How to understand Africa's debt crisis and its impact on key assets

Africa’s debt crisis is crippling the continent.

Africa’s largest lender, China, has come under fire for forcing bad deals on developing nations. However, recent research by Oxford and Columbia Universities found that private Western creditors bear the majority of Africa’s external debt rather than the People’s Republic of China. The investigation was conducted in the midst of global accusations against Beijing for allegedly entangling Africa in debt.

Since 2000, Beijing has given $150 billion to African nations, and according to the World Bank, the continent owes $427 billion in total external debt. China has come under fire for making appalling promises to underdeveloped nations. For example, this has caused Nigeria’s debt to China to rise by 136% in just five years. The experts note that the idea of a debt trap is only a strategy in the struggle between China and the United States for supremacy in the world.

Studies reveal that the whims of the bond market, not China’s debt traps, are what keep African leaders awake. Lenders who lend to developing nations risk taking control of their valuable assets if the borrowers are unable to make their payments on time. Those who buy their debt in the form of bonds are mostly responsible for the debt load of African nations. New York, Frankfurt, and London are just a few of the cities where these lenders have operations.

The studies also revealed that pledges have increased more in recent years than in any other African nation. At the end of 2019, the combined national debt of African nations, including Angola, Ethiopia, Kenya, Nigeria, Ghana, and Zambia, owed to China was $78 billion, making up around 8% of the region’s total debt and 18% of the continent’s total external debt. Similar study findings were validated by the World Bank.

Boston University and Johns Hopkins University scholars claim that since 2000, Beijing has lent more than $150 billion to African nations. Although this sum is substantial, it is insufficient to be the main factor contributing to the growing debt of developing nations. The World Bank estimates that Africa owes $427 billion in total external debt, although rampant corruption has also contributed significantly to the continent’s poverty.

According to analysts, the majority of the funds are distributed under the Chinese “One Belt, One Road” program, and the loans are typically from state-owned banks in China and come with hefty interest rates. In 2020, the G7 countries aim to establish a network of infrastructure and trade that links Asia, Africa, and Europe. As a result, they insist that China reduce the debt load of developing nations.

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