Odd Lots - Why Africa Borrowed Billions of Dollars From China

Episode Date: December 10, 2020

It's no secret that some African nations went on a borrowing spree in recent years, tapping both international markets and sovereign lenders such as China to finance massive infrastructure projects. But all that debt is becoming problematic as the coronavirus crisis strains public finances, resulting in a slow-motion debt crisis. In November, Zambia became the first African country to default on its debt this year, sparking a series of fraught negotiations with its creditors. Zambia famously owes a lot of money to China and the default is now casting more scrutiny on China's approach to its borrowers. On this episode of the Odd Lots podcast, we speak to Gyude Moore, Liberia's former Minister of Public Works and Deputy Chief of Staff, turned Senior Fellow at the Center for Global Development. He talks to us about how and why parts of Africa became so indebted to China, and whether China might be on the cusp of cutting borrowers some slack. See omnystudio.com/listener for privacy information.

Thanks for listening to OddLots. Follow the show on Amazon Music for more future episodes or just ask Alexa play the podcast, OddLots on Amazon Music. Hello and welcome to another episode of the Odd Thoughts podcast. I'm Tracy Alloway. And I'm Joe Eisenthal. Joe, I feel like 2020 has been such an unusual and crazy year with a lot of things going on that there's actually some pretty important news that hasn't gotten as much. much attention as it would normally. If it was any other year, I think a lot of people would be reading about this and talking about this, at least in this sort of investment industry. Yeah, it's kind of like how, you know, news you might like put out on a Friday and no one really notices it. It's like all of 2020 is like the Friday news dump because you could put, there's so much other stuff to pay attention to. The virus, obviously, the economic shock.

the election that no one really has had the bandwidth for anything else. Yeah, that's a really good way of putting it. So the event that I'm talking about that I don't think has gotten as much attention as it normally would is basically a debt crisis in Africa. And this month, let's see, we're recording in November. So this month, Zambia actually defaulted on some bonds. And it's the first sort of COVID-related default by an African nation. And a lot of people expect there will be more, even though we've seen some countries, some creditors, the G20 agree a few efforts to try to help indebted countries.

In Africa, there's a G20 debt service suspension initiative. But even with that aid, people are expecting distress in Africa's debt market to get probably worse before it gets better. I think you're right. Like if a zombiean debt default would have been the kind of thing that like, oh, let's do an episode on that much earlier. But in 2020, yes, it's certainly gotten less attention than I think it gets lost. You know, it's one of those things where I'm sure I even saw headlines on it and I meant to ask more questions in a meeting one day and I meant to click on it and learn more. And I didn't because again, I probably had like, you know, some question about what's going on with the presidential transition or something that took over my mind for the day. You mean you weren't thinking purely of Zambia?

Believe it or not. In a meeting in New York. So in the midst of all this debt distress in Africa, there's also a lot of attention being paid to China and its role in building up that excess debt, but also what China is going to do now that Africa is, you know, economically stressed, is China going to let up on some of those debt payments in the same way that maybe multilateral organizations or other creditors are thinking about doing. So we're going to get into that side of the African debt crisis quite a bit as well. But more than that, we're going to talk about how that debt buildup actually

happened. And we're going to do it in a slightly different way. We have someone who obviously comes from Africa, from Liberia, and who had an official role in the Liberian government. And a lot of that role involved, you know, being involved in infrastructure projects for which you would incur debt. You take out a loan so you could build a bridge or a road or a railway or something like that. And so we're going to get a different perspective on Africa's debt problem. Excellent. Really looking forward to this. Okay. Great. So, uh, we have a very important. Without further ado, then, I want to bring in our guest, Judey Moore.

He's a senior policy fellow at the Center for Global Development. He previously served as Liberia's Minister for Public Works and was also deputy chief of staff to the president. So like I said, a lot of experience in a government position within Africa. And it's going to be fascinating to hear his perspective. Judea, thanks so much for coming on. Hi, morning, guys. And thanks for having me. It's a pleasure to be here.

So I remember the first time I ever went to Africa. I went to Mozambique back in 2010. And one of the things that really struck me and that I found quite weird at the time was if you were in Maputo, the capital, everything was Chinese. The cars were Chinese, the trucks were Chinese, the stadium was built by the Chinese. There were Chinese characters all over the place. it's really, really striking the extent to which China has become involved in the Africa market. Why has that happened?

Yeah. And if you had gone to, say, Ethiopia, if you'd gone to Addis, you would have seen the same thing. And across the continent, and to a large extent, especially even in Zambia that you spoke about, you would have to say the same thing. There's been an extensive growth in terms of Chinese presence and a deepening of Chinese relations. with African countries. A part of that, I guess, is historical. One is that, you know, at the turn of the century when, you know, we're worried about Y2K, China is entering the WTO, and China also unveils its first going out strategy. And the only uncontested region in the world in which Chinese,

because they weren't as powerful as they are now, could go, was the region of the world. in which, you know, most Western policy toward Africa at the time was filtered through the lenses of humanitarian assistance and development. Africa wasn't seen as a place to go and do business. And for China, it worked out perfectly because there wasn't a peer competitor there. I mean, there were some European engagement, but it wasn't to the extent that the Chinese would do. The second thing was just the need that was on the continent and what China could provide. So even up to today, Africa still lags every other region of the world in terms of the provision of infrastructure, mainly paved roads and power. More than 600 million people in the continent still lack access to electricity.

And so China had this excess capacity in providing infrastructure and normally provide infrastructure at cost. So before the arrival of the Chinese, the infrastructure space in Africa had been dominated by European firms. We're talking about your, your Buig, your I fage, the large Vinci, the large French, Spanish, and to a certain extent, Italian firms. But the cost of infrastructure from those firms tended to be high. And the Chinese came and were able to, first Chinese firms were state-sponsored, and so they were state-owned firms, and could therefore, they had access to capital. that was much cheaper and could provide infrastructure.

So at cost, that they were competitive in terms of cost. The second reason was simply because they brought money with them. In a lot of instances, there were African countries who couldn't afford to pay for this up front and the Chinese were willing to extend loans to them. And so for a lot of African countries, which at the time didn't have access to international financial markets, to issue sovereign bonds and stuff, for whom development financing, from the multilateral institutions was just not enough, especially concessional financing. And so with nowhere else to go, they were happy for a partner who seemed not to worry too much

about public financial management, who seemed not to care about the quality of governance in terms of corruption, and who said those things were internal, and they had nothing to do with that. And so there was this confluence of interest between what China wanted to do at the time and what Africa's deeds were. And so because of that, we saw a huge ramp up in terms of African debt. Now, the final thing I would say to that also was that it coincided with this huge buildup in terms of a boom for commodity exports. And most African economies were growing at, you know, seven to nine percent. And China seemed to have an insatiable appetite for African commodities. And so it's like everybody was invited to the party and the party went really well for a while.

So lots of things came together in sort of an ideal manner for both parties or for multiple parties. What years just to help us frame the conversation? We talk about this boom and we talk about this buildup, this eventual debt buildup. What years are we talking about in terms of when this really got going and when this sort of really hit its transactional peak? Yeah, so I'd say it started in 2000 at the first FOCAQ. So Focac is the Forum on China-Africa Corporation. It's held every three years when, and the first one, I think 43 African-hester state and governments arrived in China and it's been held every three years.

And this is when China says over the next three years, we're going to invest, you know, $5 billion or $20 billion. It went up at the last two Fockegs, the 23rd. 15 and the 2018 forecast, China pledged to spend up to $60 billion in Africa. So the ramp up starts maybe around 2006, in terms of the numbers begin to increase around then. But the Chinese arrival in this form that we're seeing begins around 2000. And then the financial crisis of 2008 basically left China unchallenged.

I think a lot of the global recovery was driven by. the Chinese spending on capital projects. And at the end of that, China was left with this excess capacity that had to go somewhere. I mean, I think a lot of that is what drove even the Belt and Road initiative. But with that excess capacity, we saw an even significant ramp up of Chinese spending. So you go back and look at Zambia's debt profile in terms of the accumulation of debt in a place like Zambia. Well, most African countries were beneficiaries, first of the debt. debt waivers under Hippick, right? And the jubilee, the activity around waiving debt.

And so come around 2010, 2011, a lot of African countries suddenly have significant space to borrow again. And so with China left with this excess capacity, we see this significant ramp up of Chinese lending for infrastructure on the continent. The news doesn't stop on the weekends. context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gura. Join us every Saturday and Sunday for the new Bloomberg this weekend. I'm Christina Ruffini. We'll bring you the latest headlines, in-depth analysis, and big interviews. All the stories that hit home on your days off. And I'm Lisa Mateo. Watch and listen to Bloomberg this weekend for thoughtful, enlightening conversations about business, lifestyle, people, and culture.

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Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg Television, radio, and wherever you get your podcasts. So this is one thing I always wondered, but, well, actually, okay, I have two questions. So first of all, could you maybe describe a little bit more what these Chinese infrastructure deals actually look like and how they work? So you had things operating under official state sanction banners like the Belt and Road initiative, but you also had private Chinese companies who would come in and tender offers

alongside European and American companies or companies from anywhere in the world, how did those actually work? And then secondly, if China was financing a lot of this infrastructure build, Africa is still enormously behind on infrastructure, obviously. Like, why didn't it make more of a difference? Why aren't there, you know, bridges and railways and airports and things like that all over? Like everywhere. Yeah. I think first, I have a really good question. I think first it's just the baseline.

I mean, what coming from? You have to remember toward the end, between 1989 and say the year 2000, that the continent is ravished by a number of crises, right? First, there's a significant amount of civil wars. The Liberian civil war, the Syrian Civil War, the Syrian Union Civil War, the Rwandan genocide, by Mogadishu, even Mozambique, we talked about this significant amount of wars. And a lot of infrastructure is either not built or destroyed during these wars.

Right. And because of those wars, we saw a lot of humanitarian crisis. And at the same time, we had an AIDS pandemic that was wiping out significant number of the population across Central and Southern Africa. And so a significant amount of money that was available went toward the health crisis, went toward just basically beating needs and not a lot was done in terms of infrastructure. And so the baseline from which we come means that in spite of all the ramp up we did, we only just scratched the surface. The African Development Bank now puts the gap in terms of infrastructure finance into around

up to $103 billion a year. So you can imagine how deep the hole was in terms of what was available. And the way it worked, you're right. There were like three nodes of Chinese engagement. There were your large state-owned companies. They were owned by the central government. And then there were your provincial companies. And then finally, you had these like quasi-private companies. Each of them came with the promise of the back end of Chinese policy banks. So they were always promised that they could get you access to financing once the government. I mean, I mean, what they required was a sovereign guarantee. They needed the government to back that loan and if the government did. And because you have so many actors, it would seem to me, you know, I don't know that as much about how the Chinese system works on their side. But for example, if I went to the World Bank, say the Ministry of Public Works engaged the World Bank, most of that engagement would happen through the Ministry of Finance. The World Bank would then look at Liberia's debt portfolio and be able to say, you can't afford this.

right on the chinese side it just seemed not to have worked like that so you have multiple chinese companies that are competing so there's a a provincial company a construction company that is access in finance somehow it has a line of credit that it can extend or it's working through the local the provincial branch of the xan bank and then you have the large state of company and it seemed as if they were in some sort of a central node that processed all of it to be able to say, no, it looks like Zambia has taken a lot more debt than Zandah can afford. You see what I mean? Like, that didn't seem to be, if there were, it was almost, maybe it was ignored or it just didn't exist. Whatever the reason was, a lot of countries, a few countries, not a lot of them.

Like, your Zambia, your, say, South Sudan and Angola were allowed to ramp up significant amount of debt. That was tied, to be honest, to commodity exports that see. seem to be going up and up and up. And so I would like to add, though, that beyond the just huge infrastructure deficit, there was another thing driving Africa's need to borrow from China to finance this. Everywhere else in the world, a population has either stabilized or is declining, right, except in Africa where the population continues to grow, where more than 50% of the population, I think, is under 19.

And because of this huge increase in the population, governments are under significant pressure to provide both hard physical infrastructure and social infrastructure for these. And so there are all of these. And then Africa's exports tend to be largely unprocessed natural resource products. And because of that, we're so low down the value chain that what accrues to us as value from our exports

it's just not enough to be able to finance our infrastructure. And so because of that, like all of these pressures on governments. And the final thing I would say to that is also, it seems counterintuitive. But it was like the more democratic a country became the closer it came to China. Why? Because when we ran our elections, we promised people that we would build infrastructure because that was the largest need. And so when the elections ended and we needed to deliver on the promises we made,

China was one of the few who had both the appetite for our risk and the resources to be able to lend us money to build the infrastructure we needed. And so all of these, I guess all of these forces and factors sort of just created this perfect, I don't want to call it a store, we just created a perfect circumstance for this Chinese lending to Africa and Africa borrowing from, China. So there was no entity, whether it is on the provincial or policy bank side in China or the governments of the various African countries that were the recipients of this loan money and infrastructure capacity. No one had an incentive to do any sort of meaningful debt sustainability analysis. It sounds like that, doesn't it? It just seems, it seemed that where on our side in Liberia, we really didn't have the, we didn't really have the option to do that.

Because, you see, we just come out of a war and almost $5 billion of our debt had been waived. But that meant we had to enter an IMF program, which meant at the Ministry of Finance in Liberia, there was a person there from the IMF who reviewed our debt profile. And in Liberia, we had something called the Debt Management Committee that reviewed every application for debt from, say, an agency or government ministry and measured that against our debt stock and this debt servicing and we'll just come back to say we just couldn't afford this. It doesn't seem that that kind of infrastructure, that kind of, you know, institutional arrangement existed across the continent.

In any instances where it did, it just seemed like the incentives were in the line for people to actually give it the power to operate at its feud. Then on the Chinese side, it just, you know, there didn't seem to be a significant effort. It looks like that's changing now. It started to change around the 2018 FOCAQ when Xi Jinping began talking about, you know, we're no longer going to finance, you know, vanity projects or political projects, they call them. I think something started to change about it. It might have been because of domestic reasons.

It might have been China. his own position in terms of how much capital it had to be able to expend overseas, something began to change. But in those, you know, in the heyday of borrowing that has us in a crisis that we're in a number of African countries, I would say maybe like seven in which Chinese debt is actually a driver of debt distress, that didn't seem to be on the Chinese side and some sort of coordination to be able to take. And the final thing I would say on that is that we know that China has been sort of like a reluctant multilateralist, that China was not a member of the Paris Club and the Paris Club of rich countries who had had their sustainability rules. And because China

wasn't a part of it, it wasn't really subject to those rules. Reluctant multilateralist is a great way of putting it. I want to talk more about how China's approach might be changing, especially this summer during the debt crisis. But before we do, I mean, I think, we have to talk a little bit more about the loan. So there is a perception that China's loans tend to be, or its financing tend to be unfair in some way or they come with a lot of strings attached and that, you know, China maybe doesn't necessarily care about debt sustainability because it's trying to, how do I put it? Like, it's trying to get a hook into a particular country or into a particular resource or a strategic port or something like that.

So it's not necessarily worried about getting paid back. So how much is that reputation deserved in your view? So I think it was first, it was an Indian writer writing an op-ed in an Indian paper who coined the phrase, dead trap diplomacy. and then the U.S. in its great power competition with the Chinese simpler ramp ramp that up. And my understanding of the narrative of that trap diplomacy is that the whole plan is for China to ensnare its putative partners in this unhealthy relationship as a means of being able to take over flagship infrastructure like ports and airports and stuff like that. And the example that gets bandied about is Hamban Tota, you know, in India, it's Sri Lanka. Yeah.

In Africa, so there's been a lot of studies. The China, Africa Research Initiative at Johns Hopkins University has done a study on this. And there's no real evidence for this. It gets repeated often, but there's no real evidence for this. The second thing I would say on this question is that about seven countries in Africa, seven or eight, the debt crisis they have currently, the debt distress, China plays a role. So in terms of Africa's total debt stock, China is responsible for about 20% of it. So it sort of seems like we've become so consumed.

We've talking about the 20% and now focus on the 80%. A significant portion of the debt is owed to domestic creditors and to private creditors. And then the rest of it is the multilateral lending agencies. And so it's worked really well to the U.S. advantage in terms of painting China as this irresponsible lender who's out to take over the infrastructure of the countries and supposedly is working with. That it hasn't really borne out in terms of the evidence that this is what the Chinese, what. But the question is, I think the critique of Chinese lending at a scale and pace that was just completely sustainable, especially for economies who were dependent on commodity exports, knowing the fluctuations of commodity exports. I mean, I think COVID-19 simply ended up being an accelerant of a crisis that was coming anyway. And so we just didn't expect it to be this shock, but it was coming anyway.

and Zambia had always been there. I would also like to point out that Zambia is a bit different, right, from other countries in terms of how quickly the debt ramped up in Zambia and how much debt it actually had and how dependent it is on a single export copper. I think we were fortunate enough that the picture out of Africa after the Zambian debt default is going to be mixed. So on Friday, at a Thursday of Friday, Côte d'Ivoire went to the market, becoming the first African country since COVID to issue Eurobonds, and it was five times oversubscribed. So it appears that the market has been really nuanced and sophisticated about the risk that African countries present, and there still seems to be some sort of appetite for African debt. And so I think China as a factor in Africa, again, we're talking about 54 economies in China being a significant part of maybe seven or eight.

And then if you take out Angola, China's influence drops significantly because a significant portion of Africa's debt to China is actually Angola's debt to China. And then, of course, you have your Kenya. That's changing. Because, you know, at the last Focat, Kenya went with the hope of getting more money for the second and final portion of this standard gauge rail from, you know, currently it comes from Mabasa to Nairobi. You're supposed to go further than that. And the Chinese played hardball and didn't. Because first, the current one is not able to pay his bills. is the debt is very difficult for them to service. In fact, there was a committee in the Kenyan

parliament who suggested go back to the Chinese to say, look, we're in over our heads. We can't do this. The DSSI, you mentioned, Kenya initially didn't want to participate because Kenya still wants to retain its access to markets. But Kenya is strongly reconsidering that decision at the moment. So I think to just paint China as the driver of debt, especially with nefarious intents, it is just the evidence just really, really doesn't bear that out. So Chinese debt is an important contributor to the total debt stock, but it's not the only story. I want to go back to something you said a little bit earlier on, and we were talking about this perfect storm of there being an opportunity. China looking at Africa and seeing there wasn't really any sort of other main entity there from a business standpoint. Most of the Western dollars came more from a foreign aid perspective than an investment perspective.

Is there a strategic opportunity now or is it just never made any sense? I mean, if the countries where China has been very active in lending are largely commodity exporters, Obviously, China has this voracious demand for these commodities. Do other sort of Western players, whether it's the U.S. or countries in Europe, have much of a sort of strategic business reason to invest aggressively in Africa? Or do they just not have the same calculations that would lead them there in the first place due to their sort of different needs of their economy? Sure. And just quickly before I responded, I would just add that. part of what drove, you know, China's investment in African resources was also this need to

have access to the resources at source, right? Because China could always buy them on an international market. It could buy them from Glencore, right? But certain mineral resources were considered strategic and they want the Chinese companies controlling them. And so that drove that. I think this is a question. I'm glad you bring up this question about, you know, beyond China, or is there a strategic reason for others to be engaged with the continent now? So one of the things that we've seen is the rise of these continent-sized economies, right, that dominate the global landscape now in terms of the political economy of the world. So you have the United States, you have the combined EU, you have your China, you have India,

and they're dominant. And compared to Africa, where you have 54 fragmented, very small states, I mean, The largest economy in Africa is Nigeria, but Nigeria's GDP is still smaller than the Washington, D.C. area. Right. So it is, I mean, it might be large for Africa, but in terms of a global scale, it's really not. I mean, it has a lot of people. And then up to 90% of Nigeria's revenue come from oil exports. So Nigeria's large economy is still pretty fragile, especially because now we're going to a post-carbon economy. So what the African leaders, they understood their inherent weakness of acting as individual units. And so they decided to create something called the Africa Continental Free Trade Area,

which would combine all of their markets into a single market. And by doing that, become a $3 trillion market. So now it makes Africa attractive as a place to invest because initially, if you were going to invest in any country, you had to and wanted to scale up across the continent. You had to deal with 54 if you wanted a presence in all countries, but 54 regulatory environments. That is just way too expensive. And, you know, the payout, the dividend doesn't seem to match the cost.

But because now it's going to be a single market, it might be more attractive, right? And so I think with that change, it's really, really important that people begin to take a look at Africa. The second thing is, you know, over the last 10 months, the large economies, I mean, they've spent close to, it's 10 to 12 trillion dollars propping up the economies against the economic fallout of the coronavirus. It means that when the recovery does come for a long time, we're going to see very low or negative interest rates in the developed markets. And because of that, I think the risk profile or the risk appetite, that of investors and private money will change. And Africa presents an opportunity, especially,

you know, for infrastructure and the long-term returns on infrastructure. I just saw it was in the Financial Times that by the end of the summer, investors had poured close to $17 trillion into negative yield bonds. I mean, that cannot continue indefinitely. And so I think Africa presents, you you know, with, you know, five to seven percent interests, I think Africa still presents an opportunity for investment. So there is back. The second thing is, you know, the State Department two weeks ago or about maybe eight days ago released the Policy Planning Department Bureau at the State Department, released this report on the China Challenge. And it lists 10 things in terms of how the U.S. going to organize itself to that China's conduct is the reason China poses a challenge in China's

model of leadership. And one of the places what we've seen really growth with setbacks sometimes yet, but in terms of the democratic space has been in Africa. And I've argued elsewhere that the Chinese model of governance is desirability or applicability is pretty limited in Africa. And so I can imagine where the democracies of the world, like the U.S. and much of Europe, would see Africa as a place where there's some sort of shared community or values of sorts. And that itself is reason to be able to. And the final thing I would say is like, you know, as I noted in my comments earlier, I mean, parts of Eastern Europe has been decimated because of the population question. And that's going to affect Western Europe too. And so the only

place that will be vibrant with a young population that's working. It's going to be Africa. And so I think this is something the Chinese saw and we're able to make a long-term bet on the continent 20 years ago when no one saw Africa in a place where you could even think of investment. And today, you know, we're seeing that. So I think there are opportunities for growth, especially in the infrastructure space, especially in the agriculture and agro-processing space, that one would expect Europe, Africa's neighbor, right, to have an interest in investing there. And of course, the United States to invest in there. What I do see, though, is that China is just continuing to deepen its hold.

So the Chinese foreign minister has already promised that China will provide support to the Africa Continental Free Trade Area, the secretariat, will provide money for training. and Chinese state media is already entertaining the idea of linking the African continental free trade area to the BRI and bringing Africa closer into China's sphere. So I think there are reasons, both economic and strategic, for actors other than China, to pay attention to what's happening in Africa. I'm Francie Lacqua, an award-winning journalist, and I've got a new podcast. I'm a podcast, leaders with Francie Nlaqua from Bloomberg Podcasts. I've interviewed everyone from heads of state to fashion icons about the news of the moment. But I've always been curious who are these people as leaders.

I don't think there's one right way to be a leader. Make decisions. A poor decision is always better than no decision. Listen to new episodes every other Monday. Follow leaders with Francine Lacroix wherever you get your podcasts. So I wanted to talk a little bit more about what's been happening this year and sort of over the summer. So the distress in African debt is well known. And we've seen the G20 react, as I mentioned in the intro. But I think one of the sticking points or one of the discussion points has been the behavior of the Chinese, whether or not they

would agree to some sort of standstill on debt payments or basically act like other creditors, like the multilateral creditors. How big of an issue is that? And do you see signs that China might be softening its stance on this front? It is a huge issue, and we've heard encouraging things, but it's yet to be seen. So if you go back to the Zambia story, Zambia had gone to his creditors,

the private creditors, and asked for a standstill deferral. They decided they were going to meet. They put it off to November 13th. And then they came back and said no. And so then there were recriminations, right? So on the Zambian side, the Zambian finance minister said that the private creditors refused to sign an NDA. And the private creditors wanted to know what kind of arrangement Zambia was having with China. because the fear was we would defer the debt, we would defer payments, and then Zambia was simply going to pay the Chinese.

So they wanted to see. But China, as I noted, is a reluctant multilateralist. And China prefers doing these things on a bilateral basis. Unfortunately, this is not just one of those times. Right. And because of the scale of the crisis and the number of actors, it is just not amenable to a bilateral discussion. but China insists on going the bilateral way. And so because of this, the private creditors just felt that there just wasn't enough

information, especially about what China was doing, for them to make any decision on that. And so that remains an issue. The second thing was China Ex-Im. This isn't really a huge problem in Africa, but it is a huge problem with the DSSI total. China is arguing that, say, China Development Bank and other policy banks are lending on a commercial basis. And so they ought to be treated the same way private creditors are being treated, that the only Chinese lender who might participate in this is probably China Exxon. Well, what China Development Bank is a huge player, not in Africa. In Africa, it lent money to Angola, maybe.

And so China is just trying to draw a line between what is, you know, a national, say, a state creditor and what is a private creditor. And so because of this, China has not been as, you know, eager to participate in this process as one would like. The final thing I would say is that, you know, after the last debt crisis, most of the way, Western OECD, Paris Club members have moved away from bilateral lending. So I think 72% of debt servicing over the next four years are to Chinese lenders. And so because of that, China is a dominant player in this new debt crisis, not just in Africa, but just generally. And China has hesitation to, part of it is China has way more to lose. is way more leveraged here, right, than most of the G20.

So we keep saying G20, but if 70%, 72% is going to China, are we, is there really a G20, right? In terms of the debt question, is this really China? However, the Saudis who chair the G20 now said that they had agreed in principle on a framework to handle sovereign debt that will be useful going forward. And supposedly, the Chinese are on. board with this. But again, I mean, in the past, China has, you know, said, they make these general comments that could be yes or no or maybe. So we're yet to, we're yet to see if China is

as committed to this new framework or if China is going to be more active in, in this, in this space. But it remains that China is such a dominant actor here. And that, China's hesitation to to fall a participant is a significant storyline in the debt crisis. So does this create a sort of, I mean, it sounds like there was some hole in the existing sovereign debt law or some ambiguity, the situation that allowed this dispute about whether the lending should be characterized as private sector lending or official sector lending. What does a sort of updated version of sovereign? debt law look like so that going forward, there's more clarity on how these things are characterized.

Yeah, it just seemed, you know, that after the first, well, sometime around 2012, 2013 that the IMF would have, I think, I'm not even, I wasn't even finance minister in Liberia. I just happened to sit within the presidency and then control the ministry that was pretty big so that every time there was an IMF mission in Liberia, they met with me as one of the largest spenders in terms of the government. And so everybody knew that this issue of sovereign debt, especially for countries that were just coming into the market, would be an issue. And for some reason, there was never sort of nothing created in terms of an international mechanism to be able to resolve this when it did happen. So this framework would be that. But I think the difficulty

with any framework, of course, it's going to be when Code Bivois sells debt for a billion dollars or a billion euros, the people buying that debt are, you know, pension funds, hedge funds, private creditors who, you know, have fiduciary responsibilities to their investors and the people whose money they're investing. So this isn't just countries. I mean, with countries, well, you know, the legislature and the executive can make a decision. Here, because of the strange mix of creditors we have, it creates this difficulty in terms of how one arranges this. So in terms of what this looks like,

it's really unclear to me what a new mechanism looks like to be able to handle this, because this is going to happen as long as these frontier markets continue to have access to international, financial markets in terms of in terms of debt, we're going to see these happen again. It might be from shocks within their economy or external shocks, but these are going to happen. So how we restructure the international system so that this doesn't happen, to be honest, I don't know. I'm just one of the guys on the sideline who's saying, you know, we need to do this. And when you

ask me how, I'd be like, oh, I don't know. So I think, but I'm confident that people who are way smarter than me are thinking about this. But insofar as Africa is concerned, its investment, its infrastructure gap doesn't go away. Its weakness in terms of financing that infrastructure from its budget doesn't go away. And so I think this is just a pause in an inexorable march toward Maudet. And I think it makes sense that this framework that the Saudi, we're waiting to see what the framework looks like. And so maybe we can have this conversation again when the framework comes out. see if it is adequate to be able to resolve these kinds of tensions when they arise in the future.

Jude, I think that's probably a natural place to leave it. But thank you so much. That was a really interesting conversation and really appreciate your perspective. Listen, I am really, really happy you reached out and I'm glad to have participated in this. Thank you. Yeah, that was fantastic. Thank you so much. So, Joe, I found that conversation very, very interesting and timely.

I feel a little bit bad because I feel like this is a subject that we probably should have gotten to much faster. But again, as we discussed, given everything that's happening in 2020, there's just lots going on. But I also thought Judea's point about how China's very active in Africa, obviously, but that even the sort of private sector deals, loans that were coming from companies or, you know, deals that were struck with private companies were in some way or another, they end up being financed by the Chinese state. And if you have a private company competing with a state-funded entity, that cost is almost always going to be uneven. And I think the state entity is almost always going to

win out. And that was one reason for China's, I guess, advantage in African financing that I hadn't considered before. Yeah, no, that was, that was extremely interesting. And I hadn't either this sort of like straddling the line, I guess. And look, I mean, it fits even when we talk about China domestically and this sort of ambiguous nature of the banks and the degree to which their private enterprises, but also, but also serve policy purposes and policy, economic policy in China domestically, as we've discussed before, is often conducted very directly through the banks. And so I think it's interesting to talk about it from a sort of external standpoint as kind of being the same thing.

It's like this sort of unique Chinese financing approach. And this was the sort of the first time we've discussed it sort of outside of China's borders. But fundamentally, it's sort of, it's the same thing in some way. Yeah. And Judea's point about how, you know, we talk about China having extended a bunch of money to Africa, but of course it's much more nuanced than that. And it's really seven countries that account for the bulk of that financing and then one in particular, Angola. I think that's a point well taken. But I think the reason everyone's talking about China now or over the summer is because of how it's playing a part in these debt restructuring. talks, right? And there are even some people complaining that, you know, no other creditors are going to agree to a deal if they think that China is going to be the holdout. And so any money that, you know, African nations do have ends up getting diverted to China before the rest of the group. So even if China sort of has a smaller role than many people think, it does have an

outsized role in these particular debt negotiations. Yeah. No, that's, that's really well put. No, I feel like that conversation it cleared up a lot of things for me, I would say. And I think also, you know, it's obviously that particular sort of debt buildup and boom, the sort of perfect storm that occurred with African commodity exporters,

voracious demand for commodities from China. Like that specific set of scenarios may not be repeated imminently anywhere else. But, I mean, obviously, China still has ambitions in terms of expanding its trade and also expanding consumer destinations for its own exports of finished goods. And so the sort of fundamental questions of how commodity Chinese investment works and what makes sense for other countries to accept, that obviously isn't going away. Yeah. And I got to say, I do hope they finish that that railway in Kenya because that would be very, very helpful. And I can speak from personal experience that when the railways aren't working or there is no railway, actually going along the highways can often be a very, very stressful and extremely dangerous proposition.

So I am looking forward to some infrastructure development in Africa. Once we can all travel. I hope you get to. I hope you get to. I don't see that in my path anytime soon, but you know, you're more of a globetrotter than me. And so for your sake, I hope you get to experience that finished railway sometimes. You don't think I'm going to go on like a Kenyan railway in 2021, unrealistic. Maybe 2022. I don't know. But I'm sure you'll have a wonderful Instagram pictures of it regardless.

Oh, thank you. All right. Well, on that note, shall we leave it there? Let's leave it there. Okay. This has been another. episode of the All Thoughts podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Alouye. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. And you should

follow our guest on Twitter, Judea Moore. Judea is about G-Y-U-D-E underscore Moore. Follow our producer, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy at Francesca Today. And check out all of our podcasts. at Bloomberg under the handle at podcasts. Thanks for listening. You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris. And I'm Karen Moscow here to tell you about our new on-demand news report delivered right to your podcast feed. Bloomberg News Now is a short five-minute audio report on the day's top stories. Episodes are published throughout the day with the latest information and data to keep you informed.

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