v Speaker 2>for future investment on the continent.

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<v Speaker 1>We'll be right back. Welcome back.

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<v Speaker 2>Today we're talking about the ongoing dispute between Africa's development

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<v Speaker 2>banks and African governments looking to restructure their debt Matthew

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<v Speaker 2>Hill is joining us and has been following the story

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<v Speaker 2>very closely. So, Matt you were talking before the break

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<v Speaker 2>about these African development banks wanting to have a seat

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<v Speaker 2>at the table, wanting to be treated similarly to other

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<v Speaker 2>creditors out there.

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<v Speaker 1>Maybe we take a look at some of the other.

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<v Speaker 2>Creditors like the IMF and the Paris Club here, how

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<v Speaker 2>do these banks differ from the role that these international

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<v Speaker 2>institutions are playing for these countries, going back to.

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<v Speaker 5>The G twenty's Common Framework that was created with significant

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<v Speaker 5>input from the International Monetary Fund, And of course when

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<v Speaker 5>we're talking about sovereign debt restructurings, it's very difficult to

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<v Speaker 5>avoid mentioning or talking about the Paris Club, which is

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<v Speaker 5>an informal group set up to help bring debt relief

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<v Speaker 5>to countries that can't afford to pay their debts. They

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<v Speaker 5>have played a very very central role in the creditor committees,

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<v Speaker 5>the official creditor committees of all of these countries that

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<v Speaker 5>are using the Common Framework to try sort out their debts,

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<v Speaker 5>and the International Monetary Fund has too. They provide the

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<v Speaker 5>economic statistics and the estimates of exactly how much debt

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<v Speaker 5>relief countries like Garner and Zambia require to reach a

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<v Speaker 5>sustainable path and that's where the club comes into play

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<v Speaker 5>again too. This has been formed after the Common Framework

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<v Speaker 5>was set up and the debt restructuring processes of Ghana

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<v Speaker 5>and Zambia and others began to kind of retrospectively make

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<v Speaker 5>sure that their voices are being heard.

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<v Speaker 2>What would taking losses for these banks mean, Matt and

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<v Speaker 2>therefore many people if they haven't seen your reporting, we've

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<v Speaker 2>seen some of these banks actually get raided by ratings

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<v Speaker 2>agencies and taken a hit recently, just given some of

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<v Speaker 2>these negotiations around debt restructuring. Would a loss mean lower

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<v Speaker 2>credit ratings and potentially affecting Africa's development down the road?

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<v Speaker 1>Is that sort of how we can shape all of

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<v Speaker 1>this up.

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<v Speaker 5>That's also a very tough question that African lender's like

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<v Speaker 5>Afrexent Bank are grappling with right now. As you point out,

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<v Speaker 5>we've already seen Pitch cut its assessment of affrecs and

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<v Speaker 5>Bank to one level above what's known as junk. If

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<v Speaker 5>it does make another cut, that would mean that many

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<v Speaker 5>investors would be forced to sell the bonds of affrecs

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<v Speaker 5>and Bank, and I mean economics one oh one. When

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<v Speaker 5>you've got more sellers than buyers, that means the price

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<v Speaker 5>is going to go down. And it also means that

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<v Speaker 5>affrecs and banks own borrowing, so the money that it

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<v Speaker 5>raises from international investors will become more expensive. And then

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<v Speaker 5>you can say, if it's financing is becoming more expensive,

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<v Speaker 5>it's going to have to charge more when it lends

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<v Speaker 5>that money on to African countries, African governments and to

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<v Speaker 5>African development. So the outcome of this, if it does

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<v Speaker 5>get cut again by the railings agencies, Yeah, it means

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<v Speaker 5>more expensive financing for Africa, which is already grappling with

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<v Speaker 5>lending costs that have gone up quite significantly in recent years.

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<v Speaker 5>And also just like the places where African governments can

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<v Speaker 5>access financing from full stop is becoming smaller and smaller too,

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<v Speaker 5>so it's a real problem.

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<v Speaker 1>Yeah.

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<v Speaker 2>And even you know, some of these governments spend more

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<v Speaker 2>on debt servicing than you know, taking care of their constituents,

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<v Speaker 2>and so it really has become to the forest, so

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<v Speaker 2>much so that South African President Zerro Ramaposa has made

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<v Speaker 2>debt sustainability something that he has prioritized during the G

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<v Speaker 2>twenty presidency as of course, you know, matt how does

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<v Speaker 2>this play out going forward? Do you see some of

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<v Speaker 2>these African banks getting their way?

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<v Speaker 5>Well, I mean Fitch themselves have said that it's more

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<v Speaker 5>likely than not, for example, that Frexim Bank will have

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<v Speaker 5>to restructure its debt with Ghana, and if it does so,

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<v Speaker 5>that could have implications for its credit rating. Afrexim Bank

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<v Speaker 5>has definitely made it clear that it's not going to

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<v Speaker 5>take this line down. What kind of recourse they would

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<v Speaker 5>have we don't yet know, and they haven't yet said

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<v Speaker 5>what kind of approach they will take if they are

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<v Speaker 5>compelled to restructure the debts. We have seen them sue

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<v Speaker 5>South su Done in a court in the UK and

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<v Speaker 5>they actually won what's known as a summary judgment in

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<v Speaker 5>May this year, where the judge said that South Sudan

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<v Speaker 5>has to pay the hundreds of millions of dollars that

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<v Speaker 5>it owes Afrexim Bank. Whether this will ultimately end up

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<v Speaker 5>in a UK court when it comes to the case

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<v Speaker 5>with Ghane or Zambia, we'll have to wait and see.

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<v Speaker 2>And Matthew Hill, thanks again so much for your and

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<v Speaker 2>for joining us this week, and you can read all

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<v Speaker 2>of our coverage on African debt across Bloomberg platforms. Now

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<v Speaker 2>here's some of the other stories in the region that

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<v Speaker 2>we've been following. French broadcaster Canal Plus received South African

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<v Speaker 2>Anti Trust approval to buy Multi Choice Group, which clears

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<v Speaker 2>the way to making it the largest PayTV and streaming

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<v Speaker 2>business on the continent. The deal got the go ahead

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<v Speaker 2>from the Anti Trust watchdog this week, enabling a transaction

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<v Speaker 2>that values Multi Choice at about three billion dollars. And

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<v Speaker 2>Nigeria's Central Bank said about a third of lenders have

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<v Speaker 2>met its new capital requirements threshold ahead of a March deadline.

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<v Speaker 2>The Abuja based Central Bank of Nigeria last year increased

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<v Speaker 2>the minimum capital requirement for lenders tenfold to strengthen the

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<v Speaker 2>industry against risks from high inflation, a week economy and

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<v Speaker 2>a steep Nayrad evaluation. Can follow these stories across Bloomberg,

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<v Speaker 2>including the Next African Newsletter.

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<v Speaker 1>Will put a link to that in the show notes.

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<v Speaker 2>This program was produced by Adrian Bradley and tiwa Adebayo.

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<v Speaker 2>Don't forget to follow and review this show wherever you

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<v Speaker 2>usually get your podcasts, But for now I'm Jennifer's Abasaja.

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<v Speaker 1>Thanks as always for listening,