Debt, Opportunity Cost or Money Lost?

Michael Onsando
16 April ,2019

By this point in time the younger generations of African nations must have made peace with the massive debt burden that we will be inheriting when it is finally our turn to take the wheel. Take this paragraph from the conversation for example:

Many of these Eurobonds will mature between 2021 and 2025. It will require these sub-Saharan African countries to repay an average of just under $4 billion annually in that period. But they are already currently bleeding a rising total of just over $1.5 billion in annual coupon payments on these Eurobonds. This represents a total of an additional $15 billion across the term of the Eurobonds. The total accumulated bonds are in excess of $24 billion. The principle amount of this is $35 billion.

35 billion is intense right? Well, here’s the clincher – that was in 2016. Kenya currently is considering another Eurobond for about $2.55 billion despite not receiving a vote of confidence from the International Monetary Fund (IMF). Without out a programme from the IMF we are unlikely to secure investor confidence which means, you guessed it, this is expensive debt (we’re basically borrowing from Tala to pay Branch now).

Why would the IMF refuse to give the trade the nod? Well turns out we failed to meet the requirements needed to keep the programme we had. Requirements such as repealing the interest rate capping law. You know, the kinds of laws that these things were written about:

“Despite good intentions, interest rate ceilings have actually hurt low-income populations by limiting their access to finance and reducing price transparency.”


So, basically, laws that might not even be protecting the people that they claim to be taking care of.

But the point of this essay is not to go on about bad debt (or even good debt) and how much of it that we have. Instead it is to engage with the concept. Having themselves inherited a country that was focused on robbing itself clean rather than development, our leaders find themselves with a window of opportunity (which could be closing), as there is a paradigm shift in power. The west is not completely consolidated in its will (and that’s putting it in the most delicate terms possible) and China is rising faster using capitalism – the tool of the west themselves – against the world. Somehow, the Africas have become the battlefield on which this war plays out. Whether it is our “burgeoning middle class” or our largely youthful population it is increasingly important to have Africa on your side.

This also comes at a time when African markets are working through their distrust of local brands. Increasingly it is important for big brands not only to have their logo on some shops in major cities but also to demonstrate presence in tangible ways (beyond bare minimum legal stipulations). More local brands are holding their “localness” in high esteem and foreign brands trying to look as local as they can without having to lie outright. Simple examples of this are the current transition of Barclays to Absa or AoN changing to Minet Group Africa to make their brands more comfortable to local audiences. Jumia, on the otherhand, is being taken to the cleaners on twitter over claiming Africanness despite being registered in Germany and doing most of its white collar heavily lifting out of Portugal.

And, given the winds of the global politic, it is only likely that this trend is set to rise as consumers continue to make the link between local shareholding and wealth redistribution.

So perhaps it is this opportunity that African governments seem to be in a hurry to take advantage of. Amidst this chaos is the perfect time to call for an increment of investment in the region by both local and foreign investors. Indeed we have seen a lot of work to encourage investment with business set up costs going down and the ease and processes being cut to the point that one can basically start up a business on their own. However, we also have to deal with increased taxes and licenses such as excise duty on bank withdrawals and the cost of bringing equipment into the country – which was supposed to be solved by the SGR, a story on procurement and ideas that deserves (and has received) several essays of its own.

And this isn’t even the biggest problem facing manufacturing in the country. Take this from the star:

While the cost of energy in Kenya has been the subject of debate time and again, efforts targeted at lowering the cost of energy have had minimal impact on the overall cost of energy. However, with the modernisation of Kenya’s energy legislative framework, through the Energy Act 2019 and Petroleum Act 2019, it is expected that the cost of energy will subsequently decline, signifying a reduction in the cost of production and ultimately an increase in Kenya’s international competitiveness.

Policy measures to support the manufacturing sector

In Lewis Caroll’s Through the Looking-Glass Alice (from wonderland) comes across the Red Queen, the interaction goes as follows:

“Well, in our country,” said Alice, still panting a little, “you’d generally get to somewhere else—if you run very fast for a long time, as we’ve been doing.”

“A slow sort of country!” said the Queen. “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”

Perhaps it is because they too inherited a country that was unprepared for the opportunity that lay ahead and, in a rush to meet the deadline, they have been forced to overleverage themselves, leaving us in a very vulnerable position. Or maybe it’s just bad management. Whatever the reason is, the rate at which debt is growing in relation to the amount we produce has set us up with the red queen’s race and it seems that we might have to run as hard as we can just to ensure that we don’t collapse under the weight of a burden in whose size we had no say.

Thank god we’re also a generation fascinated by running shoes.

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