The real reason Africa is up to its neck in debt

Above Nairobi’s chaotic traffic junctions, the recently opened 17-mile express way funded by China is virtually empty.

Estimated to have cost around half a billion pounds, it will only return to Kenyan hands when that dizzying sum has been fully paid off in tolls of £3 a journey or less.

For the foreseeable future, the toll road, too expensive for many, looms large over congested streets as a perfect symbol of the country’s debilitating debt.

While China and international bodies like the IMF and World Bank shouldered much of the blame during recent violent protests in Nairobi, campaigners say private banks that own bonds issued by the Kenyan government are also a significant barrier to progress.

Of Kenya’s external debt payments between 2023 and 2025, almost half are to private creditors, primarily bondholders, demanding higher interest and quicker returns.

This is one of the main reasons why Kenya is spending four times more servicing external debts – £27.7 billion at the end of 2022 – than it does on healthcare and education.

According to figures in its latest Public Debt Register seen by The Telegraph, American banks AllianceBernstein and BlackRock between them possess $582m (£450m) of Kenyan government debt.

London-headquartered institutions also appeared on a lengthy list of private creditors in a 2021 report. For example, HSBC holds $60m (46.3m), while international investment group Aberdeen Asset Management owns $37.2m (£28.8m) in bond debt. Legal and General has $30m, while PGIM has $18m.

Smaller British debt owners include Investec Asset Management, Ashmore Investment Management, Colchester Global Investments and First International Advisors.

Added together, UK-based bondholders account for $210m (£161m) of Kenyan debt, around 3 per cent of total borrowing through bonds.

Other significant bondholders include pensions giant Fidelity Investments and the US bank JP Morgan.

For a recent report called Between Life and Debt, Christian Aid calculated that between the start of last year and the end of 2025, the nation will have to repay a total of £4.4 billion to its private creditors. This is nearly three times what it is scheduled to give back to international bodies like the World Bank, even though private lenders represent only a quarter of the total Kenya owes.

Interest payments to commercial  lenders are often four times higher than to the multilateral donors, and the loans have the shortest maturities.

Across the continent, 32 out of 54  African countries spend more on debt than healthcare.

Working with the European Network on Debt and Development, Christian Aid also ascertained that the total being paid to private creditors by all African countries is around £36.3 billion, just under half of the total.

It comes as a new World Bank report shows that the world’s 26 poorest countries, which are home to 40 per cent of its poorest people, are more in debt than at any time since 2006.

In the countries analysed, which have annual per-capita incomes of less than £884, the average debt-to-GDP ratio is 72 per cent, an 18-year high.

The majority are in sub-Saharan Africa, but the list also includes Afghanistan and Yemen.

Meanwhile, recent analysis by the International Institute for Environment and Development (IIED) shows that 58 of the world’s poorest countries which are most vulnerable to climate change are spending more than twice as much to service their debts as they receive in aid to fight the crisis.

Much of Kenya’s debt to private institutions comes from fixed income securities issued by the government called Eurobonds, which are needed just to pay off previous outstanding loans (These are not related to the Euro currency but are simply a type of bond issued in a currency different to that of the country in which it is issued).

Eurobonds are often the only option that struggling African governments have.

In February, Kenya announced a new £1.16 billion Eurobond issue to be written off by 2031, the proceeds of which “will fund the offer to buy Kenya’s existing $2 billion Eurobonds” due to amortise this year.

If Kenya stopped paying back the creditors and tried to restructure its debts, the banks could sue them in London courts, as English law governs all of Kenya’s foreign currency bonds.

The banks effectively retain a choke hold over African economies, locking them into a never-ending cycle of taking out fresh loans to repay existing ones.

‘Like a loan shark’

Campaigners accuse the financial houses involved of behaving like unscrupulous back street lenders.

Jennifer Larbie, one of the Christian Aid report authors, said that the level of debt is so high that African governments have no choice but to take out new loans at impossible repayment rates to avoid defaulting.

“It’s like a loan shark preying on people who don’t have the money,” she explained. “If you’ve only got the option of going to the loan shark you know you will get the worst interest rate.

“That is the system that is being applied to African countries time and time again; this has been going on for decades.

“The interest rates that private creditors are charging go way above and beyond what is being charged by China, the IMF and other multilateral institutions. Our report is really clear: when you look at interest rates alone, it is far better for the Kenyan government to borrow from the IMF and the World Bank than from private creditors.”

At 6.2 per cent, private creditor average repayment rates are almost double those of Chinese lenders (3.2 per cent), and far higher than multilateral (1 per cent) and bilateral (1.3 per cent) lenders.

Earlier this year bondholders including BlackRock agreed a debt restructuring deal for Zambia after it declared bankruptcy in 2020.

The deal could reduce the government’s repayments by up to £1.1 billion and spread future payments over a much longer time frame, but it took four years to negotiate.

The delays were allegedly caused by private creditors holding out for an agreement which delivers better profits.

Even after debt relief measures, Zambia will still pay two-thirds of its budget on debt servicing between 2024 and 2026.

A previous investigation by another aid agency, the Catholic charity Cafod, claimed that BlackRock, which is also the largest private creditor to Ghana, Nigeria, Zambia and Senegal, actively obstructs debt relief schemes.

Dario Kenner, Cafod’s policy lead on debt, said that the refusal of “cowboy lenders” to cancel or restructure debt was “shameful”.

The IMF and World Bank are very open about how their loans should be paid back, often by encouraging governments to increase consumer taxes like VAT.

By contrast, repayment schemes for Eurobonds are deliberately opaque, campaigners say.

The struggle is further compounded by banks’ insistence on being repaid in US dollars, a currency which is always stronger than that of the indebted country.

“Some of the debt is wrapped up in more debt and that’s wrapped up in Eurobonds and other financial packages,” continued Ms Larbie, Christian Aid’s head of campaigns.

“So, it’s difficult to get a line-by-line account of how much debt is owed to one individual private company account. That’s very deliberate. What it allows private creditors to do is have real leverage over governments, because we’re not able to truly understand the scale of what is owned by individual companies.”

UNAIDS, the global programme on HIV response, recently stated that the combination of growing debt payments and spending cuts in IMF agreements could see the infection rate increase in sub-Saharan Africa after reducing by 56 per cent since 2010.

“When countries cannot effectively look after the health care needs of their people because of debt payments, global health security is put at risk,” said UNAIDS Executive Director Winnie Byanyima.

“Public debt needs to be urgently reduced, and domestic resource mobilisation strengthened to enable the fiscal space to fully fund the global HIV response and end Aids.”

Last year, a report from the House of Commons International Development Committee warned of the “debt crisis”.

At the time Labour MP Sarah Champion, the committee chair, said less-developed nations “face impossible trade-offs between servicing soaring debt and funding basic public services”.

For ordinary Africans unable to access basic healthcare, the solution lies faraway, in the chrome and glass office buildings of the City of London and Wall St where Africa’s bondholders decide how their debts will be repaid.

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