Economics

Sous-estimer l’Afrique coûte cher

May 14, 2021 Hippolyte Fofack

LE CAIRE – En 2020, la pandémie de Covid-19 a causé la première récession en Afrique depuis vingt-cinq ans. Le durcissement brutal des conditions de financement sur les marchés mondiaux a provoqué de brusques interruptions de l’investissement direct et d’importantes sorties de capitaux, concomitamment à l’un des chocs de la demande et de l’offre mondiales les plus graves jamais enregistrés. La crise a renforcé les contraintes de liquidités qui pèsent sur le continent et s’est ajoutée à ses difficultés de gestion macroéconomique.

Le ralentissement de l’activité économique imputable à la pandémie est d’autant plus marqué que l’Afrique supporte dans le même temps le poids immense d’une « prime de perception », c’est-à-dire d’une perception excessive du risque depuis longtemps associé à l’Afrique et des coûts induits par ce biais, qui ne tient pas compte de l’amélioration de ses fondamentaux macroéconomiques ou de la conjoncture économique mondiale.

Fort heureusement, les dirigeants internationaux abordent enfin le problème. Lors des dernières assemblées annuelles du Fonds monétaire international, en octobre, Kristalina Georgieva, la directrice générale du Fonds, a fait remarquer que le monde devait « s’attacher à réduire le risque perçu et réel lié à l’investissement en Afrique, afin que nous puissions voir [l’] énorme disponibilité de financement […] se répercuter en Afrique ».

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Many fear that sharp differences in the speed of vaccine rollouts and the scale of stimulus measures will result in a K-shaped global economic recovery, with much of the developed world booming while poorer countries continue to struggle. But if policymakers are not careful, advanced economies also could experience highly uneven post-pandemic growth.

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Wilfried Wallace Jul 23, 2021

Mr Kraemer's comments portrays the usual bias which has sustained high perception premiums across Africa for decades. He talks about debt restructuring in Ethiopia as a rationale for higher premiums even though it is occurring after downgrades which heightened borrowing costs. He seems to forget the existence of ample empirical evidence on the self-fullfiling prophecy of default-driven borrowing costs setting countries on the natural path of default. One of the most comprehensive studies on the subject being the one carried out by Professor Stiglitz.

It is not sure that any country in Europe would have escaped default if they were paying 10-15% interest on their external debt as most countries in Africa have been doing. Most recent data from S&P show that refinancing costs for advanced economies have fallen below 1%. Egypt is paying around 12% and Ghana is paying 15%. The example of Greece just a few years ago is already a distant memory, especially to those with an entrenched culture of double standard. The whole debate about Fed speedy normalization of monetary policy in the face of heightening inflationary pressures in the US revolves around the implications of such a policy for borrowing costs. “The higher costs of servicing the bigger
debt load could lead to government pressure on central bank to keep nominal rates down”, Professor Rogoff recently wrote in the FT.

Under the self-fullfiling prophecy of high borrowing costs, the most suitable test is not to show that African sovereigns have defaulted less frequently at each rating level than sovereigns elsewhere—although that can also be established—but to show that African Eurobonds often trade with higher spreads than sovereign peers with similar credit rating. Despite its history of default Greece’s 10 year Eurobond had a spread of 222 basis points (bps) at the height of the pandemic downturn, against 481 bps for Namibia even though both countries had the same sovereign credit rating. Mauritius 10-year bond had a spread of 245 bps against 92 bps for Italy. Mauritius had a better credit rating than Italy which is just one notch above junk.

But more importantly Mr Kremer is thinking in static while the main argument made by the author is the opportunity costs of default-driven and growth-crushing borrowing costs which have undermined the diversification of sources of growth needed to set African countries on the path of fiscal and debt sustainability, both of which are credit-rating positive. This is the most important and compelling argument convincingly made by the author in one of the most brilliant pieces published by Project Syndicate. I am glad Project Syndicate has provided the opportunity for an open debate on one of the most important binding constraints to economic development in Africa.
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Moritz Kraemer May 16, 2021

The commentary does not provide compelling facts proving that African sovereigns are materially and systematically underrated. For example, no data is shown that African sovereigns have defaulted less frequently at each rating level than sovereigns elsewhere. Without demonstrating such a pattern, the claim of discrimination remains speculative.

The author seems to make the popular mistake of confounding the level of public debt with sovereign creditworthiness. The conclusion that the relatively lower debt in Africa compared to, say, the G7, should therefore also lead to relatively lower interest rates (and higher ratings) for African sovereigns is based on this common confusion about the direction of causality. Is Uganda more creditworthy than the UK because it has lower debt? The opposite is the case: the most creditworthy sovereigns have a much higher debt bearing capacity. Therefore they have higher debt burdens.

How much or little Africa has achieved in catching up economically depends on the time horizon chosen. After a very dynamic start to the century, growth in GDP per capita (in purchasing power terms) has dropped to almost zero since 2014. The pre-pandemic half-decade was a lost one for Africa. In fact, it was around that year that rating agencies started downgrading African sovereigns.

It is also surprising that Ethiopia is heralded as an example for the presumed underrating of Africa. Hasn't Addis Ababa announced it wants its debts restructured within the G20 common framework, notwithstanding its high economic growth? In the process Ethiopia is likely to default. Rating agencies have to reflect the risk of default in their assessments. Actually, that is the only thing they are supposed to do.
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Sous-estimer l’Afrique coûte cher

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