The rising costs of energy and food imports, falling global prices for raw materials, wars, climate change and poor governance are some of the factors that have worsened the debt problem in many parts of Africa in recent years.
Zambia, a resource-rich country in southern Africa, declared insolvency during the COVID-19 crisis. The high costs of energy and food imports, coupled with droughts, large foreign loans, mostly from China, and overpriced public investments led to a massive national debt of 129% of gross domestic product (GDP) in 2020.
The temporary drop in global prices of copper, Zambia’s main export product, and the costs of the pandemic added even more pressure to its finances in 2020.
In November 2020, the country failed to meet its interest payments. In early 2021, Zambia requested debt restructuring and has since participated in various austerity and aid programs initiated by its largest creditor countries, including some Western nations and especially China.
Similarly, Ghana has faced its own financial challenges in recent years.
The West African nation suspended debt payments in December 2022 to avoid bankruptcy and has since been negotiating with several creditors.
Ghana’s national debt currently stands at around $45 billion (€41 billion). The debt relief deal of $13 billion that the Ghanaian government negotiated with its international creditors in October 2024 is the largest in Africa’s history.
Countries like Chad, Ethiopia, Malawi, Kenya, Angola, and Mozambique are also in talks with the World Bank, the International Monetary Fund (IMF), and other international financial institutions.
The IMF, largely dominated by Western countries — especially Western Europe — provides financial support to countries in economic crises. However, this aid is usually linked to structural adjustment programs, which often come with high social costs and face resistance from local populations. In the past, IMF-backed reforms led to social unrest and political upheavals in countries like Kenya, Sudan, and others.
Seeking Solutions Involving China
“The debt problem in Africa urgently needs multilateral solutions, supported by China, the continent’s largest creditor,” said Eckhardt Bode, author of a study published by the Kiel Institute for the World Economy (IfW Kiel) in May.
“African debtor countries must also be integrated into international financial institutions and play a more active role in finding solutions.”
The IfW Kiel study systematically compares China’s lending practices with those of six major Western countries — France, Germany, Italy, Spain, Japan, and the USA.
“There is no doubt that large debt relief measures are necessary now, but they are complicated by power struggles between the West and China,” Bode said.
The positions of China and the West on the international financial architecture are increasingly hardening. The head of the IMF, Kristalina Georgieva, repeatedly urged Beijing to adhere to the existing rules. These rules were created by the IMF and the World Bank — the key post-World War II financial institutions — both of which are heavily influenced by the West.
The World Bank has been led by the USA since its founding, and the IMF by Europe. G7 and EU countries hold more than half of the voting rights, based on their capital share.
China, on the other hand, wants to fundamentally reform the multilateral development banks. It demands that decision-making power in these institutions be adjusted to reflect the actual economic strength of countries.
Bode pointed out that the motivations behind lending by Western countries and China are very different.
His research shows that Western countries tend to lend to resource-poor and highly indebted African countries — whereas China’s lending to Africa is driven more by its economic and political interests.
China prefers to lend to resource-rich countries with lower risk of default and higher willingness to repay, particularly to countries that do not recognize Taiwan.
These conflicting interests endanger the much-needed debt relief for African countries, according to the IfW study. “One of the key findings is that China’s current lending and the resulting debt in African countries could worsen the looming debt crisis,” Bode said.
Stereotypes make it harder for Africans to get loans
Another recent study suggests that African countries face disproportionately high interest rates due to stereotypical and negative media coverage.
The NGO Africa No Filter and the consulting company Africa Practice published a study claiming that the African continent pays billions in a “bias premium” on international financial markets. African borrowers lose up to $4.2 billion annually due to this bias.
The study finds that media reports about African countries disproportionately focus on negative topics like violence and election fraud. For example, 88% of media articles about Kenya during election periods were negative, compared to only 48% for Malaysia during its elections. As a result, international investors view African countries as riskier than they actually are, leading to higher borrowing costs compared to countries with similar political and socioeconomic conditions.
Can a negative media image affect the credit rating of African borrowers? “For international investors, the image of a country definitely plays a role in its credit rating,” said Eckhardt Bode from IfW Kiel, who advocates for a less biased approach toward African borrowers.
Bode concluded that a shift in international debt relief policies is urgently needed, but noted that there is currently no clear plan in place.
“I fear it will take several more years before Chinese and Western creditors come close enough to reach a solution that offers African countries opportunities for development at a lower cost,” Bode said.
World Bank and IMF: debt crisis worsening
The World Bank released a new study last weekend highlighting 26 countries that are “more deeply indebted than at any time since 2006.” Most of these countries are in sub-Saharan Africa.
IMF chief Kristalina Georgieva also expressed concern about the growing national debt in some sub-Saharan African countries, largely blaming the COVID-19 pandemic.
In a recent exclusive interview with DW at the Hamburg Sustainability Conference, she also emphasized Africa’s positive aspects.
Africa, she said, has “enormous potential, with a young population full of talented men and women, whom the aging world in Europe and Asia will rely on.”
Georgieva also called for greater representation and influence for Africa within the IMF. She announced that “on November 1 of this year, another board member from sub-Saharan Africa will be added to the IMF’s board.”
Bode shares Georgieva’s view that Africa has great economic potential but urges caution in light of the worsening debt crisis.
“I believe African countries should be very careful with borrowing at the moment to avoid over-indebtedness,” Bode said.
Josephine Mahachi contributed reporting
This article was originally published in German
