Speaker 1: Hello, and welcome to another episode of the Odd Thoughts Podcast.
Speaker 1: I'm Tracy Allaway and I'm Joe Wisenthal. Joe, I feel
Speaker 1: like has been such an unusual and crazy year with
Speaker 1: a lot of things going on, that there's actually some
Speaker 1: pretty important news that hasn't gotten as much attention as
Speaker 1: it would normally. If it was any other year, I
Speaker 1: think a lot of people would be reading about this
Speaker 1: and talking about this, at least in this sort of
Speaker 1: investment industry. Yeah, it's kind of like how, uh, you know,
Speaker 1: news you might like put out on a Friday and
Speaker 1: no one really notices it. It's like all of is
Speaker 1: like the Friday news dump because you could put there's
Speaker 1: so much all their stuff to pay attention to, the
Speaker 1: virus obviously, the econ aomic shock on the election, that
Speaker 1: no one really has had the bandwidth for anything else. Yeah,
Speaker 1: that's a really good way of putting it. So the
Speaker 1: event that I'm talking about that I don't think has
Speaker 1: gotten as much attention as it normally would is basically
Speaker 1: a debt crisis in Africa. And this month, let's see,
Speaker 1: we're recording in November, so this month Zambia actually defaulted
Speaker 1: on some bonds and it's the first sort of COVID
Speaker 1: related default by an African nation, and a lot of
Speaker 1: people expect there will be more. Even though we've seen
Speaker 1: some countries, some creditors, the G twenty agree a few
Speaker 1: efforts to try to help indebted countries in Africa. There's
Speaker 1: a G twenty debt service suspension initiative. But even with
Speaker 1: that aid, people are expecting distress in Africa's debt market
Speaker 1: to get probably worse before it gets better. I I
Speaker 1: think you're right, like if a zombiean debt default would
Speaker 1: have been the kind of thing they're like, oh, let's
Speaker 1: do an episode on that much earlier. But in a yes,
Speaker 1: it's certainly gotten less attention than I think it's lost.
Speaker 1: You know, it's one of those things where I'm sure
Speaker 1: even saw the headlines on it, and I meant to
Speaker 1: ask more questions in a meeting one day, and I
Speaker 1: meant to click on it and learn more, and I
Speaker 1: didn't because again I probably had, like, you know, some
Speaker 1: question about what's going on with the presidential transition or
Speaker 1: something that took over my mind for the day. You
Speaker 1: mean you weren't thinking purely of Zambia. Believe it or
Speaker 1: not in a meeting in New York. So in the
Speaker 1: midst of all this debt distress in Africa, there's also
Speaker 1: a lot of attention being paid to China and its
Speaker 1: role in building up that excess debt. But also what
Speaker 1: China is going to do now that Africa is, you know,
Speaker 1: economically stressed. Is China going to let up on some
Speaker 1: of those debt pay amens in the same way that
Speaker 1: maybe multilateral organizations or other creditors are thinking about doing.
Speaker 1: So we're going to get into that side of the
Speaker 1: African debt crisis quite a bit as well. But more
Speaker 1: than that, we're going to talk about how that debt
Speaker 1: build up actually happened, and we're going to do it
Speaker 1: in a slightly different way. We have someone um who
Speaker 1: obviously comes from Africa, from Liberia, and who had an
Speaker 1: official role in the Librarian government and a lot of
Speaker 1: that role involved, you know, being involved in infrastructure projects
Speaker 1: for which you would incur debt you take out a
Speaker 1: loan so you could build a bridge or a road
Speaker 1: or a railway or something like that. And so we're
Speaker 1: going to get a different perspective on Africa's debt problem. Excellent,
Speaker 1: really looking forward to this. Okay, great, so uh without
Speaker 1: further ado, then I want to bring in our guest,
Speaker 1: JUDEA More. He's a scene your policy fellow at the
Speaker 1: Center for Global Development. He previously served as Liberia's Minister
Speaker 1: for Public Works and was also Deputy chief of Staff
Speaker 1: to the President. So, like I said, a lot of
Speaker 1: experience in a government position within Africa, and it's going
Speaker 1: to be fascinating to hear his perspective. Judy, thanks so
Speaker 1: much for coming on h morning, guys, and thanks for
Speaker 1: having me. It's a pleasure to be here. So I
Speaker 1: remember the first time I ever went to Africa. I
Speaker 1: went to Mozambique back in two thousand and ten, and
Speaker 1: one of the things that really struck me, and that
Speaker 1: I found quite weird at the time was if you
Speaker 1: were in Maputo, the capital, everything was Chinese. The cars
Speaker 1: were Chinese, the trucks were Chinese, the stadium was built
Speaker 1: by the Chinese. There were Chinese characters all over the place.
Speaker 1: It's really really striking the extent to which China has
Speaker 1: become involved in the Africa market. Why has that happened? Yeah, yeah,
Speaker 1: And if you had gone to say Ethiopia, you're going
Speaker 1: to add is you would have saying the same thing,
Speaker 1: and across the continent and to a large extent, especially
Speaker 1: even in Zambia that you spoke about, you just saying
Speaker 1: the same thing. There's been an extensive growth in terms
Speaker 1: of Chinese presence and the deepening of Chinese relationship with
Speaker 1: African countries. A part of that, I guess it's historical.
Speaker 1: One is that, um, you know, at the turn of
Speaker 1: the century, when you know, would worried about why two
Speaker 1: K China is entering the w t O. But and
Speaker 1: China also on veils is first going out strategy and
Speaker 1: the only uncontested region in the world in which Chinese,
Speaker 1: because they weren't as powerful as they are now, could go,
Speaker 1: was the region of the world in which, you know,
Speaker 1: most Western policy toward Africa at the time was filtered
Speaker 1: through the lenses of humanitarian assistance and development. Africa wasn't
Speaker 1: seen as a place to go and do business, and
Speaker 1: for China it worked out perfectly because there wasn't a
Speaker 1: peer competitor there. I mean, there were some European engagement,
Speaker 1: but it wasn't to the extent that the Chinese would do.
Speaker 1: The second thing was just the need that was on
Speaker 1: the continent and what China could provide um so, even
Speaker 1: up to today, Africa still lags every other region of
Speaker 1: the world in terms of the provision of infrastructure, mainly
Speaker 1: paved roads and power. More than six hundred million people
Speaker 1: in the continent still lack access to electricity, and so
Speaker 1: China had this excess capacity in providing infrastructure and and
Speaker 1: normally provide infrastructure at costs. Right. So, before the arrival
Speaker 1: of the Chinese, the infrastructure space in Africa had been
Speaker 1: dominated by European firms. We're talking about your your breed,
Speaker 1: your if I've the large Vincy, the larger French, spanishi
Speaker 1: and and to certain extents extent Italian firms. But the
Speaker 1: cost of of infrastructure from those firms tended to be high.
Speaker 1: And the Chinese came and were able to First, Chinese
Speaker 1: firms where state sponsored um and so the state owned
Speaker 1: firms and could therefore they had access to capital that
Speaker 1: was much cheaper and could provide infrastructure um so at
Speaker 1: cost that they were competitive in terms of costs. The
Speaker 1: second reason was simply because they brought money with them.
Speaker 1: In a lot of instances, there were African countries who
Speaker 1: couldn't afford um to pay for this upfront, and the
Speaker 1: Chinese were willing to extend loans to them. Uh and
Speaker 1: so for for a lot of African countries which at
Speaker 1: the time didn't have access to international financial markets to
Speaker 1: issue sovereign bonds and stuff for home development, financing from
Speaker 1: the model lateral institutions was just not enough, especially concessional financing,
Speaker 1: and and so with nowhere else to go, they were
Speaker 1: happy for a partner who seemed not to worry too
Speaker 1: much about public financial management, who seemed not to care
Speaker 1: about the quality of governance in terms of corruption, and
Speaker 1: who said those things were internal and they had nothing
Speaker 1: to do with that. And so there was this a
Speaker 1: confluence of interest between what China wanted to do at
Speaker 1: the time and what Africas did were and so because
Speaker 1: of that we saw a huge ramp up in terms
Speaker 1: of African debt. The final thing I would say to
Speaker 1: that also was that it coincided with this huge build
Speaker 1: up in terms of a boom for commodity exports, and
Speaker 1: most African economies were growing at you know, seven two, two,
Speaker 1: nine percent and and and China seemed to have an
Speaker 1: insatiable appetite for for African commodities, and so it's like
Speaker 1: everybody was invited to the party, and the party went
Speaker 1: really well for a while, So lots of things came
Speaker 1: together in sort of an ideal manner for both parties
Speaker 1: or for multiple parties. What years, just to help us
Speaker 1: frame the conversation, we talked about this boom, and we
Speaker 1: talked about this build up, this eventual debt build up.
Speaker 1: What years are we talking about in terms of when
Speaker 1: this really got going and when the sort of really
Speaker 1: hit it hit it transactional pig Yeah, So I would
Speaker 1: say it started in two thousand at the first FORKAK.
Speaker 1: So the FORECACH is the Forum of China Africa Cooperation.
Speaker 1: Is this UM is held every three years when and
Speaker 1: the first one, I think forty three African has a
Speaker 1: state in governments arrived in China and it's been held
Speaker 1: every three years, and this is when China says, over
Speaker 1: the next three years we're going to invest you know,
Speaker 1: UM five billion, twenty billion. It went up at the
Speaker 1: last two forecascas China pless to spend up to sixty
Speaker 1: billion dollars in Africa. So the ramp up starts maybe
Speaker 1: around two thousand and six. In terms of the numbers
Speaker 1: begin to increase around and then, but the Chinese arrival
Speaker 1: in this form that we're seeing begins around two thousand
Speaker 1: and then the financial crisis of two thousand and AID
Speaker 1: basically left China unchallenged. Uh. I mean, I think a
Speaker 1: lot of the global recovery was driven by the Chinese
Speaker 1: uh spending on capital projects and and at the end
Speaker 1: of that, China was left with this exx capacity that
Speaker 1: had to go somewhere, and I think a lot of
Speaker 1: that is what drove even the Belt and Road initiative.
Speaker 1: But with that excess capacity, we saw an even significant
Speaker 1: ramp up of Chinese spending. So you go back and
Speaker 1: look at Zambia as a debt profile in terms of
Speaker 1: the accumulation of death in a place like Zambia, well,
Speaker 1: most African countries were beneficiaries first of the debt debt
Speaker 1: waivers on the hippoc right and did jubilie the activity
Speaker 1: around waiving debt and so come around, a lot of
Speaker 1: the countries suddenly have significant space to borrow a gain.
Speaker 1: And so with China left with this excess capacity, we
Speaker 1: see this significant ramp up of Chinese lending for infrastructure
Speaker 1: on the company. So this is one thing I always wondered,
Speaker 1: But well, actually, okay, I have two questions. So first
Speaker 1: of all, could you maybe describe a little bit more
Speaker 1: what uh what these Chinese infrastructure deals actually look like
Speaker 1: and how they work. So you had things operating under
Speaker 1: official state sanctioned banners like the Belt and Road Initiative,
Speaker 1: but you also had private Chinese companies who would come
Speaker 1: in and tender offers alongside European and American companies or
Speaker 1: companies from anywhere in the world. How did those actually work?
Speaker 1: And then secondly, if China was financing a lot of
Speaker 1: this infrastructure build, Africa is still enormously behind on infrastructure obviously,
Speaker 1: Like why didn't it make more of a difference. Why
Speaker 1: aren't there you know, bridges and railway railways and airports
Speaker 1: and things like that all over everywhere. I think, first
Speaker 1: I have to really good question. I think first, it's
Speaker 1: just the baseline I mean we're coming from. You have
Speaker 1: to remember towards end between and say the year two thousand,
Speaker 1: that the country, the continent is ravaged about a number
Speaker 1: of crises. Right first, there are a significant amount of
Speaker 1: civil wars, the Liberian Civil War, the Syrian Union Civil War,
Speaker 1: UM the rewinding general side mulga tissue, even Mozambique. We
Speaker 1: talked about this significant amount of wars and a lot
Speaker 1: of infrastructure is either not built or destroyed during these
Speaker 1: wars right and then, and because of those those wars,
Speaker 1: we saw a lot of humanitarian crisis right and and
Speaker 1: but at the same time, we had an AIDS pandemic
Speaker 1: that was wiping out a significant number of the population
Speaker 1: across Center and Southern Africa, and so a significant amount
Speaker 1: of money that was available went towards the health crisis,
Speaker 1: went towards just basically beating needs, and not a lot
Speaker 1: was done in terms of infrastructure. And so the baseline
Speaker 1: from which we come means that in spite of all
Speaker 1: the ramp up we did, we only just scratch the surface.
Speaker 1: The African development back now puts the gap in terms
Speaker 1: of infrastructure finance into around up to a hundred and
Speaker 1: three billion dollars a year. So so you can imagine
Speaker 1: how how deep the whole was in terms of what
Speaker 1: was available and the way it worked. You're right, there
Speaker 1: were like three UM nodes of Chinese engagement where your
Speaker 1: large state owned companies UM that were owned by the
Speaker 1: central government UM and then there were your provincial companies,
Speaker 1: and then finally you had these like quais that profit
Speaker 1: private companies. Each of them came with the promise of
Speaker 1: the back end of Chinese policy banks. So they were
Speaker 1: always promised that they could get you access to financing
Speaker 1: once the government. I mean, what the required was a
Speaker 1: sovereign guarantee. They needed the government to back that loan
Speaker 1: and if the government did. And because you have so
Speaker 1: many actors, it would seem to me, you know, I
Speaker 1: don't know that as much about how the Chinese system
Speaker 1: works on their side. But for example, if I went
Speaker 1: to the World Bank, UH said the Ministry of Public
Speaker 1: Works engaged the Work Bank. Most of that engagement would
Speaker 1: happen through the Ministry of Finance the Work Bank. We
Speaker 1: didn't look at like the areas that portfolio and be
Speaker 1: able to say you can't afford this. Right on the
Speaker 1: Chinese side, it just seemed not to work like that.
Speaker 1: So you had multiple Chinese pinis that are competing. So
Speaker 1: there's a provincial company, construction company that is access in finance. Somehow,
Speaker 1: it has a line of credit that it can extend.
Speaker 1: UH it's working through the local the provincial branch of
Speaker 1: the X and bank, and then you have the large
Speaker 1: Stadia company, and it seemed as if there were in
Speaker 1: some sort of a central node that process all of
Speaker 1: it to be able to say no, it looks like
Speaker 1: Zambia has taken a lot more debt than the ZIM
Speaker 1: that can afford you see what I mean? Like that
Speaker 1: that didn't seem to be if they're were, it was
Speaker 1: almost maybe it was ignored or it just didn't exist. Whatever,
Speaker 1: the reason was a lot of countries, as a few countries,
Speaker 1: not a lot of them, like Ya, Zambia as your
Speaker 1: UH South today and and and and Angola were allowed
Speaker 1: to ramp up significant amount of debt UH that was
Speaker 1: tight and to be honest to UH, commodity exports that
Speaker 1: seemed to be going up and up and up. And
Speaker 1: so I would like to add though that beyond the
Speaker 1: just huge infrastructure deficits, there was another thing driving Africa's
Speaker 1: need to borrow from China to finance this. Everywhere else
Speaker 1: in the world, as a population has either stabilized or
Speaker 1: its declining, right except in Africa, where the population continues
Speaker 1: to grow, where more than fifty percent of the population
Speaker 1: I think is on the nineteen and because this of
Speaker 1: this huge increase in the population, governments are under significant
Speaker 1: pressure to provide both you know, hard physical infrastructure and
Speaker 1: social infrastructure for for these and so they are all
Speaker 1: of these. And then Africa's exports tend to be largely
Speaker 1: on processed natural resource UH products and because of that,
Speaker 1: there's were so low down the value chain that what
Speaker 1: accrues to us as value from our exports it's just
Speaker 1: not enough to be able to finance our infrastructure. And
Speaker 1: so because of that, like all of these pressures on
Speaker 1: governments and the faint I thing I would say to
Speaker 1: that is all. So it seems kunto intuitive, but it
Speaker 1: was like the more the more democratic a country became,
Speaker 1: the closer it came to China. Why because when we
Speaker 1: ran our elections, we you know, promised people that we
Speaker 1: would build infrastructure because that was the largest need. And
Speaker 1: so when the election has ended and we needed to
Speaker 1: deliver on the promises we made, China was one of
Speaker 1: the few who had both the appetite for our risk
Speaker 1: and the resources to be able to lend us money
Speaker 1: to build the infrastructure we needed. And so all of
Speaker 1: these I guess all of these forces and and factors
Speaker 1: sort of just created this perfect I don't want to
Speaker 1: call it a store. We just created a perfect circumstances
Speaker 1: m for for for this Chinese lending to to Africa
Speaker 1: and UH and in Africa borrowing from from China. So
Speaker 1: there was no entity, whether it's on the provincial or
Speaker 1: policy bank side in China or the government of the
Speaker 1: various African countries that were the recipients of this UH
Speaker 1: loan money and infrastructure capacity, no one had an incentive
Speaker 1: to do any sort of meaningful UH debt sustainability. And
Speaker 1: now it sounds like that, doesn't it. It just seems
Speaker 1: it seems that well, on our side in Liberia, we
Speaker 1: really didn't have We didn't really have the option to
Speaker 1: do that because you see, we we just come out
Speaker 1: of war and almost five billion dollars of our debt
Speaker 1: had been waived. But that meant we had to enter
Speaker 1: an IMF program, which meant at the Ministry of Finance
Speaker 1: in Liberia there was a person there from the i
Speaker 1: m F who reviewed our debt profile and UH and
Speaker 1: in Liberia we have something called the Debt Management Committee
Speaker 1: that reviewed every application for for debt from say an
Speaker 1: agency of government ministry and measured that against our death
Speaker 1: stock and and this death servicing, and we just come
Speaker 1: back to say we just couldn't afford this. It doesn't
Speaker 1: seem that that kind of infrastructure and that kind of
Speaker 1: you know, institutional arrangement existed across the continent, and instances
Speaker 1: where it did, it just seemed like the incentives were
Speaker 1: in alligned for people to actually give it the power
Speaker 1: to operate at its shoot. Then on the Chinese side,
Speaker 1: it just um, you know, um, there didn't seem to
Speaker 1: be a significant effort. It looks like that's changing now
Speaker 1: that it started to change around the eighteen FORCAC, when
Speaker 1: the sum being began talking about you know, we're no
Speaker 1: longer going to finance you know, advantage of projects or
Speaker 1: political projects called them. I think something started to change
Speaker 1: about it. It might have been because of domestic reason.
Speaker 1: It might have been China's own position in terms of
Speaker 1: how much capital it had to be able to expand overseas.
Speaker 1: Something began to change. But in those you know, in
Speaker 1: the heyday of of borrowing that has us in the
Speaker 1: crisis that we're in now. In a number of African countries,
Speaker 1: I would say maybe like seven in which Chinese debt
Speaker 1: is actually a either of debt distress, um that that
Speaker 1: didn't seem to be on the Chinese side, and some
Speaker 1: sort of coordination to be able to take And the
Speaker 1: final thing I would say on that is that we
Speaker 1: know that China has been sort of like a reluctant multilateralists.
Speaker 1: That China was not a member of the Paris Club,
Speaker 1: and the Paris Club of Rich countries had had des
Speaker 1: sustainability rules, and because China wasn't a part of it,
Speaker 1: it wasn't really subject to this rules. Reluctant multilateralist is
Speaker 1: a great way of putting it. UM. I want to
Speaker 1: I want to talk more about how China's approach might
Speaker 1: be changing, especially the summer during the debt crisis. But
Speaker 1: before we do, I mean, I think we have to
Speaker 1: talk a little bit more about the loans. So there
Speaker 1: is a perception that China's loans tend to be or
Speaker 1: its financing tend to be unfair in some way, or
Speaker 1: they come with a lot of strings attached, and that
Speaker 1: you know, China maybe doesn't necessarily care about debt sustainability
Speaker 1: because it's trying to um, how do I put it,
Speaker 1: like it's trying to get a hook into a particular
Speaker 1: country or into a particular resource or a strategic port
Speaker 1: or something like that. So it's not necessarily worried about
Speaker 1: getting paid back. So how much is that reputation deserved
Speaker 1: in your view? So I think it was First it
Speaker 1: was an Indian writer writing an outfit in an Indian
Speaker 1: paper who coined the phrase dead trapped diplomacy. And then
Speaker 1: the US in its uh great power competition with the
Speaker 1: with the Chinese simpler ramp ramp that up. And thing
Speaker 1: my understanding of the narrative of that trap diplomacy is
Speaker 1: that the whole plan is for China to ensnare is
Speaker 1: as um is putitive partners in this unhealthy relationship as
Speaker 1: a means of being able to take over flagship infrastructure
Speaker 1: like ports and airports just off like that. And the
Speaker 1: example that gets bandied about is Humbun data, you know,
Speaker 1: in in the UH is Sri Lanka, Yeah, in Africa.
Speaker 1: So there's been a lot of studies. They China Africa
Speaker 1: Research Initiative at the Johns Hopkins University has done a
Speaker 1: study on this, and there's no real there's no evidence
Speaker 1: for this. It gets repeated often, but there's no real
Speaker 1: evidence for this. The second thing I would say on
Speaker 1: this question is that about seven countries in Africa, seven
Speaker 1: or eight the dead crisis they have currently, the dead distress,
Speaker 1: China plays a role, right, so in terms of Africa's
Speaker 1: student deaths that China is responsible for about UM about
Speaker 1: of it. So it's sort of seems like we we've
Speaker 1: become so consumed we're talking about and not focused on
Speaker 1: the right. A significant portion of the debt UH is
Speaker 1: old to domestic UM creditors and to private creditors, and
Speaker 1: then the rest of it is UH the multilateral UH
Speaker 1: lending agencies, and so I it's worked really well to
Speaker 1: the US is advantage in terms of painting China as
Speaker 1: this irresponsible lender who's out to take over UM. The
Speaker 1: infrastructure of the countries is supposedly UH it is working
Speaker 1: with that that it hasn't really borne out in terms
Speaker 1: of the evidence that this is what the Chinese. But
Speaker 1: the question is, I think the critique of Chinese lending
Speaker 1: at a scale and pace that was just completely sustainable,
Speaker 1: especially for for economies who were dependent on commodity exports,
Speaker 1: knowing the fluctuations of commodity exports. I mean, I think
Speaker 1: COVID nineteen simply ended up being an excellerent of a
Speaker 1: crisis that was coming anyway, right, and and so we
Speaker 1: just didn't expect it to be this shock, but it
Speaker 1: was coming anyway, and and and Zambia had all has
Speaker 1: been there. I would also like to point out that
Speaker 1: Zambia is a bit different right from from other countries
Speaker 1: in terms of how quickly the debt ramped up in
Speaker 1: Zambia and how much that it actually had, and how
Speaker 1: dependent it is on a single export um copper. I
Speaker 1: think we were fortunate enough that the picture out of
Speaker 1: Africa after the Zambian debt default is going to be mixed.
Speaker 1: So on Friday, at a Thursday of Friday called Devoir
Speaker 1: went to the market, becoming the first African country I
Speaker 1: have since COVID to issue your bonds and it was
Speaker 1: five times oversubscribed. So it appears that the market is
Speaker 1: being really nuanced and sophisticated about the risk that African
Speaker 1: countries present. And there still seems to be some sort
Speaker 1: of appetite for for African debt. And so I think
Speaker 1: China as as a factor in Africa. Again we're talking
Speaker 1: about fifty four economy is in China being a significant
Speaker 1: imp up part of maybe seven or eight. And then
Speaker 1: if you take out Angola, China's influence drops in elect
Speaker 1: significantly because a significant portion of Africa's debt to China
Speaker 1: is actually Angola's debt to China. And then of course
Speaker 1: you have your Kenya that's changing because you know, at
Speaker 1: the last forecast, Kenya went with the hope of getting
Speaker 1: more money for this second and final portion of the
Speaker 1: standard gage rail from you know, it's currently it comes
Speaker 1: from ambassador to Nairobi is supposed to go further than that,
Speaker 1: and and the Chinese played hardball and didn't because first
Speaker 1: the current one is not able to pay his bills,
Speaker 1: is the debt is very difficult for them to service.
Speaker 1: In fact, there was a committee in the Kenyan parliament
Speaker 1: who suggested go back to the Chinese to say, look,
Speaker 1: we're in over our heads. We can't do this. Um
Speaker 1: the DS as I you mentioned, Kendya initially didn't want
Speaker 1: to participate because Kenya still wants to retain his access
Speaker 1: to markets. But Kenya is strongly reconsidering that decision at
Speaker 1: the moment. So I and I think, uh, just paint
Speaker 1: China as the driver of debt, especially with you know,
Speaker 1: nefarious intense. It's just the evidence just really really doesn't
Speaker 1: bear that up. So Chinese debt is an important contributor
Speaker 1: to the total of dead stock, but it's not the
Speaker 1: only story. I want to go back to something you said,
Speaker 1: Um a little bit earlier on, and we were talking
Speaker 1: about this perfect storm of there being an opportunity um
Speaker 1: China looking at Africa and saying there wasn't really any
Speaker 1: sort of other main entity there from a business standpoint.
Speaker 1: Most of the Western dollars came more from a born
Speaker 1: aid perspective than an investment perspective. Is there a strategic
Speaker 1: opportunity now? Or is it just never made any sense?
Speaker 1: I mean, if if the countries where China has been
Speaker 1: very active um in lending or largely commodity exporters, obviously
Speaker 1: China has this voracious demand for these commodities, Do other
Speaker 1: sort of Western players, whether it's the U S or
Speaker 1: countries in Europe, have much of a sort of strategic
Speaker 1: business reason to invest aggressively in Africa or do they
Speaker 1: just not have the same UH calculations that would lead
Speaker 1: them there in the first place due to their sort
Speaker 1: of different needs of their economists. Sure, and just quickly
Speaker 1: before I responded out, just at that. Part of what
Speaker 1: drove you know, China's investment in African resources was also
Speaker 1: the needs to have access to the resources at source, right,
Speaker 1: because China could always buy them on the international marketing
Speaker 1: to buy them from Glencore, right. But but they certain
Speaker 1: mineral resources will consider strategic and and and they want
Speaker 1: the Chinese companies controlling them, and so that that drove that.
Speaker 1: I think this is a question. I'm glad you bring
Speaker 1: up this question about, you know, beyond China or is
Speaker 1: there a strategic reason for others to to be engaged
Speaker 1: with the continent now. So one of the things that
Speaker 1: we that we've seen is the rise of these continent
Speaker 1: sized economies, right that dominant the global landscape now in
Speaker 1: terms of the political economy of the world. So you
Speaker 1: have the United States, you have the combined EU, you
Speaker 1: have your China, you have India and in their dominant
Speaker 1: and compared to Africa, where you have fifty four fragmented,
Speaker 1: very small states. I mean, the largest economy in Africa
Speaker 1: is Nigeria, but Nigeria's GDP is still smaller than the
Speaker 1: Washington DC area, right, So it's I mean, it might
Speaker 1: be large for Africa, but in terms of a global scale.
Speaker 1: It's it's really not. I mean, it's just how it
Speaker 1: has a lot of people. And then up to ninety
Speaker 1: percent of Nigeria's revenue come from oil exports. So Nigeria's
Speaker 1: large economy is is pretty fragile, especially because now we're
Speaker 1: going to a post carbon economy. So what the African leaders,
Speaker 1: but they understood their inherent weakness of acting as individual units,
Speaker 1: and so they decided to create something called the African
Speaker 1: Continent of Free Trade Area, who would combine all of
Speaker 1: their markets into a single market. And we just by
Speaker 1: doing that become a three trillion dollar market. So now
Speaker 1: it makes Africa attractive as a place to invest because initially,
Speaker 1: if you were going to invest in any country, you
Speaker 1: had to and wanted to scale up across the continent,
Speaker 1: you had to, you know, deal with fifty four if
Speaker 1: you wanted a presence in our countries. But fifty four
Speaker 1: regulatory environments that it's just way too expensive and and
Speaker 1: you know, the payout the dividend doesn't seem to match
Speaker 1: the cost. But because now it's going to be a
Speaker 1: single market, um, it might be more attractive, right, And
Speaker 1: so I think with that change, it's really really important
Speaker 1: that people begin to take a second look at Africa.
Speaker 1: The second thing is, you know, over the last ten months, um,
Speaker 1: the large economies, I mean they've spent close to uh
Speaker 1: it's ten to twelve trillion hours propping up their economies
Speaker 1: against the economic fallout of the coronavirus. It means that
Speaker 1: when the recovery does come for a long time, we're
Speaker 1: gonna see very low or negative interest rates in the
Speaker 1: developed markets. And because of that, I think the risk
Speaker 1: profile or the risk appetat of investors and private money
Speaker 1: will change, and Africa presents an opportunity, especially you know,
Speaker 1: for infrastructure and and the long term returns on infrastructure.
Speaker 1: I just saw it's in the Financial Times that by
Speaker 1: the end of the summer, investors has poured close to
Speaker 1: seventeen trillion dollars into negative year bonds. I mean that
Speaker 1: cannot continue indefinitely. And so I think Africa presents um,
Speaker 1: you know, with you know, five just seven percent interests.
Speaker 1: I think Africa still presents an opportunity for for investments.
Speaker 1: So there is uh that. The second thing is, you know,
Speaker 1: the State Department two weeks ago or about maybe eight
Speaker 1: days ago, released the policy planning Department Bureau at the
Speaker 1: State Department released this report on on the chance that
Speaker 1: the China challenge, and it lists at ten things in
Speaker 1: terms of how the US is going to organize itself
Speaker 1: to that China's conduct is the reason China poses a
Speaker 1: challenge in China's model of leadership and and one of
Speaker 1: the places what we've seen really growth with setbacks sometimes
Speaker 1: yet but in terms of the democratic space has been
Speaker 1: in Africa, and and I've argued elsewhere that the Chinese
Speaker 1: model of governance, it's desirability or applicability is pretty limited
Speaker 1: in Africa. And so I can imagine where the democracies
Speaker 1: of the world, like the US and and and much
Speaker 1: of Europe would see Africa as a place where there's
Speaker 1: some sort of shared community or values of source and
Speaker 1: that itself is reason to to be able to and define.
Speaker 1: The thing I would say is, like you know, as
Speaker 1: I noted in my comments earlier, I mean parts of
Speaker 1: Eastern Europe has been decimated because of the the population question,
Speaker 1: and that's going to affect Western Europe too, and so
Speaker 1: the only place that will be vibrant with a young
Speaker 1: population that's working is going to be Africa. And so
Speaker 1: I think this is something the Chinese saw and the
Speaker 1: we're able to make a long term bet on the
Speaker 1: continent UM twenty years ago when no one saw Africa
Speaker 1: in a place where you could even think of investment,
Speaker 1: and today you know, we're seeing that. So I think
Speaker 1: they're they're there are opportunities for growth, especially in the
Speaker 1: infrastructure space, especially in the agriculture and agric process in
Speaker 1: space that UH one would expect Europe, Africa's neighbor right
Speaker 1: to to have an interest in investing there, and and
Speaker 1: of course UH the United States to invest in there.
Speaker 1: What I do see though, is that China is just
Speaker 1: continuing to deepen its hold. So the Chinese Foreign Minister
Speaker 1: has already promised that China will provide support to the
Speaker 1: African Continental Free Trade UH Area the secretariat or provide
Speaker 1: money for training, and Chinese state media is already entertaining
Speaker 1: the idea of linking the African Continental Free Trade Area
Speaker 1: to the b r I and bringing Africa closer into
Speaker 1: China's here. So I think that there is there are
Speaker 1: reasons both economic and strategic for um UM actors other
Speaker 1: than China to pay attention to what's happened in Africa.
Speaker 1: So I wanted to talk a little bit more about
Speaker 1: what's been happening this year and sort of over the summer.
Speaker 1: So the distress in African debt is well known, and
Speaker 1: we've seen the G twenty react um as I mentioned
Speaker 1: in the intro, but I think one of the sticking
Speaker 1: points are one of the discussion points has been the
Speaker 1: behavior of the Chinese, whether or not they would agree
Speaker 1: to some sort of stand still on on debt payments
Speaker 1: or basically act like other creditors um, like the multilateral creditors.
Speaker 1: How big of an issue is that and do you
Speaker 1: see signs that China might be softening its stants on
Speaker 1: this front. It is a huge issue, and we've heard
Speaker 1: incuragan things, but it's it's yet to be seen. So
Speaker 1: if you go back to this Zambia story, Zambia had
Speaker 1: gone to his creditors, the private creditors, and asked for
Speaker 1: a standstill deferral. They decided they were going to meet.
Speaker 1: They put it off to November thirteenth, and then around
Speaker 1: they came back and said no, and and so the
Speaker 1: design and then the recriminations right so on the Zambian side,
Speaker 1: the Zambian Finance minister said that the private creditors refused
Speaker 1: to sign an n d A, and the private creditors
Speaker 1: wanted to know what kind of arrangement Zambia was having
Speaker 1: with China, because the fear was we would defer the debt,
Speaker 1: we would defer payments and then Zambia is simply gonna
Speaker 1: pay the Chinese. So they wanted to see But China,
Speaker 1: as I noted, as a reluctant multilateralist, and China prefers
Speaker 1: doing these things on a ball at run basis. Unfortunately,
Speaker 1: this is not just one of those times, right and
Speaker 1: because of the scale of the crisis and and the
Speaker 1: number of actors, it is just not amenable to a
Speaker 1: ballad le discussion. But China insists on going the balladd
Speaker 1: ra way, and so because of this, the private creditors
Speaker 1: just felt that there just wasn't enough information, especially about
Speaker 1: what China was doing for for them to make any
Speaker 1: decision on that, and so that remains an issue. The
Speaker 1: second thing was China x him. This isn't really a
Speaker 1: huge problem in Africa, but it's a huge problem with
Speaker 1: the dss I total. China is arguing that it's a
Speaker 1: China Development Bank and other policy banks are lending on
Speaker 1: a commercial basis, and so they ought to be treated
Speaker 1: the same way private creditors are being treated. That the
Speaker 1: only Chinese, only Chinese lender who might participate in this
Speaker 1: is probably a China Xim well. But China Development Bank
Speaker 1: is a huge player now in Africa. In Africa it
Speaker 1: lends money into a goal on maybe and so China
Speaker 1: is is just trying to draw a line between what
Speaker 1: is you know, a national a state creditor and what
Speaker 1: is a private creditor. And so because of this, China
Speaker 1: has not been as as you know, eager to participate
Speaker 1: in this process as one would like. The final thing
Speaker 1: I would say is that you know, after the last
Speaker 1: dead crisis, most of the Western Oy City Paris club
Speaker 1: members have moved away from baladteral lending. So I think
Speaker 1: seven to two of of death servicing over the next
Speaker 1: four years are the Chinese lenders. And so because of that,
Speaker 1: China is a dominant player in this new death crisis,
Speaker 1: not just in Africa but just generally, and in China
Speaker 1: has hesitation to two. Part of it is China has
Speaker 1: way more to lose, It's way more leverage right then
Speaker 1: most of the the G twenty. So we keep saying
Speaker 1: G twenty, But if seven seven two is going to China,
Speaker 1: are we is there really a G twenty right in
Speaker 1: terms of the dead question, it's it's really China. However,
Speaker 1: the saudiast who chaired the G twenty now said that
Speaker 1: they had agreed in principle on a framework to handle
Speaker 1: something debt that will be useful going forward, and supposedly
Speaker 1: the Chinese, the Chinese on board on board with this.
Speaker 1: But again, I mean, in the past, China has you know,
Speaker 1: said uh, but they make these general comments that could
Speaker 1: be yes or no or maybe so we were it's
Speaker 1: yet to were yet to see if China is as
Speaker 1: committed to this new framework or if China is going
Speaker 1: to be more active in in in this in this space.
Speaker 1: But it remains that China is such a dominant actor
Speaker 1: here and that China's hesitation to to fully participate is
Speaker 1: a significant storyline in the debt crisis. So does this
Speaker 1: create a sort of I mean, it sounds like there
Speaker 1: was some whole in the existing sovereign debt law or
Speaker 1: some ambiguity the situation that allowed the dispute about whether
Speaker 1: the lending should be characterized as private sector lending or
Speaker 1: official sector lending. What does a sort of updated version
Speaker 1: of sovereign debt law looked like so that going forward, Uh,
Speaker 1: there's more clarity on how these things are characterized. Yeah,
Speaker 1: it just seemed, you know that after the first UM
Speaker 1: more sometime around thirteen that the I M f UM
Speaker 1: would have I think, I'm not even I wasn't even
Speaker 1: finance ministering like there, right, I just happened to sit
Speaker 1: within the presidency and then control of ministry that was
Speaker 1: pretty big. Every time there was an IMF mission in Liberia,
Speaker 1: they met with me as one of the largest spenders
Speaker 1: in terms of the government, and so everybody knew that
Speaker 1: the issue of serving debt, especially for countries that were
Speaker 1: just coming into the market, would be an issue, and
Speaker 1: for some reason there was never sort of nothing created
Speaker 1: in terms of an international mechanism to be able to
Speaker 1: resolve this when it did happen. So this framework would
Speaker 1: be that. But I think the difficulty with with any framework,
Speaker 1: of course, it's going to be when when when could
Speaker 1: bevore cells debt for a billion dollars or billion euros?
Speaker 1: The people buying that debt are you know, pension funds,
Speaker 1: hedge funds, private creditors who you know, have finisher responsibilities,
Speaker 1: responsibilities to their their investors and the people whose money
Speaker 1: and they're investing. So this isn't just countries. I mean
Speaker 1: with countries, well you know, the legislature and there's stifican
Speaker 1: make a decision here. Because of the strange mix of
Speaker 1: creditors we have, it creates this UH difficulty in terms
Speaker 1: of hot one arranges this. So in terms of what
Speaker 1: this looks like, it's it's really unclear to me what
Speaker 1: what what a new mechanism looks like. UH and to
Speaker 1: be able to handle this, because this is going to
Speaker 1: happen as long as these frontier markets continue to have
Speaker 1: access to UH international financial markets in terms of in
Speaker 1: terms of debt, We're going to see this happen again.
Speaker 1: It might be from shops within the economy or external shocks,
Speaker 1: but these are gonna happen. So how we restructure the
Speaker 1: international system so that this doesn't happen? To be honest,
Speaker 1: I don't know. I'm just one of the guys on
Speaker 1: the sideline who's saying, you know, we need to do this,
Speaker 1: And when you ask me how, be like, oh, I
Speaker 1: don't know, um so I think, but I'm confident that
Speaker 1: people who are way smarter than me are thinking about this. UM.
Speaker 1: But insofar as Africa is concerned earned it's investment, it's
Speaker 1: infrastructure gap doesn't go away. It's weakness in terms of
Speaker 1: financing that infrastructure from his budget doesn't go away. And
Speaker 1: so I think, UM, this is just a pause in
Speaker 1: and in an exorable march toward more day and and
Speaker 1: and I think it makes sense that this framework that
Speaker 1: the salady. We're waiting to see what the framework looks like.
Speaker 1: And so maybe we can have this conversation again when
Speaker 1: the framework comes out to see if it is adequate
Speaker 1: UM to be able to resolve these kinds of tensions
Speaker 1: when they arise in the future. Judy, I think that's
Speaker 1: that's probably a natural place to leave it. UM. But
Speaker 1: thank you so much. That was a really interesting conversation,
Speaker 1: and really appreciate your perspective. Listen, I am really really
Speaker 1: happy you reached out and I'm glad you have participated
Speaker 1: in this. Thank you. Yeah, that was fantastic. Thank you
Speaker 1: so much. So, Joe, I found that conversation very very
Speaker 1: interesting and timely. And I feel I feel a little
Speaker 1: bit bad because I feel like this is a subject
Speaker 1: that we probably should have gotten to much faster. But again,
Speaker 1: as we discussed, given everything that's happening in there's just
Speaker 1: lots going on. But I also thought Juday's point about
Speaker 1: how China is very active in Africa obviously, but that
Speaker 1: even the sort of private sector deals, loans that were
Speaker 1: coming from companies or you know, deals that were struck
Speaker 1: with with private companies were in some way or another
Speaker 1: they end up being financed by the Chinese state. And
Speaker 1: if you have a private company competing with a state
Speaker 1: funded entity, that cost is almost always going to be uneven,
Speaker 1: and I think the state entity is almost always going
Speaker 1: to win out. And that was that was one reason
Speaker 1: for China's UM I guess advantage in African UM financing
Speaker 1: that I hadn't considered before. Yeah, no, that was that
Speaker 1: was extremely interesting and I hadn't either this sort of
Speaker 1: like straddling the line, I guess and look, I mean
Speaker 1: it fits even when we talk about China domestically and
Speaker 1: this sort of ambiguous nature of the banks and the
Speaker 1: degree to which their private enterprises but also UM but
Speaker 1: also serve policy purposes and policy. Economic policy in China domestically,
Speaker 1: as we've discussed before, is often conducted very directly through
Speaker 1: the banks, and so I get I think it's interesting
Speaker 1: to talk about it from a sort of external standpoint,
Speaker 1: is kind of being the same thing. It's like this
Speaker 1: sort of unique Chinese UM financing approach, and this was
Speaker 1: the sort of the first time we've discussed it sort
Speaker 1: of outside of China's borders, but fundamentally it sort of
Speaker 1: it's the same thing in some way. Yeah, and Juda's
Speaker 1: point about how, you know, we talk about China having
Speaker 1: extended a bunch of money to Africa, but of course
Speaker 1: it's it's much more nuanced than that, and it's really
Speaker 1: seven countries that account for the bulk of that financing,
Speaker 1: and then one in particular, Angola. I think that's a
Speaker 1: point well taken. But I think the reason everyone's talking
Speaker 1: about China now or over the summer is because of
Speaker 1: how it's playing a part in these debt restructuring talks
Speaker 1: right and there. There are even some people complaining that,
Speaker 1: you know, no other creditors are going to agree to
Speaker 1: a deal if they think that China is going to
Speaker 1: be the holdout, and so any money that you know,
Speaker 1: African nations do have ends up getting diverted to China
Speaker 1: before the rest of the group. So it even if
Speaker 1: China sort of has a smaller role than many people think,
Speaker 1: it does have an outsized role in these particular debt negotiations. Yeah. No,
Speaker 1: that's uh, that's really well put. And now I feel
Speaker 1: like that conversation, Um, it cleared up a lot of
Speaker 1: things for me, I would say. And I think also,
Speaker 1: you know, it's obviously that particular sort of dead build
Speaker 1: up and boom, the sort of perfect storm that occurred
Speaker 1: with African commodity exporters voracious demand for commodities from China,
Speaker 1: like that specific set of scenarios may not be repeated
Speaker 1: imminently anywhere else. But I mean, obviously China still has
Speaker 1: um ambitions in terms of expanding its trade and also
Speaker 1: expanding consumer destinations for its own exports of finished goods,
Speaker 1: and so the sort of fundamental questions of how commodity
Speaker 1: Chinese investment works and what makes sense for other countries
Speaker 1: to accept that obviously isn't going away. Yeah, I gotta say,
Speaker 1: I do hope they finished that that railway in Kenya
Speaker 1: because that would be very, very helpful. And I can
Speaker 1: speak from personal experience that when the railways aren't working
Speaker 1: or there is no railway. Actually going along the highways
Speaker 1: can often be a very very stressful um and extremely
Speaker 1: dangerous UM proposition. So I am looking forward to some
Speaker 1: infrastructure development in Africa once we can all travel. I
Speaker 1: hope you get to. I hope you get to. I
Speaker 1: don't see that in my uh, in my path anytime soon.
Speaker 1: But you know we've you're more of a globe trotter
Speaker 1: than me, and so for your sake, I hope you
Speaker 1: get to experience that finished railway. Sometimes you don't think
Speaker 1: I'm going to go on like a Kenyan railway in
Speaker 1: unrealistic maybe two, I don't know, but I'm sure you'll
Speaker 1: have a wonderful Instagram pictures of it regardless. Thank you.
Speaker 1: All right on that note, Uh, shall we leave it there?
Speaker 1: Let's leave it there? Okay. This has been another episode
Speaker 1: of the All Thoughts podcast. I'm Trade the Alloway. You
Speaker 1: can follow me on Twitter at Tricy Alloway and I'm
Speaker 1: Joe wi Isn't all. You can follow me on Twitter
Speaker 1: at the Stalwart, and you should follow our guest on Twitter,
Speaker 1: ju Day More. He's at ju day More. Ju Day's
Speaker 1: about g y U d E underscore More. Follow our producer,
Speaker 1: Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg
Speaker 1: head of podcast, Francesca Levi at Francesca Today, and check
Speaker 1: out all of our podcasts at Bloomberg under the handle
Speaker 1: at podcasts. Thanks for listening.