Africa: plummeting commodity prices might lead to a new debt crisis

12 January 2015 by Eric Toussaint

Debt Euphoria

In 2014, Rwanda and Ethiopia, two of the world’s poorest countries, sold public debt bonds on the financial markets of the most industrialized countries. While still unstable after civil wars and with debt payments suspended hardly three years ago, the Ivory Coast also managed to find private lenders willing to buy those securities. This was unprecedented in the last 30 years. Kenya [1] and Zambia also issued debt securities.

This turns out to be quite a unique international situation: with a lot of liquid assets at hand and very low interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
in their region, Northern financial investors are looking for attractive returns. Senegal, Zambia and Rwanda promise a return of 6-8% against their securities. Therefore, they are attracting financial companies willing to invest their cash temporarily, even at high risks. In 2014 the countries of sub-Saharan Africa managed to sell their public debt securities for $ 7 billion in international financial markets [2]. That’s a record.

The governments of sub-Saharan countries are euphoric and they are trying to convince their people that good days are just around the corner while, in reality, the situation could take a dramatic turn. These governments are quite heavily indebted, and when the situation deteriorates they will ask their people to foot the bill.

A major portion of the taxes is used to service the debt rather than improve the citizens’ living conditions
In any case, it should be noted that today, a major portion of the taxes collected by the government from the people (through VAT and income taxes) is used to service the debt rather than improve the citizens’ living conditions. In most countries, public expenditure to pay off the governments’ debts is more than the budget allocations for health and education, which is a scandal.

Moreover, the debt securities sold by the governments on the international financial markets have certain contractual clauses which could become quite explosive in the future. For example, the number of accelerated payment clauses in the contracts is growing by the day. What does that mean? If a country gets into financial trouble, holders of debt securities may claim an early refund from the authorities. That can only aggravate the country’s situation. Besides, all the contracts see to it that in case of dispute, the competent legal authority to settle disputes is located in countries such the US or the UK and not in the indebted country.

A maximum number of people and organizations must feel the urgency of this state of affairs, so that they resist and force the authorities to publicly disclose the contents of the contracts.

The debt situation deteriorates

Among the sub-Saharan countries that have floated the largest number of debt securities on the international markets, oil-exporting countries (starting with Nigeria) are faced with an almost 50% drop in oil-prices. Now, over 70% of government revenues come from selling oil. This curtails their ability to repay now or in the future. Therefore, lenders (private banks from the North, investment funds Investment fund
Investment funds
Private equity investment funds (sometimes called ’mutual funds’ seek to invest in companies according to certain criteria; of which they most often are specialized: capital-risk, capital development funds, leveraged buy-out (LBO), which reflect the different levels of the company’s maturity.
, the richest 1% in Africa, etc.) are getting nervous and have started to sell off their holdings in the secondary or over-the-counter debt market. Since they are selling the securities, those who are buying them at a discounted price are doing so with a handsome profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. in mind. With the scarcity of lenders, the governments of these countries have to repay their new loans at higher rates now.

Let us take Nigeria’s case. Its revenue decreased sharply in 2014 due to the drop in oil-prices between June and December. In 2014, the value of the local currency Naira was devalued by 15% against the US dollar. The foreign exchange reserves of the Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

of Nigeria have also dropped significantly [3]. In December 2014, the Central Bank issued public debt securities maturing 10 years later with 16% returns [4]. It is not difficult to imagine what this means: a portion of Nigeria’s income, which will grow by leaps and bounds, must be devoted to service debts against a backdrop of plunging revenues. As a result austerity measures will get worse.

Angola, another oil-exporting country, is in a similar predicament. Confronted with a budget deficit for the first time since 2009, their government has just announced a significant reduction in the subsidies on fuel prices enjoyed by the population. This will increase the cost of public transport, provisions, etc.

Not only oil-prices dropped in 2014, the prices of silver and copper also fell by 16% and 18% respectively. Cotton prices suffered a heavy drop of 28% over the year [5]. Rubber prices also plunged [6] and iron-ore prices fell by 51%.

To sum up, many of the Sub-Saharan African countries are patting their own back today for their economic performance, but they are least concerned about working towards a sound improvement of their citizens’ living conditions. This somehow recalls the previous major debt crisis which broke out in 1982.

The crisis of 1982

The outbreak of the 1982 crisis resulted from the combined effect of two factors: lower prices charged by the peripheral countries for their exports to the global market, and the enormous rise in the interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rates [7]. Revenues were plummeting but more payments had to be made overnight. Indebted countries declared that it was getting hard for them to pay. Major private banks immediately refused to grant new loans and demanded overdue payments. The IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
and the major industrialized capitalist countries granted new loans so that private banks could get their money back and a series of bankruptcies was prevented.

Since then, the IMF has been imposing structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

plans with the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

’s support. The IMF and the Northern governments are threatening to stop further loans to any indebted country that refuses the adjustments. Therefore, those who have been advising the peripheral countries since 1982 to suspend debt payments and create a front of indebted countries were absolutely right. Had the Southern countries established this front, they would have been able to dictate terms to their dismayed creditors.

By choosing to pay under the IMF’s humiliating conditions, indebted countries transferred to the North’s financial capital a sum that amounts to several Marshall Plans. [8] Adjustment policies result in key elements of national sovereignty being gradually abandoned. This means that the concerned countries are more and more dependent on the most industrialized countries and their corporations. None of the countries implementing structural adjustment has been able to achieve high growth rates in a steady fashion. Social inequalities have increased everywhere, even in “adjusted” countries.

The IMF adjustment programs have three objectives:

1) Ensuring debt-repayment.
2) Establishing structural reforms leading to a liberal economy, a gateway for the international markets and a check on the State’s involvement.
3) Allowing the indebted countries to have gradual access to private loans via the financial markets, but ensuring that they remain indebted.

Let us not wait for another outbreak

A citizens’ debt-audit must not be kept at bay till another crisis triggers off. We must start asking urgent critical questions: what happened to the money that landed in the form of various loans? What conditions were laid down when those loans were granted to the governments? How much interest has been paid and at what rate? How much of the principal has been repaid? How could the debt grow massively without the people actually realizing what was happening? How were the loans channeled? What portion was diverted, by whom and how? Who borrowed and in whose name? Who are the creditors and what was the role of each of them? What are the mechanisms behind the various transactions of the State? Who decided to apply for the loans and in what capacity? How could private debts become public, who are the intermediaries and organizations responsible? Who benefited from the bogus projects run with borrowed money? What crimes have been committed with this money? Did the lenders know what would be done with the money? Why not start criminal, civil or administrative proceedings?

Only a small portion of the loans has contributed to the “development” of the countries involved
Overall, an evaluation of the achievements of the Sub-Saharan African countries and the amounts they paid, like other parts of the world, brings us to a remarkable conclusion: only a small portion of the loans has contributed to the “development” of the countries involved. Much of the borrowed money bolstered networks of corruption (in both the global South and the North) through commissions and kickbacks and enriched oligarchs whose flamboyant lifestyle is at odds with the surrounding poverty and misery. This also made the richest 1% even wealthier, who in turn invested their ill-gotten money in tax havens, mostly in Europe. These loans have also financed white elephants, much-hyped but useless and overpriced projects. Apparently this took place via public guarantees Guarantees Acts that provide a creditor with security in complement to the debtor’s commitment. A distinction is made between real guarantees (lien, pledge, mortgage, prior charge) and personal guarantees (surety, aval, letter of intent, independent guarantee). granted to major private companies through devices set up by export credit agencies in creditor countries.

People bore the brunt, and still pay a heavy price while enduring the negative effects of this odious debt Odious Debt According to the doctrine, for a debt to be odious it must meet two conditions:
1) It must have been contracted against the interests of the Nation, or against the interests of the People, or against the interests of the State.
2) Creditors cannot prove they they were unaware of how the borrowed money would be used.

We must underline that according to the doctrine of odious debt, the nature of the borrowing regime or government does not signify, since what matters is what the debt is used for. If a democratic government gets into debt against the interests of its population, the contracted debt can be called odious if it also meets the second condition. Consequently, contrary to a misleading version of the doctrine, odious debt is not only about dictatorial regimes.

(See Éric Toussaint, The Doctrine of Odious Debt : from Alexander Sack to the CADTM).

The father of the odious debt doctrine, Alexander Nahum Sack, clearly says that odious debts can be contracted by any regular government. Sack considers that a debt that is regularly incurred by a regular government can be branded as odious if the two above-mentioned conditions are met.
He adds, “once these two points are established, the burden of proof that the funds were used for the general or special needs of the State and were not of an odious character, would be upon the creditors.”

Sack defines a regular government as follows: “By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by “the grace of God” or “the will of the people”; whether it express “the will of the people” or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with.”

So clearly for Sack, all regular governments, whether despotic or democratic, in one guise or another, can incur odious debts.
contracted by submissive states that do not protect, educate and care Care Le concept de « care work » (travail de soin) fait référence à un ensemble de pratiques matérielles et psychologiques destinées à apporter une réponse concrète aux besoins des autres et d’une communauté (dont des écosystèmes). On préfère le concept de care à celui de travail « domestique » ou de « reproduction » car il intègre les dimensions émotionnelles et psychologiques (charge mentale, affection, soutien), et il ne se limite pas aux aspects « privés » et gratuit en englobant également les activités rémunérées nécessaires à la reproduction de la vie humaine. for their people, but deprive them instead of water, electricity, and other basic commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. .

It is for the sake of these people that the CADTM, and all other associations ready to co-operate, want to make way for citizens’ battles so that we can have a clear picture of the situation: open accounting books for the debt, in other words carry out citizens’ debt audits to identify the illegitimate, illegal and / or odious part that the people must refuse to pay. It is also necessary to identify the perpetrators of fraudulent acts that led to the debt and / or unjust personal enrichment. The culprits must be prosecuted.

Alongside a debt audit, an alternative development model that gives priority to humanity and nature should also be implemented.

Translated by Suchandra De Sarkar in collaboration with Christine Pagnoulle

Eric Toussaint is a historian and political scientist who holds a Ph.D. from the universities of Paris VIII and Liège. He is the Spokesman for CADTM International (, and sits on the Scientific Council of ATTAC France. He is the author of Bankocracy, Merlin Press, London, March 2015; he is coauthor with Damien Millet of Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, New York: Monthly Review Books, 2010. Alongwith Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria he has co-authored Les Chiffres de la dette 2015. See


[2Financial Times, “Oil slump sours Africa debt sweet pot” Published on 31 December, 2014 and consulted by me on 3 January, 2015.

[4See the official website of the Central Bank of Nigeria

[7Translated from Les Chiffres de la dette 2015 by Pierre Gottiniaux, Daniel Munevar, Antonio Sanabria and Eric Toussaint, pg. 9.

[8The Marshall Plan is an economic reconstruction program proposed in 1947 by George C. Marshall, US Secretary of State. With an initial budget of $ 12.5 billion (about $ 100 billion in 2014) in the form of grants and long-term loans, the Marshall Plan allows 16 countries (including France, Great -Britain, Italy and the Scandinavian countries) to use the funds for reconstruction after the Second World War.

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

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