Could we be seeing the beginnings of a new African debt crisis a short decade after debt forgiveness reduced Africa’s mountain of debt? Since 2014, a growing number of commodity exporters have experienced debt-servicing difficulties that have sent several back to the International Monetary Fund (IMF) for policy advice or standby agreements, even as they continue to borrow on global financial markets. The debt recovery strategy the international financial institutions (IFIs) are currently putting forward is the same one promoted since the early 1980s despite its widely recognised problems. The recent build-up of public debt in Africa has yet to receive much attention in academic circles, particularly among radical analysts, but it is critical that such scholars contribute to the discussions of the development model underlying the new borrowing and the neo-liberal policy response to debt-servicing difficulties, because the processes will reinforce the current structure that offers few benefits to the majority of Africans and in fact systematically disadvantages local markets.
African governments have increased their borrowing from several lenders, including one significant new source of credit – Africa’s international sovereign bonds, the focus of this article. In it, I show that the overwhelming influence of neoliberal ideas has encouraged African governments down a dangerous path of higher levels of indebtedness, of a type that will tie the continent more closely into global financial markets, without proper regulatory mechanisms in place.1 In light of the devastating effects of Africa’s previous debt crisis, which set the continent’s development prospects back by decades, Africa’s new debt instruments deserve to be scrutinised as to their risks. Heterodox liberal perspectives can provide some guidance as to measures African governments and the international community can take to strengthen the regulatory regime in order to limit what appears to be an impending crisis. However, as Marxist scholars point out, even if properly managed, international sovereign bonds reinforce the externally driven, commodity-based nature of Africa’s insertion into the global political economy, which continues to serve smaller-scale African entrepreneurs, workers, farmers, traders and the ecosystem on which they all rely, extremely poorly. Thus, the concerns raised by radical scholars should equally inform the policy decisions of African governments. The issue is particularly important because the distinctive historical conjuncture that made Africa’s bonds appealing to investors between 2010 and 2014 – high world-market commodity prices and historically low interest rates paid on government bonds issued by established market economies – has shifted (World Bank 2014, 77–80; Sy 2015, 4–8; AfDB, OECD, and UNDP 2016).
After presenting a brief overview of the history of African international sovereign bonds, the next section of the article shows how the neoliberal perspectives of the IMF, the World Bank and the African Development Bank have informed the contemporary approach to debt. The following section explains the broader range of policy options put forward by heterodox liberal scholars2 which advocate extensive direct regulation of international financial flows. The article then turns to Marxist and other radical political economists for insights into the structural features and power dynamics associated with Africa’s international sovereign bonds and their place in capitalist accumulation strategies, suggesting that, even with more appropriate regulation, new forms of borrowing from global capital markets are unlikely to address Africa’s development dilemmas, and in fact will reinforce the continent’s exploitation in global markets.
Africa’s international sovereign bonds
A new ‘scramble for Africa’ has been documented with much of the focus on competition for energy resources, minerals and land (Southall and Melber 2009; Carmody 2011; Ayers 2013; Bond 2014). Less remarked has been how financial investors have joined the ‘scramble’, purchasing international sovereign bonds issued by a growing number of African governments. However, after 2008, global financial capital deemed key African economies to be desirable investment locations. While Africa has not become central to the circuits of financial capital, the continent became a favoured site for stable, profitable investment, at a time when many other locales promised low or uncertain returns (AfDB, OECD, and UNDP 2016).
International sovereign bonds, commonly known as Eurobonds, are government-issued bonds that are denominated in a foreign currency such as US dollars. For some African governments, they have become an important source of debt financing. Prior to the Seychelles in 2007, only South Africa and a few North African countries had issued international sovereign bonds; since that time, 15 sub-Saharan African countries have successfully introduced Eurobonds, including, as of 2015, Nigeria, Gabon, Ghana, Côte d’Ivoire, Namibia, Republic of Congo, Senegal, Rwanda, Kenya and Ethiopia (IMF 2015b; AfDB, OECD, and UNDP 2016). These bonds have been eagerly embraced by international investors such that by 2012, $7 billion in new sub-Saharan African debt was sovereign bond debt, a similar amount to World Bank spending on the continent (World Bank 2014, 78). The most remarkable bond offering was Rwanda’s: although it sought $400 million, orders quickly reached $3.5 billion – despite its ‘highly speculative’ credit rating and lack of mineral or fuel exports (Mecagni et al. 2014, 20–21).
International sovereign bonds only comprise a small portion of sub-Saharan African debt: about 5.8% in 2014 once South Africa is excluded. However, they have been steadily growing, both in absolute terms, from $4.3 billion in 2009 to more than 15 billion dollars in 2014, and as a percentage of total debt (from 2.5% in 2009). International sovereign bonds account for a significantly higher proportion of borrowing for some countries, notably Gabon (39.7%), Zambia (23.7%) and Rwanda (19.8%) (Table 1).
| Country/region | Bond debt stock as a percentage of total debt (2014, %) |
|---|---|
| Gabon | 39.7 |
| Zambia | 23.7 |
| Rwanda | 19.8 |
| Senegal | 16.5 |
| Ghana | 14.4 |
| Kenya | 12.4 |
| Mozambique | 10.9 |
| Republic of Congo | 10.7 |
| Côte d’Ivoire | 6.9 |
| Ethiopia | 6 |
| Tanzania | 4.2 |
| Nigeria | 3.7 |
| Angola | 3.5 |
| Sub-Saharan Africa excluding South Africa | 5.8 |
Source: World Bank (2016b). Namibia has been excluded because the World Bank does not keep debt statistics on it; Cameroon has been excluded because its first international sovereign bond offering was in 2015.
Since 2014, six African governments have issued additional international sovereign bonds, all of them except Cameroon second offerings, including Ghana twice, further increasing the proportion of national debt accounted for by this type of borrowing (www.bloomberg.com, various dates). While these data do not point to a continental crisis associated with international sovereign bond debt, some countries have been borrowing heavily to the point where a substantial proportion of their debt is in the form of international sovereign bonds.
The perception that African economies had turned the corner has allowed more than a dozen governments to obtain international credit ratings from agencies such as Standard & Poor’s, Fitch, and Moody’s, a precursor to issuing international sovereign bonds. These agencies assess the creditworthiness of African governments and their debt instruments, rating them as to the likelihood of default, and therefore shape decisions involving billions of dollars. The basis for the ratings combines ‘objective’ and ‘subjective’ criteria, including judgements on overall economic governance as well as a ‘balance sheet’ evaluation of payment capabilities (Sinclair 2000, 496–498; Standard & Poor’s 2013, 3–4). The analysis is summarised in a group of letters, numbers and symbols: among African states, only South Africa, Morocco and Botswana have received ‘investment-grade’ ratings of BBB or above, while most African bonds initially obtained a B+ rating, signalling a greater risk of default and requiring governments to pay a higher interest rate.3 That African governments have been able to obtain credit ratings on their international sovereign bonds, albeit at ‘speculative’ (or junk) grades, nonetheless indicates a significant level of confidence not only in the debt instruments themselves but also in African economic prospects compared to global market perceptions in the 1980s and 1990s.
Many new African international sovereign bond issuers are middle-income countries with strong natural resource exports (especially oil and gas), although some agricultural exporters have introduced very popular bonds (Hou et al. 2013). All have undergone IMF-authorised structural adjustment programmes, and would be considered capitalist market economies that are relatively supportive of foreign investment. The convergence of four significant phenomena after 2008 allowed many African economies to attract international bond investors. First, many lower-income African economies enjoyed substantial forgiveness of their foreign debt under the auspices of IMF and World Bank-led programmes (Moss 2006).
A second reason for the popularity of Africa’s international sovereign bonds was simply the lack of attractive bond offerings elsewhere; African ‘frontier market’ bonds paid yields significantly higher than most other ‘emerging market’ bonds (Olabisi and Stein 2015, 87). African governments had to pay higher interest because their bond markets were untried, the countries had debt problems in the past, and their governments retained a reputation for nationalising foreign investments, corruption and weak governance. The secondary market for African bonds was small and relatively untested, also contributing to the higher interest rates.
Third, African economies grew rapidly in the years after 2000, most notably after 2009, which signalled both an increased capacity to service the new bonds, and more generally, opportunities to invest in infrastructure to support foreign direct investment (FDI) and growing domestic consumption. The annual growth rate per capita for the African continent averaged 5.39% between 2000 and 2010.4 Compared to the decade between 1985 and 1995, when African GDP per capita shrank by more than 1% each year, this indicated a remarkable turnaround (Soubbotina 2000, 24). Not only did African economies grow significantly after 2000, they grew more quickly than most other major world regions, well above Latin America, Europe, East and Southeast Asia. Individual African countries featured prominently among the fastest-growing economies in the world. Africa’s rapid economic growth correlated with much-improved trade and investment trends. Following two decades of stagnation, merchandise exports rose from $93.4 billion in 2000 to $423 billion in 2011 (measured in current US dollars, World Bank, 2000–14). Net FDI rose from $5.87 billion in 2000 to $27.8 billion in 2010, all measured in current US dollars. Taken together, total capital inflows to Africa over the decade, including official development assistance, portfolio investment, FDI and remittances, nearly quadrupled from $39.7 billion in 2000 to $154.4 billion in 2010 (AfDB et al. 2012). Moreover, return on investment has been accorded to be among the highest in the world, significantly exceeding profitability in other major emerging markets (Warnholz 2008, 6–7).
A fourth reason for Africa’s recent economic success has been growing ties with emerging economies, especially China. Although the European Union and other developed market economies remain significant investors, China has become the most important, while other Asian partners such as India and Malaysia have a growing stake (UNCTAD 2012a, 39; 2013, 7). Moreover, intra-African investment has increased substantially (McGroarty 2012). Natural resources are Africa’s overwhelming FDI draw, but the recent rise in food prices and the search for energy alternatives (biofuels) have led foreign investors to acquire millions of hectares of farmland to grow export crops (Anseeuw 2013, 161–164). Foreign investments have also begun to rise in the service sector, notably in infrastructure, communications, finance and tourism (UNCTAD 2012a, 41).
Together, these phenomena have driven the aforementioned perception, widely advanced in the business press (including both general interest publications such as The Economist and specialist ones such as Euromoney), that Africa is on the rise (Bond 2014, 38–44; Taylor 2016; for examples see Miguel 2009; Radelet 2010; Severino and Ray 2011; Robertson 2012). The interest on the part of the global investing community in opportunities in Africa contrasted with the previous two decades, when substantial amounts of capital had been withdrawn from the continent (at a time when direct and financial investment was accelerating globally). The success of Africa’s international sovereign bonds shows investor interest has extended beyond FDI to financial capital.
Will Africa’s international sovereign bonds remain viable?
By 2014, global economic trends began to turn against Africa, threatening exports and therefore bond-servicing capacity. Africa’s renewed growth had been closely correlated with high natural-resource prices, as the continent remains heavily dependent on primary commodity exports, especially fuel and minerals (UNCTAD 2012b, 14, 18, 21; UNCTADstat 2013). Beginning in 2014, world market prices of major African commodities fell. These included oil, natural gas, copper, gold, platinum and some export crops (World Bank 2016a). Moreover, a shift in China’s propensity to import raw materials had significant implications for key African bond issuers (Taylor 2016). With export earnings falling, many African economies were at risk of much slower growth, if not outright recession. Most African international sovereign bonds were denominated in US dollars, whose value had risen relative to the currencies of most commodity exporters, increasing servicing costs (IMF 2015b, 12–15; Kayizzi-Mugerwa and Tessema 2015; Merotto, Stucka, and Thomas 2015).
In the short term, these developments have not significantly reduced the desire on the part of African governments to issue bonds; in fact, there were six new bonds in 2015, including first-time offerings from Angola and Cameroon (AfDB, OECD, and UNDP 2016, 59). Nevertheless, the worsening global conditions reduced demand and forced bond issuers to pay higher interest rates (World Bank 2014). For example, despite similar credit ratings in 2012 and 2014, Zambia was forced to pay a 3% higher interest rate on its bonds in the latter year owing to investor concerns about lower world copper prices (Tyson 2015a, 5–6). However, it still paid much lower interest rates than on domestic bonds, a situation unlikely to be reversed with currency values dropping and central banks raising interest rates in response. Borrowing has continued because tax revenues from commodities were in decline as well.
For the most part, IFIs have supported Africa’s international sovereign bonds, provided that borrowers maintained liberalised currency and capital accounts, balanced budgets and did not over-borrow (Mecagni et al. 2014). In 2014, the IMF’s debt sustainability risk analysis, based on debt-to-GDP ratios, indicated African governments’ international sovereign bonds put them at little risk of default, even though debt levels were now averaging 40%. Ghana was only at moderate risk of debt-servicing problems, while Nigeria, Rwanda and Zambia were deemed at low risk (Tyson 2015b, 6).5 More recently, analysts in some of the IFIs have begun to warn that conditions were being put in place for debt-servicing difficulties (see Thomas and Giugale 2015; also AfDB, OECD, and UNDP 2016). By May 2015, AfDB staff were recommending that African governments limit their borrowing until their fiscal, trade and currency situations improved, and in particular, avoid borrowing for recurrent spending (Kayizzi-Mugerwa and Tessema 2015). A 2015 World Bank report recorded rapid debt build-up in Ghana, Zambia and Senegal (Merotto, Stucka, and Thomas 2015). Similarly, the 2016 African Economic Outlook reported that Ghana and Cameroon were now deemed by the IMF and World Bank to be at high risk of debt distress (AfDB, OECD, and UNDP 2016, 38–39).
In addition to substantially increasing interest rates, several African governments turned to the IMF for advice and in some instances for assistance, including Nigeria, Ghana, Mozambique and Zambia. In all instances, the IMF and investment analysts expected central banks to put inflation containment (and maintaining currency value) ahead of economic growth, with devastating effects on small domestic businesses that rely on bank loans (Dwazu 2016). Allowing the currency to devalue significantly, however, would have made loans more difficult to service and hampered businesses that relied on imports, including imported machinery and parts.
In light of Africa’s recent economic history, including the previous debt crisis, protracted structural adjustment and the long campaign for debt forgiveness, the possibility of debt crisis returning to the continent should force us to critically examine the policy framework advocated for debt management to determine its adequacy to protect African economies and societies. Unfortunately, as I will show in the next section, to date we find an extremely limited debate, shaped almost exclusively by voices informed by the neoliberal ideas that developed the previous debt strategy of the 1980s and 1990s (for example, Ncube and Brixiova 2015).
Status quo debt management
To date, most discussion about the merits and management of Africa’s new sovereign bonds has been dominated by liberal voices attached to IFIs, and in particular, those that would be characterised ‘neoliberal’ – a brand of liberalism that advocates high levels of market allocation of social production, and a state regulatory framework designed to foster and enable market forces (Mecagni et al. 2014; IMF 2015a, 2015b; Ncube and Brixiova 2015). Researchers moulded by this perspective have produced most of the technical information about Africa’s international sovereign bonds, and their empirical work has offered an invaluable snapshot of the scope, scale and broad trends associated with them. Yet the reports are not neutral presentations of data; they contain a striking tendency to reaffirm the purported benefits of the liberalising policy framework, and indeed, to downplay or completely ignore other policy options (for example, Merotto, Stucka, and Thomas 2015).
In the 1980s and 1990s, the IMF and the World Bank exercised overwhelming influence over the policy regimes of African governments when the latter ran into debt-servicing difficulties. Creditors and aid donors required them to accept extensive policy changes, often called structural adjustment, designed by the IMF to liberalise their economies. The objectives were to reduce domestic demand, cut state expenditures and generate trade surpluses in order to direct more resources to debt payment; specific policy measures included devaluing the national currency and allowing the market to determine the exchange rate, cutting government expenditures, which particularly affected social services and economic infrastructure, and removing or reducing restrictions on international trade, investment and currency flows (Ghai and Hewitt de Alcantara 1991, 25; Riddell 1992). Even though these policy packages were subject to continuous modification in light of their linkage to worsening economic inequality, ineffective state governance, and continual political instability and protests, the core of the programmes has stayed intact. Notably, monetary, investment and trade policy has remained highly liberalised and market driven, and most African countries currently allow for relatively free movement of long-term investment and short-term financial capital into (and out of) their economies in accordance with market perceptions of risk and opportunity.
A study by the IMF Africa Desk claimed the neoliberal regulatory framework has been critical to attracting foreign investors to Africa in the contemporary period. The study celebrates international bond investment for its potential to discipline governments to maintain or further liberalise capital mobility regulations (Mecagni et al. 2014). This important IMF report contains no sign of the Fund’s recent, albeit limited, support for capital controls on inflows and, in crisis situations, outflows (Chwieroth 2014; Ostry, Lougani, and Furceri 2016). In fact, the IMF Africa Desk study suggests that it is likely that problems would be worsened, if not caused, should governments seek to regulate the behaviour of bond purchasers directly (Mecagni et al. 2014). Any misgivings about the neoliberal regulatory framework, specifically as applied to capital mobility and currency flows, therefore has not informed recent discussion about regulatory options for Africa, and most of the focus remains on assessing the quality of African governance against neoliberal standards. It falls to scholars adopting more critical perspectives to raise questions about the wisdom of Africa’s international sovereign bonds and their prevailing neoliberal regulatory framework. The following sections will show the importance of insights from heterodox liberal and Marxist scholars by showing how their lenses help explain why the neoliberal solution to Africa’s debt and development problems remains as ill-advised today as it was in the early 1980s.
Reconsidering the regulatory framework
African governments that have borrowed extensively on international bond markets and now face difficulties servicing their debts ought to have more policy options than those put forward by IFIs. In this section, I outline some of the insights offered by heterodox liberal scholars who are defined by their preoccupation with market failures and their preference for an actively regulatory state. They raise serious concerns about the current liberalised global economic regime, especially as it applies to international capital flows, and their analysis suggests the risks are compounded when governments eschew domestic regulations on short-term capital mobility.
Few heterodox liberals have taken up the specific topic of Africa’s international sovereign bonds, but the researchers affiliated with the UK-based Overseas Development Institute have investigated the potential risks to debt-servicing capacity caused by developments outside their control, and sought to initiate a discussion about regulatory measures that might reduce future debt-servicing problems (Hou et al. 2013, 2014; Tyson 2015a). Hou et al. (2013) argue that mitigating the risks associated with the bonds requires more active state involvement. One of the main problems they highlighted was the absence of an international financial architecture to regulate flows of financial capital. In the absence of such architecture, the only measures possible would be domestic regulations. One option, which Tyson strongly advocated, was to introduce capital controls to limit damaging outflows during a crisis (Tyson 2015b, 1–11).
Other political economists working within a similar framework offered even more serious warnings. Stiglitz and Rashid (2013) cautioned that African governments were taking enormous risks by financing infrastructure and other development initiatives through sovereign bonds when they lacked restrictions on sub-national, parastatal and corporate bond issuances. Rapid and unmanaged accumulation of bond debt could mean governments would not know how much was owed, by whom, or where the money has gone. Stiglitz and Rashid also emphasised the higher interest cost of bonds compared with aid loans. Their commentary remained silent on the regulatory regime in place in most African countries owing to structural adjustment, but Stiglitz previously noted that under the terms of their official debt-reduction agreements, most African governments are prevented from introducing restrictions on investment or currency flows, leaving them vulnerable to contagion-related crises (see Stiglitz 2004).
The absence of domestic restrictions on regulating short-term capital flows appears all the more serious in light of Wade’s (2006) contention that since 1980, the global financial system has put developing countries at a systemic disadvantage. As financial capital has dominated global investment, it sought to profit from rising asset values rather than from successful manufacturing or other productive activities that tend to have longer time horizons. The practice of bidding up asset values (precipitating a bubble) before suddenly losing faith that the asset will hold its value (causing a crash) has induced large swings in exchange rates, stock market prices and interest rates. This instability has frequently worked to the advantage of global finance, which has lobbied for liberalised regulatory regimes that permit the rapid movement of capital, despite the devastating effects on national economies and societies.
In ‘emerging markets’, the worst externally induced financial crashes have been felt in those countries that had substantially or fully liberalised their capital account, especially their currency regime. In fact, Wade and Veneroso (1998) argued that the reason China and India were not adversely affected by the 1997–98 Asia crisis was precisely because their short-term capital markets were not fully liberalised, nor, in the case of China, was the currency convertible. Based on this analysis, one would predict that African governments reliant on ‘frontier market’ bonds would be vulnerable to disastrous capital outflows should investors lose faith for any reason, including contagion from crises elsewhere. Should this occur, the only policy tool remaining would be to dramatically increase interest rates, as indeed many African governments have done since 2014, but that would have serious effects on the borrowing needs of smaller firms in the domestic economy and in some instances on consumers. Thus, Wade and Veneroso make a strong case for regulating short-term capital flows, accepting that such regulations might reduce short-term investment, including in financial instruments such as African international sovereign bonds, and in fact, valuing that likelihood because it would limit the destabilising effects of speculative investment, while leaving FDI and trade in goods and services unaffected.
Some heterodox liberals have advanced the case for restricting global financial flows through some kind of international mechanism such as a Tobin Tax, which is a small tax on all currency transactions, or the related Spahn Tax, where the tax is applied at much higher rates but only during a speculative attack on a currency (Tobin 2000; Yates 2009). Such a tax might help African governments maintain their overall economic stability by limiting currency transactions. Perhaps more importantly, Boyce and Ndikumana (2015) highlight the need to stem illegal outflows of legitimately borrowed money as well as destabilising inflows. They have established that sub-Saharan Africa exports more capital than it imports, much of it leaving illicitly (capital flight), which is then recirculated back into the global financial system (Ndikumana and Boyce 2003, 2010, 143; Boyce and Ndikumana 2012). Capital flight escalated after 2000, more than tripling between 2000 and 2004 compared with the previous five years and increasing a further 30% between 2005 and 2010. In all, between 63 and 73 cents of every dollar borrowed by African governments between 1970 and 2010 left their country within five years in the form of capital flight (Boyce and Ndikumana 2012, 1; Ndikumana, Boyce, and Ndiaye 2014). Of course, all money borrowed – not just that used for legitimate purposes – must be repaid by the government and ultimately its citizens, but they argue lenders and capital flight havens should bear at least part of the responsibility due to their participation in a system of financial corruption.
Ndikumana and Boyce recommend stronger institutions and regulations intended to detect, prosecute and prevent capital flight at the national, continental and international levels, noting that international mechanisms to ensure financial transparency and accountability are particularly critical and need to be strengthened (Boyce and Ndikumana 2015). An international approach would be particularly helpful to African governments because of their weakness vis-à-vis foreign investors and domestic political elites. Scholars such as Strange (1990, 1998) have argued that reaching agreement on new regulatory frameworks for the global economy will be fraught with political challenges; she believed, inter alia, that commitment from the United States, as the leading economic power, would be necessary for such changes to proceed, but Boyce and Ndikumana note that much progress has been made in that area over the past two decades; the problem remains enforcement. In addition, they advocate a new international organisation to adjudicate on the repudiation of odious debt, that is, debts ‘that were contracted without the consent of the public, from which the public did not benefit, in circumstances where the creditors knew or should have known these conditions to hold’ (Boyce and Ndikumana 2015, 407).
To sum up, heterodox liberals raise serious concerns about the regulatory regime governing financial capital flows and propose stronger measures at the national and international levels. They criticise the highly liberalised regulatory framework as leaving governments poorly equipped to address the risks associated with international sovereign bonds. There are numerous proposals in their analysis for reform at the national and international levels that point to concrete possibilities for reregulation to prevent and manage debt crises in a more effective and equitable manner than the contemporary framework. Their analysis is especially valuable to those African bond issuers that have run into difficulties due to adverse world market conditions, though the incorporation of their insights and proposals into the debate ideally would occur long before serious crisis hits. As noted, some economists at both the IMF and the World Bank have accepted aspects of their analysis and corresponding policy proposals, although this acceptance does not appear to have made its way into their deliberations on the appropriate regulatory framework to apply to currency markets and short-term capital flows in Africa.
Deepening capitalist relations in Africa post-1980
While heterodox liberal scholars put forward the case for far more extensive regulation of financial flows, Marxist political economists investigate the place of international sovereign bonds in African and global accumulation models. They offer insights into the power dynamics associated with the bonds, offering a much deeper critique by focusing on the mechanisms that reinforce the disadvantageous terms of the continent’s insertion into the global political economy. They raise serious concerns about Africa’s international sovereign bonds as a phenomenon (and not merely their regulation), claiming they are destined to maintain Africa’s prevailing, resource extraction-based, externally driven model of development, and reinforce power dynamics that privilege transnational firms and their domestic allies. As is typical, such analysis operates as critique, without offering practical guidelines for policy reform (the strength of liberal scholarship), in large part because it is extremely sceptical of any reforms that maintain the capitalist system of accumulation. Instead, Marxists make a strong case for limiting the use of international sovereign bonds or abandoning them altogether, not because of the capacity of African governments to pay, but rather, because of their implications for the restructuring of Africa’s economies.
For Marxists and other radical political economists, Africa’s international sovereign bonds represent one element in a strategy to address a systemic crisis of global capitalism, sometimes referred to as a protracted over-accumulation crisis, whereby pools of investable capital seek profitable outlets via a generalised financialisation of the global economy (Magdoff and Foster 2014). Focusing on uncovering the strategies of international actors in Africa, some Marxist scholars argue there has been little fundamental change in the nature of the continent’s incorporation into global markets, only the tools of its exploitation. Empirical studies focus on the system of global regulation that facilitates these processes and its domestic connections, arguing that African states will be unable to respond to challenges and problems arising from global shocks because their options are extremely constrained by the structure and regulation of the global economy. Moreover, the incentives for African states to facilitate foreign exploitation in exchange for ostentatious consumption by a small politically connected elite are very strong. This contrasts with the liberal position that bond-servicing problems are ultimately a matter of poor policy choices or weak government institutions, and therefore can be addressed through regulation.
Marxist political economists take issue with the neoliberal premise that African economies have suffered from poverty and economic stagnation because they have been excluded from global markets, arguing instead that African economies have been impoverished by the nature of their incorporation. According to Saul and Leys (1999), global capital’s presence in Africa has been strictly exploitative, exporting hyper-profits from mineral extraction while the majority of Africans rely on subsistence agriculture or petty services (also see Taylor 2016, 10). Arrighi (2002) similarly concludes that African economies – and Africans – have been impoverished owing to their exploitation and structural disadvantage in global markets:
For the casualties of so-called globalization, first and foremost the peoples of Sub-Saharan Africa, the problem is not that ‘markets are almost always wrong, and they have to be made right.’ The real problem is that some countries or regions have the power to make the world market work to their advantage, while others do not, and have to bear the costs. (34)
Reflecting on recent investor interest in Africa, Carmody (2011) argues there has been no qualitative change in the nature of the continent’s insertion into the global economy, merely new suitors who have deepened the extractive process while driving up the price of commodities on world markets. Similarly, Ayers (2013) maintains the contemporary ‘scramble for Africa’ is simply a new round of ‘primitive accumulation’ that shares many features with previous eras of colonialism and imperialism. The arrival of China and other emerging market investors does not change the nature of Africa’s incorporation, Ayers argues, it merely intensifies it in a new inter-imperialist rivalry. When analysed from this perspective, therefore, the recent interest of foreign investors in African international sovereign bonds is unlikely to resolve any of the structural impediments to African economic success.
Few Marxist political economists have systematically analysed the place of global finance in the recent ‘scramble for Africa’, much less examined the role of African international sovereign bonds, but their analysis can be extended. Harvey’s concept ‘accumulation by dispossession’ characterises the contemporary period of capital accumulation as the appropriation or ‘enclosure’ of land, natural resources and labour (dispossession). Harvey (2004) emphasises the leading role of financial capital in structuring these processes. Bond (2006) has utilised Harvey’s framework to argue Africa’s relations with the global economy have been led by global finance, not productive capital, despite the extractive nature of the most visible foreign investment on the continent. Accumulation by dispossession thus links the activities of productive and financial capital in a single process of exploitation. Following this analysis, Africa’s international sovereign bonds are but one tool developed by global financial capital to facilitate its accumulation strategies, by financing infrastructure associated with resource extraction and export, while at the same time cultivating profitable new markets of borrowers. Harvey’s analysis, like that of many Marxist political economists, also emphasises the crisis-driven nature of global capitalism, according to which one would predict African sovereign bonds will become a source of a future crisis which then would spark a further round of accumulation by dispossession.
Critiques of debt-led ‘development’
Marxist political economists have offered valuable insights into the mechanisms of governance that produce a global economic system structured to make the kind of exploitation that we see in modern financial capitalism possible. Saul and Leys (1999) depict structural adjustment as an internationally enforced policy framework designed to enable private firms to exploit African resources, labour and land. Harvey (2004) similarly argues that neoliberal policies have fostered a distinctly crude form of ‘accumulation by dispossession’, and Bond (2006) names the IMF, the World Bank and the US and other major Western governments as organisations that represent the interests of global finance. For Marxist critics of neoliberal global governance, any reforms proposed or implemented by these organisations or their backers will be designed to maintain the extractive practices of financial and other forms of transnational capital, and therefore the exploitation of Africa’s people and resources. Thus, even the more substantive reforms proposed by heterodox liberals miss what is for radical political economists precisely the point – the system is inherently exploitative, and no ‘feasible’ reforms to that system will transform its nature; they will facilitate further exploitation.
Political economists drawing on Gramsci have examined transnational capital and government sponsor states’ use of structural, coercive and discursive power to co-create a global economic regulatory framework favouring financial capital, beginning in the 1970s (Cox 1987, 1996; Gill and Law 1988). The corresponding deregulation/reregulation increased the ‘structural power’ of financial capital, which then impelled governments to adopt additional favourable policies and regulatory measures, notably shifting from restricting international capital flows to attracting and protecting them. Gill’s ‘new constitutionalism’ (1998, 2002) shows that binding international agreements (such as debt relief programmes and World Trade Organization membership) restrict states from regulating transnational capital flows or redistributing wealth, in line with the preferences of international investors. Meanwhile, private forms of international economic regulation, such as those developed by bond-rating agencies, now shape not only investor but also state behaviour. As Sinclair (2001) explains, when governments rely heavily on sovereign bonds, they must anticipate the reaction of rating agencies to policy changes that might jeopardise bond payment. Because a lowered credit rating can quickly spark an investor outflow, managing perceptions becomes an important task; this implies anticipatory and implicit policy conditionality added to externally imposed and explicit (as in the IMF ‘seal of approval’) conditionality, with both representing the interests of financial capital.
Marxist and other radical global political economy scholars thus offer a framework for critical examination of the mechanisms through which capitalist states regulate global economic flows to the benefit of capital. Their research indicates there are systemic barriers to the kinds of reregulation proposed by heterodox liberals. Among their key contributions to the debate about the implications of Africa’s sovereign bonds are that African economies have not been excluded from the global economy either historically or in the contemporary period, but rather, incorporated under highly disadvantageous terms. The role of financial instruments such as sovereign bonds is to deepen Africa’s embeddedness in volatile global financial markets that historically have worked against African interests. As a result, rejecting or limiting the use of international sovereign bonds should be the priority, because more stringent regulation is likely to be ineffective or even counterproductive. The next section will show how Marxist scholarship that focuses on economic transformations within African societies complements this global political economy analysis with insights into the class forces that benefit from international sovereign bonds.
Debt and domestic class forces
Scholars who research the post-1980s transformation of domestic political economies in Africa have identified significant patterns of change in social relations of production and social reproduction that have reshaped the practices associated with work, consumption, trade and investment. These changes have deepened capitalist social relations on the continent and promise to redefine governance. Though few of these scholars have explicitly investigated what Africa’s sovereign bonds might mean for domestic capitalist social relations, there are important insights to be gleaned by drawing on their analysis. The discussion below necessarily only sketches out the possibilities presented by the approach; detailed case studies of specific societies would be needed to properly appreciate the impact of international sovereign bonds, especially under conditions of debt crisis, on specific social relations in individual countries.
The economic crisis that originated in the early 1980s triggered the transformation of social forces within Africa, deepening capitalist relations and providing new opportunities for some while consigning others to brutal survivalism. Structural adjustment conditions imposed by the IMF virtually eliminated the limited social protections received by urban consumers (food subsidies) and peasant farmers (price stability, input and transportation subsidies, and guaranteed markets), causing widespread crisis in the realm of social reproduction. Cutbacks in the size of the bureaucracy and in subsidies and market protection to industry led to significant loss of formal jobs; rural crisis triggered depeasantisation, proletarianisation, migration and urbanisation. Unemployment led to the growth of the informal economy and diverse livelihood strategies. Rapid urbanisation throughout the continent further pushed Africans into labour and consumer markets, but in rural areas, too, capitalist labour and consumer markets have become more important, deepening the cash economy (Meagher 1995; Bryceson 2002; Davis 2004; Bernstein 2010).
Renewed GDP growth has had some impact on these largely informalised productive activities, but the effects have been complex and not wholly positive. The main industries driving Africa’s post-2000 growth – resource extraction and large-scale agricultural production – are capital intensive and employ few people (Southall 2008), while further displacing rural Africans. Furthermore, they have been associated with high and growing levels of income and wealth inequality on the continent (Bracking 2016; Taylor 2016). Of course, there have been supply contracts and services associated with these industries that will create jobs and entrepreneurial opportunities, but research has shown these are limited (for example, Fraser and Lungu 2007). There has been much speculation that employment-generating investment will follow capital-intensive investment, seeking opportunities to access Africa’s relatively untapped consumer markets and young, low-wage labour force, but even in the sectors where we see some such investment, such as the mobile phone industries, the effects on employment and social reproduction have been complex and contradictory. It is not clear that there will be a need for all Africa’s surplus labour.
From this standpoint, one can begin to explore the critical question of how African social forces will be affected by the international sovereign bonds, by considering where these resources are likely to be directed. Based on the statements of the bond issuers and the research on the destination of financial flows to Africa, it appears the loans have three main destinations: infrastructure investment associated with commodity exports (and lucrative supply contracts), public servant salaries and capital flight. This suggests that most international sovereign bonds do not help domestic industries; in fact, the infrastructure investment may contribute to further inequality, displacement and longer-term job loss. If this proves to be the case, the bonds represent a commitment by African governments to advance the needs of commodity exporters against a domestic entrepreneurial bourgeoisie, the working class, farmers and those working in informalised businesses, who have fundamentally different needs from the state. A focus on local relations of production and social reproduction reinforces the point that Africa’s international sovereign bonds threaten to reinforce rather than transform Africa’s economic structures and deepen the continent’s exploitation by global financial markets. Under the current regulatory regime, a new African debt crisis is likely to further deepen the continent’s exploitation in global markets.
Conclusion
The premise for this article has been that Africans and African governments, especially those facing an imminent debt crisis, are being done a serious disservice by contemporary analysis of Africa’s international sovereign bonds that remains excessively dominated by neoliberal voices, to the point where widely acknowledged problems with their advice and strategies are not being properly incorporated into current policy advice. As Marxist scholars argue, the one-sided discussion is transparently reflective of the interests of the most powerful investors in the global economy, whose priorities cannot be reconciled with those of ordinary working people, farmers and traders in Africa. Heterodox liberals raise important concerns about the capacity of the liberalised regulatory regime to properly protect African economies and societies, and make a compelling case for stronger regulation of national currencies and short-term international capital flows. As more African governments face debt-servicing crises associated with their international sovereign bonds, these insights and the resulting proposals should become part of the debate in international aid and financial circles and within African countries. More importantly, Marxist political economists raise concerns about whose interests are being represented when African governments introduce financial instruments such as international sovereign bonds, and their analysis makes the case for avoiding these bonds altogether. For Africans whose governments face debt crisis, a broad structural critique of international financial capital may seem to be of limited utility over the short term, yet ignoring the domestic and global class forces that shape and limit policy choices is to engage in weak scholarship, and to offer false hope to a continent very much in need of real strategies as it looks towards the future.