While the recession due to the pandemic requires mobilization, Benoît Chervalier, investment banker at Global Sovereign Advisory, believes that the analysis of the sovereign debt of African countries often sins by “simplification”.

All development experts claim from report to report that Africa will experience a severe recession due to the containment measures against the pandemic and that it will be unable to repay its debts in the coming years. Many heads of state on the continent, but also in developed countries, rely on this gloomy prospect to demand a pure and simple cancellation of the loans of the poorest countries.

Having worked for the AfDB and Rothschild & Co, Benoît Chervalier is senior banker at Global Sovereign Advisory and teaches at SciencesPo Paris the financing of African economies. He believes that we must be right and not put all the States in the same basket.

Some African countries are in difficulty, in particular the exporters of raw materials, but all will not default according to him. It remains to find the means to reconcile the burden of past debts with the need to contract new loans to accelerate the development of Africa. Will the Paris Conference achieve this in May 2021?

Benoît Chervalier is senior banker at Global Sovereign Advisory and teaches at Sciences-Po Paris. © DR

Jeune Afrique: Does Africa's resistance to the virus reduce its risks of recession?

Benoît Chervalier: Although more populous than America and Europe combined which have recorded 2.4 million cases and some 800,000 deaths, Africa has so far had 2.4 million cases and less than 60,000 dead. All of its countries have not been in the same boat: South Africa and the Maghreb have been the most affected; Mauritius eradicated the virus thanks to drastic measures and its insularity.

On the other hand, the continent is suffering from the induced effects of the pandemic. Traditional vaccination campaigns against tuberculosis or poliomyelitis have been disrupted by confinements or false rumours. In Côte d'Ivoire, for example, they fell by 10% in the spring of 2020, in particular because "fake news" led people to believe that they were intended to find guinea pigs for the Covid-19 vaccine!

The virus did not create the crisis, but it amplified a pre-existing crisis in a number of countries

The economic shock will be massive. Africa will lose $115 billion in 2020 and its gross domestic product (GDP) will shrink by 3% this year, according to the IMF. The virus did not create the crisis, but it amplified a pre-existing crisis in a number of countries.

Which ? And how?

The World Bank pointed out in its Pulse report in the fall of 2019 that the continent's overall growth there was too weak to absorb its population growth. The countries that will do well are those that were in the best shape before the virus arrived.

Côte d'Ivoire, Senegal and Morocco were on a dynamic development trajectory with controlled debt. Oil-exporting countries approached the health crisis in a position of great fragility.

Governments and multilateral donors must prioritize damage to the informal sector

All the countries quickly took the appropriate emergency measures, but confining populations living informally and without social protection amounts to depriving them of the means to live. The World Bank estimates that 40 million Africans will fall back into extreme poverty. Governments and multilateral donors must prioritize the damage done to the informal sector to contain the devastating long-term effects in terms of health and education.

In the end, the countries that will come out the best will therefore be those that will be able to ensure the diversification of their economy, to carry out a move upmarket in the value chain of their raw materials, to develop their local production and interregional exchanges while taking care to control their trajectories in terms of public finances.

Will this prevent Africa from repaying its debts?

All of Africa is not going to default or face a "debt wall", as it is often said. Admittedly, at the beginning of 2020, it was in debt of 547 billion dollars and should pay 55 billion dollars in this respect in 2021.

A lab technician incubates a patient's Covid-19 virus before performing a diagnostic test, Wednesday, April 8, 2020 at the Institute for Health Research, Epidemiological Surveillance and Training (IRESSEF), in Dakar. © Sylvain Cherkaoui/SIPA

The International Monetary Fund (IMF) has classified eight countries in distress under its Debt Sustainability Framework: for the record the Republic of Congo, Gambia, Mozambique, Sao Tome & Principe, Somalia, Sudan, South Sudan and Zambia. All these countries will not fail; conversely, others who are not listed may find it difficult to meet their repayment obligations.

I would also like to debunk a simplification according to which the countries in difficulty are necessarily those which borrow on the financial markets. This list is already reduced since 8 African countries have subscribed to 86% of the Eurobonds acquired by the 18 countries which have had recourse to the markets over the last ten years.

Morocco obtained rates below 2% during its issuance last September and Côte d'Ivoire, the lowest rates in its history at less than 5% in November.

Moreover, countries not exposed to the capital markets may also find themselves in a situation of risk of over-indebtedness due to their exposure to other types of creditors or due to intrinsic weaknesses. The risks of default therefore exist, some will materialize, others not, but we should certainly not put all the countries in the same basket.

How can the burden of these debts be reconciled with the new loans necessary to finance future needs?

The cancellation of loans from heavily indebted poor countries (HIPC) in the 2000s was a success for the forty or so African countries concerned. It will not generally recur. G20 countries have adopted a Common Framework for Dealing with Distressed Country Borrowing. The IMF will be at the heart of the system and transparency will be the keystone.

Negotiations will be case by case and they will be difficult. But it will not only be a question of cleaning up the liabilities, but of making decisions to build the future. The Paris conference will focus, in May 2021, on finding new financing for development.

It will be necessary to find a way to lower the costs of new debt

In the short term, there is a health and educational emergency. A donors' conference is needed to find the necessary funds to avoid erasing the progress so hard won.

IMF Headquarters, Washington. © Cliff Owen/AP/SIPA

At the same time, we can hope that the election of Joe Biden to the White House will lift the United States' refusal to increase the IMF's special drawing rights (SDRs). This measure should bring 22 billion dollars to low-income countries, mainly in Africa.

More structurally, it will be necessary to find a way to lower the cost of new debt. It would be necessary to invent a new financial vehicle benefiting from the guarantee of the strongest countries or to reform the credit enhancement mechanisms of the World Bank or the African Development Bank – both rated “AAA” – to allow borrowers to benefit from very low interest rate levels.

Will China be part of the device?

China understood that it could not solve Africa's difficulties alone and even that it was not in its interest. We can think that she will play the game, because she participated in the development of the Common Framework for the Resolution of Excessive Debts.

Why do investors from industrial countries have so little confidence in Africa?

There are two types of trust.

Confidence vis-à-vis Africa is flawed because of the lack of knowledge we have of it and the great heterogeneity of the continent. Remember that it is home to the equivalent of the size of Europe, the United States, China and India combined! This extreme richness in terms of diversity requires in-depth knowledge which is not easy to acquire.

And then there is trust within Africa. As in all countries of the world, it depends on the quality of the regulation and governance practiced there.

Africa has two major assets, its youth and the tremendous optimism of its people. In these areas, African barometers make our old developed countries green with envy…