African debt sustainability and financing needs

Creon Butler

Well, hello, everyone. My name is Creon Butler and I’m the Director of the Global Economy and Finance Programme at Chatham House. I’m really delighted to welcome you all to today’s discussion on African Debt Sustainability and Financing Needs. More than 20 low-income African countries are either in debt distress, or at high risk of debt distress, according to the fund and the banks’ analysis at the present time. And the COVID-19 pandemic has exacerbated economic vulnerabilities and even as the world economy now recovers, there are new risks for vulnerable African countries, as US interest rates are likely to rise and, potentially, the dollar to strengthen, as well, that service costs may well increase. At the same time, the G20’s Debt Service Suspension Initiative, the DSSI, has now ended and its successor, the Common Framework, is progressing very slowly.

And finally, we have the Ukraine crisis, which has complicated matters further, considerably. On the one hand, it stands to increase the financial market anxieties and worsen the situation for those countries that are importers of hydrocarbons and food. On the other hand, hydrocarbon expert – exporters in African may well benefit from the rise in global prices, as would those who produce minerals that the West will want to source elsewhere than from Russia.

This raises key questions, both about the short-term prospects for debt relief mechanisms, but also the longer-term need to integrate debt relief and debt relief approaches, with finding ways to meet Africa’s very substantial long-term external financing needs, as we engage with the low carbon transition, but also the outcome – the follow-up from the pandemic, particularly in relation to the global health needs. And in all of this, the approach taken by China, as one of the most important lenders in Africa and a key source of international finance, is absolutely crucial.

So, to address these questions, we have a really brilliant panel of expert speakers, and I will shortly introduce them and invite them to make their initial comments for about five minutes in each case, and then we’ll move to a panel discussion and Q&A. But first, I’d like to just make some additional points. Firstly, I would like to thank the German Federal Foreign Ministry – Foreign Office for their support, both for this event and for the broader project that Chatham House has been engaged on, on the African debt situation. In addition, and, in particular, I would like to thank Sebastian Groth and Sarah Cristina Bernady, the Director and Deputy Director of Policy Planners, for their very strong support in this work.

Secondly, just to remind everyone that the session will be on the record. Even though we are Chatham House, this is a on the record session and thirdly, we’ll be making a recording, which will be available to our members afterwards. Fourth, I would invite those who would like to pose questions, from our audience, to start doing so as soon as the question occurs to you. If you could use the Q&A function and then, I will come to you in the subsequent discussion, either read out your question or group them, or if there’s time, we may well come to you and ask if you would like to raise your question yourself. So, please do start putting your questions in through the Q&A as soon as you would like. Excellent.

But what I’d like to do now is move to the substance and to kick off, I’m really delighted to introduce our first speaker, who is Guillaume Chabert, and Guillaume is Deputy Director of the Strategy, Policy and Review Department at the International Monetary Fund, where his responsibilities include overseeing the fund’s work on debt distress and debt vulnerabilities in Africa. Prior to joining the fund, Guillaume was the Assistant Secretary for Multilateral Affairs, Trade and Development Policies at the French Treasury and France’s G20/G7 Finance Sous-Sherpa. So, he has a really extraordinary range of experience on how international economic institutions and the international economic architecture works. So, Guillaume, perhaps I could come to you for your initial remarks.

Guillaume Chabert

Thank you very much, Creon, and good morning, good afternoon, good evening to everyone. Thank you to Chatham House for inviting me to participate in this very important discussion. I prepared a few slides, so I’ll try to do the most complicated thing, which is to try and share the slide rapidly. I hope you see the slide on the screen.

Creon Butler

Yeah, yeah, that works very well, thanks.

Guillaume Chabert

Very good. So, I try to develop three ideas, and focusing my intervention on the 36 African countries that were eligible to the G20 Debt Service Suspension Initiative, the DSSI, that you will remember the G20 launched in April 2020 to help low-income countries deal with the pandemic. So, it’s a – it’s, basically, the low-income countries in Africa, not all of them. For example, Sudan is a low-income country, but Sudan wasn’t eligible to the DSSI. I can come back to that if there are questions. I’m not covering the African middle-income countries in this presentation.

The first idea is, as we know, debt challenges are on the rise. This is not specific to Africa, but this is also true in Africa, and as you mentioned, Creon, debt challenges were amounting already, pre-COVID. That’s the chart you have on the left, which shows a rise in stock of debt, among the different type of DSSI countries in Africa. And, of course, COVID-19, unfortunately, has further exacerbated these challenges and as you said, Creon, the current situation with, on the one hand, the tightening in international financial condition due to the normalisation of monetary policy, in particular, in the US, on the one hand, but also the war in Ukraine and its fallout on many aspects, including global growth, trades, rising all – in prices, financial tensions, makes the situation even more complicated.

Liquidity pressure are increasing, although that’s you have – that’s what you have on the right, which is the debt service year-by-year, and as you see in 2022, the debt service for African DSSI countries will be above the level pre-COVID. In 2020 and 2021, it was lower, due, in particular, to the DSSI and the fact that debt service was suspended. But in 2022, the DSSI has expired. Countries not only have to resume their payments, but they have also to start repaying the maturities that in 2020 were deferred, thanks to the DSSI.

Second idea, also, I think well-known, but is important to clarify, is a change and shift in creditor composition. On the left, you see the evolution of the debts owed to the different creditors, starting with multilateral lenders, that’s the parts in dark red, turning to official bilateral creditors, that’s the part in light red, and then, in blue, you have the different private creditors, starting with bondholders, turning to commercial banks and then, other private creditors, such I – such as oil traders.

The striking point is that, apparently, multilateral lending has increased, that’s true in volume, but in share, as a share of the total debt, multilateral debt is actually stable as a share. Bilateral official lending has – impact has declined slightly in terms of share and what is striking is the increase in commercial lending, in particular the rise of bondholders. In the middle, you have the zoom on the official bilateral lenders, and of course, the striking element is the rise of China, that’s the part in blue, a strong increase over the last 15 years and the decrease of the price gap creditors, these would – this is the part in green, and in particular, it declines after the HIP initiative.

And the rise of commercial creditor on China, as well as other non-Paris Club official creditors, is the very important dimension. It’s helps the diversification of the sources of financing, which is an opportunity for Africa. It also raises some challenges, and we can discuss which, but, in particular, for countries who need to restructure their debt, the co-ordination is, of course, much more complex between Paris Club and non-Paris Club creditors, as it was in the past. On the right, you have the evolution of the interest payments in African DSSI countries, with greater reliance on debts on commercial terms or near commercial terms. The costs have, indeed, increased.

Lastly, and that’s my last idea, we need debt – efficient debt restructuring mechanisms, sorry, for those countries where a debt restructuring is needed. I not think that a very large number of countries will need to restructure their debts and the issue of financing the development needs, it’s much more an issue of new financing and mobilisation of domestic resources than a question of debt restructuring. Besides, the countries we are talking about are very heterogeneous and, certainly, not all of them need a debt treatment. But still, as you mentioned, Creon, we have 21 of the 36 DSSI African countries currently assessed at high risk of debt distress, or already in debt distress. Some of them will need the debt treatments and we need to have a functioning and well-functioning debt restructuring mechanism.

Very briefly, the G20 agreed in November 2020 on a mechanism which is the G20 Common Framework for Debt Treatment, which gathers at China, price gap creditors, other official creditors, to have the same co-ordination mechanism and facilitate joint debt treatments when the need arise. But so far, no debt treatments under the G20 Common Framework has come to completion, even though the first cate – the first case, which is Chad, has well advanced. So, progress are urgently needed and the IMF have made several proposal to make those processes clearer, more efficient, more timely. We also believe that debt standstill should be provided for the duration of the negotiation and we also believe that the Common Framework should be expanded to other countries that are not DSSI eligible, but where there are also huge debt challenges. Sorry to have been long, but thank you very much for your attention.

Creon Butler

Thanks very much, Guillaume. It’s a very good perspective on where things stand now, and there are a number of questions it’d be good to come back to in relation to the, as you say, the IMF specific proposals for enhancing and strengthening the current approach to supporting those countries with debt vulnerabilities.

But what I would like to do next is, now, move to our next speaker, Professor Kevin Chika Urama, and Professor Urama is the Acting Chief Economist and Vice President for Economic Governance and Knowledge Management at the African Development Bank. Professor Urama has a wealth of experience in economic policymaking in Africa and prior to joining the AFDB, he worked in a number of think tanks, including being the Inaugural Managing Director of the Quantum Global Research Lab in Switzerland. So, Professor Urama, maybe I could pass now to you for your initial comments.

Professor Kevin Chika Urama

Okay, thank you very much for having me, for organising this event at a very important time. Couldn’t have come at a better time, after we are just trying to recover from COVID and now, we are also seeing this crisis that is evolving between Russia and the Ukraine, but may also have a lot of pastoral effects in particular economies, including Europe and also Africa. And, of course, when our trade partners are impacted, we also get that done.

So, in five minutes, I’m going to talk about – not to repeat the debt challenges that’s already been discussed by the first speaker, but to try to juxtapose that with the financing needs in Africa. Basically, what I want to talk about, but we may need to talk through in this discussion, one is the fact that debt in itself is not a bad thing, but debt productivity is an aspect that we need to look at. The governance of it to ensure debt [audio cuts out – 14:06]. So, that’s one.

And then, the second thing is the fact that nobody in the world [audio cuts out – 14:14] has seen improvement in that. So, I think…

Creon Butler

So, Professor Urama, I think your sound is cutting in and out for some reason. I don’t know if you could just…

Professor Kevin Chika Urama

Okay.

Creon Butler

If you speak close to the microphone, that may make it more consistent. I know it’s tricky with the internet connection between here and your base.

Professor Kevin Chika Urama

Okay.

Creon Butler

Thank you. Please go ahead.

Professor Kevin Chika Urama

Okay, let me – so, two ideas, one in terms of not just focusing on debt as the debt vulnerabilities that we’ve continuously discussed, but how to make productive for the continent. Because if you juxtapose the financing needs of Africa and, also, all the complications that COVID had, and so, all the global commons challenges, like climate change and so on, the financing needs to achieve SDGs in Africa is actually very mindboggling.

So, first, if you think about infrastructure financing needs, we’d estimate that Africa needs support US$130-170 billion annually, up to 2030, and that gives us about $68-120 billion in infrastructure financing deficit alone. And when you look at the recovery on COVID-19, our estimates is that Africa will need US$184 billion between 2021 and 2023, to recover [audio cuts out– 15:43] this alone and [audio cuts out – 15:43]. Early estimations is showing that [audio cuts out– 15:50]…

Creon Butler

Professor Urama, I wonder if perhaps you could try just switching your video off. That might just improve the connection a bit, because we’re really very keen to hear you.

Professor Kevin Chika Urama

Okay.

Creon Butler

And we’re not getting everything. Yeah, thank you, please go ahead.

Professor Kevin Chika Urama

So, let me try again and so, I hope you’ve heard from what – just shaping the narrative with regard to why you would [audio cuts out – 16:11] debt productivity and focus a lot more on how to make debt work for Africa. And I have been trying to up the needs on the continent, the financing needs on the continent, finance infrastructure, to finance, you know, our SDGs, alone, which is addressing extreme poverty, which we’ll need up, it depends on GDP of – for many of the African countries that we are discussing. And recovery from COVID itself has exacerbated it and as already pointed by the first speaker, the emerging crisis that we’re seeing in Russia and – between Russia – the war between Russia and Ukraine, is also creating even much more for us. If we consider the fact that, by now, Africa is already using about 18% of its gross government revenue for repaying debt, and it is a lot of challenges to think about as we go ahead discussing this issue.

Now, because of this also, over the past decade, we have seen a lot of decline in most of the external sources of financing for Africa. AFDI has declined, portfolio investment has declined, remittances has gone down and ODC is also declining. And beyond the decline, we are also seeing some of these new global challenges that we have, like climate change and achieving the net-zero transitions, which in this report, written report, really, estimates very huge amounts that – in trillions of dollars that are required, in order to be able to address that.

So, when African countries are then caught in-between two things, adding in the needs to meet the SDGs and also debt accumulation, how do we try ensure that this accumulating debt on the continent is going to be able to help Africa to address those infrastructure [audio cuts out – 18:15]? All those needs that will – that are [audio cuts out – 18:20] and growing. And in that context, [audio cuts out – 18:25] of the debt structure are actually non-Paris Club creditors, in the aspect that one has to look at, and that substitution, in fact, is a thing that is becoming very concerning, because we know that commercial loans are always sometimes more opaque and the debt transparency becomes more challenging and it complicates even what the Common Framework is trying to [audio cuts out – 18:54] the debt resolution, it becomes much more difficult. Because there might be vested interest for the private creditors and the non-Paris Club group, with regards to building even faster. I do wonder up ‘til now we have not really seen much progress with strengthening that process by looking for innovative ways of addressing the debt challenge, is something that I would like that we discuss in this meeting.

If you look at all the statistics, which I don’t want to start presenting in just the five minutes, you’ll find that Africa is really having a significant fiscal challenge and the need for finding ways of how to address it is very key. The point, for me, is not about where the debt is coming from, but what the debt – the structure of that – the debt contracts between the two and, in that case, see all these debt for nature swaps, debt for climate swaps that are happening. Do we fully understand how it will – what this would mean for the future generation and, also, even for the current – the value of it that we’re incurring on the continent.

So, with this, because this is just the five minutes opening, get into the discussion, I would stop here. Thank you.

Creon Butler

Professor Urama, thank you very much. I think we caught the gist of most of what you were saying, and I mean, I think it’s very clear that Africa is facing a substantial fiscal challenge, but when one’s looking further forward, you know, the solutions are ones – one also has to understand fully. So, you don’t want to be in a situation where you’re taking on commitments, which may actually not benefit Africa in the longer-term, even if in the short-term, they may look quite attractive. I think that was one of the, kind of, key points that you were making. But thank you very much for your comments and, you know, I’m – it’s a real shame that these internet connections come and go as they do.

Anyway, thank you so much and now, what I’d like to do is move to our next speaker and we’re very lucky to have with us Dr Wan-Ting Xiong, who is Secretary-General of the Institute of the World Economics and Politics at the Chinese Academy of Social Science. And Ting is a leading expert on China’s approach to international debt and the research focuses on debt sustainability, sovereign debt resolution schemes and other macro and systemic risks. And she’s also working on a book, entitled “International Principles for Sovereign Debt Governance.” So, Ting, maybe – may I hand over to you for your initial comments?

Dr Wan-Ting Xiong

Thank you. Thank you, Creon, for organising this wonderful event and for the introduction, as well. Since I only have five minutes, I would like to devote most of my time to go over the question about the evolution of China’s role in financing African development in past decades and make a wild guess about what is going to change in the future.

I would like to give three observations. The first observations echoes the first two speakers. It is that the credit composition of Africa has witnessed great change in the past decade. The share of Paris Club creditors in total public debt of African countries has dropped, from 73% in 2000, to 25% in 2019, and that is a 50% change. So, who takes over this 50% change? Actually, 20% of this change goes to China. The share of China in total PPG debt stock of African countries has grown from 2% to 19% in 2019, and 30% of these debt goes to private creditors. Most of them are bondholders. The share of private creditors increased from 9% to 38%.

I would like to highlight these numbers, because you can see that not only China is a emerging creditor, but also private creditors, like bondhold – especially bondholders. So, in the debt discussion, in all discussions, we should not forget about private creditors and how to collaborate – how to involve them, how to collaborate with them and how to enhance the future financing from them.

So, a second observation I will like to say is that China is different from other creditors. We can see these difference about – from the enthusiasm and the – in the rising attention on how China lends. There are many paper coming out in the past month, is like the – “How China lends” from AidData and “How Chinese Oversee Lending” from the Chief Economist of the World Bank and, also, from other think tanks. Everybody is curious about how China lends and there are many criticisms, such as “China is not transparent, China has many hidden debt” and “China is maybe is scheming up some debt trap.” And there are also controversies about the identity of the Chinese institutions, such as, oh, such as whether the national development of China is official or private creditor and whether it should be part of the DSSI, or the future debt treatment after negotiations.

I do not want to go into these controversies or criticisms in length, but I will like to emphasise some facts. The first fact is that China take up 60% in the total bilateral debt suspension support in the G20 DSSI Initiative and, also, even the CDB, whether it is the official agency, or it is a private creditor, it joins the DSSI, it joins – join with other official creditors in providing debt suspension support to low-income countries in the – under the framework – under the frame of G20 DSSI.

And, also, the third observation I will like to make is that China is an emerging creditor, but it is making its best to catch up with the international experience in debt governance and become part of the international co-operation system. Almost every year, we can see a progress by – a progress or a change in the Chinese Government or Chinese public agencies. For example, in 2007, we have the Guiding Principle for Financing in BRI. In 2019, we have the Chinese version of Debts and Sustainability Analysis. In 2020, China joined the G20 DSSI and provide 60% of the debt suspension support, and also, in – since 2017, we have been make – we have been promoting the idea of Green Belt and Road and we announced that we will not build any coal power projects overseas since 2021.

So, based on these observations, I will like to make a wild guess about what role China would play in China’s – in Africa’s future financing and debt governance. The first guess would be China will do its best to prevent debt crisis in Africa and play a very active role in its debt resolution. Why? Because China and Africa share common interests. If Africa country – African countries experience debt distress, it will be China’s loss, because we have huge – we have invest a huge amount of money in Africa.

And the second guess is that China and other creditors will come to agreement, finally, in how they collaborate in the future, especially under the G20 framework, because everything is mean the Chin – the other creditors don’t know how China want in debt resolution and China does not know how to provide debt resolution in a bi – a multilateral way. So, we have to cross the river by feeling the stones and by case-by-case negotiat – and these kind of case-by-case negotiations will – may lead us to broader agreement.

And the third guess is that China will bring about changes. The first change would be more competition among creditors. This may be a good thing, because no matter for what cause, other creditor countries may be pressured by China to provide more financing to African countries and maybe finally – and then, maybe finally, to finally achieve its state commitment of 0.7% of its total gross national income. And the second change would be there will be more planned finance, as promoted by the OECD and as demonstrated by the kind of hybrid financing institute, like the CDB, in China and, also, I – and, also, all the question of how China, Africa and the West should collab – should co-operate and how to close the financing gap and how to avoid debt is just in Africa.

Or – I will like to keep the answer short and by quoting one phrase from Deng Xiaoping, who is the Former Leader and chief Architect of China’s reform and opening up, and the quote is, “Development is absolute principle.” We need – we just need more money. We need more investment in Africa to close the financing gap and to keep that sustainable and we have to make these investment good investment and make these – make investment that truly bring about economic growth and that – and I would like to stop here.

Creon Butler

Thank you very much. That’s a fascinating perspective on China’s approach to this question and a whole bunch of issues I’m looking forward to coming back to you on. So, thank you for that, Ting, and now, I’m very pleased to move to our next panellist, my colleague, Alex Vines, and Alex is the Managing Director of Ethics, Risks and Resilience and Director of the Africa Programme at Chatham House. Extremely well-known to this audience, Founder of the Africa Programme, which celebrates its 20th anniversary this year. Alex, over to you.

Dr Alex Vines OBE

Thank you very much, Creon. So, Africa, as both Dr Wan-Ting, but also Professor Kevin, mentioned, has a massive infrastructure deficit. So, we’re absolutely right that – put aside all the problems that we’re talking about, Russia-Ukraine, the debt exposure, the continent needs $130 billion plus investment in infrastructures and China’s really an important part of delivering that for the development of the African Continent. And so, there’s been a lot of discourse around, and we looked at this in the paper that we’re doing, about debt sustainability and particularly, also, has China put African countries deliberately into a debt trap?

Now, this isn’t a new debate and there’s a good paper by our Asia-Pacific Programme that was produced last year on this issue, with the answer that “There isn’t a strategy of debt trapping African countries by China.” And that’s certainly the results of the research that we did, as our contribution to this paper, that Chinese involvement in African infrastructure is markedly heterogeneous. It’s taken by a mix of state, private and parastatal actors and it ranges from profit seeking to political contingency based on geostrategic calculation, depending on the location and political context. So, the spectrum is massive and there’s massive variability, as you would expect, on a continent that has 54 or 55 countries, depending how you wish to count it.

So, China, at times, is business focused and other times, it’s a suitor and perhaps, in certain circumstances, Dr Wan-Ting, China can be a loan shark, too, can do all of these things. And, therefore, each country has to be looked on a case-by-case basis and that’s what we did. The Chatham House team decided to look at seven African countries that were particularly – well, seven African countries, according to the World Bank, who are particularly exposed to China, related to debt. We chose to look in-depth at five of them. So Angola, Kenya, Djibouti and Zambia and the Republic of Congo, and then we added a couple of others that aren’t exposed, but are taking new loans from China for their infrastructure development: Republic of South Africa and Côte d’Ivoire. And, of course, then, we tried to analyse what do those case studies tell us, in terms of patterns of intent, both past, present and future?

So, this is what we found. We found that several countries had gone on oil and batch spending sprees, that then got in deep trouble once the commodity prices collapsed and oil prices went whizzing down, as they did, until recently, where we now have record highs. So, it is a big dipper rollercoaster. But we looked at Angola and at the Republic of China, that were very exposed, in terms of their debt that they’d taken on from China. Angola, some 43% of its debt is owed to China, very significant, and China takes about – I think Angola now is number four or five, I forget, important source of oil for China and, of course, with the Russia crisis, these things may now – Russia-Ukraine, that may change.

So, China did respond in Angola to something that the Angolans needed some, well, 20 years ago this year, when the Civil War ended, rapid infrastructural development. Some of it was good, some of it was bad and I’m afraid to say, some of it was very ugly and not always because of China’s fault, but by the local organisations didn’t do the checks and balances on the quality appraisal of the infrastructures. So, Chinese companies thought, oh, we can do infrastructure, have a lot of financial return for it, but the quality doesn’t need to be as good as, necessarily, it should do. And so, the problem there is a little bit about the way that Chinese companies perform, but it’s also to do with the host government and the institutions and the checks and balances that they put to ensure quality.

Another thing that we did look at here and we saw in our case study was double-edged debt traps. So, we did worry here that a country like Angola, potentially, is getting overexposed, in terms of its debt compliance exposure to China and so, we looked at how, then, that China and the Republic of Congo could manage this. And this is where the issue of African agency came in, that Angola was actually quite clever and effective at encouraging China to be involved in the G20 process, particularly DSSI. And so, this isn’t just about Beijing, this is about Angola itself and its own agency, because it realised the amount of exposure that China had on Angola meant that it couldn’t afford for it to default. It’s an important source of fuel – of oil exports to China and so, this conversation needs to consider the politics of Africa and how it influences China and how it can, at times, affect its calculations, effectively.

The next category we looked at, we call ‘white elephants’ and this is where we looked at Kenya’s debt exposure to China. China is Kenya’s biggest bilateral creditor and we looked at, particularly at the standard-gauged railway. I’m not going into the details here, there’s no time, but the conclusion of our research is that it’s opacity that was the problem, lack of transparency. That there was all this speculation in Kenya about a debt trap and that, possibly, the port of Mombasa would be provided as collateral to the debt, was all generated out of opacity and lack of transparency. So, the WhatsApp groups were full of conspiracies and other things. The press was full of it and that – the route cause is lack of disclosure on transparency of what occurred.

And so, this is a issue, I think, that going forward, China needs to think much more about, which is what is the cost of opacity? We see this also related to the Zambian case. So, much more disclosure, much more transparency, I think is the way forward on these issues and we see this, certainly in terms of Kenya, that they’ve learnt from this standard-gauged railway project and the problems that they’ve, well, encountered and continue on that and, so the next big Chinese project that is coming to completion in Nairobi is the new expressway in Nairobi, that goes right through the city, almost to the airport. And I was seeing the construction of it myself when I was in Kenya in December. That’s a US $600 million build-operate-transfer model, which will see the ownership revert to Kenya from the Chinese operators in 30 years, a format familiar to public-private partnerships elsewhere in the world, and a much more manageable scale and much more transparent. So, here we can see a different sort of approach.

Now, finally, two other things that we looked at. One was the strategic exceptions. So, there is one African country where we were wondering whether, actually, China might be wanting to entrap it, related to debt and that is Djibouti, because of its strategic location, both because of the Arabian Peninsula, because of the chokepoint on the Red Sea and because of its location servicing inland to a country that China cares a great deal about, emotionally also, which is Ethiopia. So, the Djiboutians have tried their best not to be entrapped and are actually trying now to seek ways of diversifying their borrowing away from China. But this is where I think we need to consider that the Chinese toolkit on these things is varied and wide and is driven by a variety of different incentives.

So, finally, in conclusion, we have our different Chinas and different Africas, in different context, driven by interest and commercial expediences. So, the analysis of our case studies is that China, we believe, is moving away from high-volume, high-risk paradigm, into one where deals are struck on their own merit, at a smaller and more manageable scale than before. Equally, this is where I think the example of Kenya and elsewhere is particularly important. So, finally, we see that China is needing, now, increasingly, to balance a shift to long-term development and sound investment decision-making, with the strategic demands of the Belt and Road Initiative and strategic considerations, such as what we have seen in Djibouti. So, there will be a few places that will continue to carry high risk, but I think the new lending that we’re seeing in Ivory Coast, Côte d’Ivoire, South Africa and other places, suggests that what we saw over the last decade, increasingly, won’t be replicated over the next decade. Thank you, Creon, I’ll hand back to you.

Creon Butler

Thanks very much, Alex, and again, I’m sure that there are – those are perspectives that our other panellists will want to come back to. And I would also actually say we’re getting some questions in, but I would encourage our audience to start posting your questions as they come up to you and then, we’ll be able to come and give – get our panellists’ responses to them later on.

So, now to our final panellists and certainly, by no means least, I must say, but I’m very grateful for her patience in listening to everybody else before coming to her, that is Yu Jie, our Senior Research Fellow on China in the Asia-Pacific Programme at Chatham House. And Yu Jie focuses on – particularly in her research, on the decision-making process of Chinese foreign policy, as well as China economist – economic diplomacy, and she’s written widely and extensively on that. And before Chatham House, among other things, Yu Jie was a Head of China Foresight at LSE Ideas. So, Yu Jie, over to you for your perspectives on this issue.

Dr Yu Jie

Thank you so much, Creon, thank you. Good afternoon and also good evening, ladies and gentlemen. Delighted to be here and share the panel with a list of really distinguished speakers. Very much agree with what previously speakers have been suggesting and especially what Alex suggested, that we’re now facing a different Africa and, also, a differing – a different China. I mean, that certainly is the case that, from our research, which is going to be published very soon, what it found out is actually, China’s lending behaviour has really shifted significantly, from that sense of the Wild West lending to the resource rich countries that would help China’s energy supply, into more something more mainstream and risk averse economic choice and not try to fund looking for return on investment. So, that’s one of the very interesting element, which I’m equal together with Creon and Dr Xiong in here.

Now, what China is also trying to do is trying to preserve as much value as possible when they come to its foreign direct investment on Africa, when it come to debt relief and, therefore, China will be inclined to join various multilateral debt relief initiative in order to share the risk. I mean, that’s also, again, been clearly indicated by President Xi’s speech at the Second Belt and Road Forum on 2019. Therefore, that’s also one of the incentive that China would like to join, and already participated on debt relief on G20 DSSI.

Now, just to echo, again, Dr Xiong’s number, what I found is under the G20, around 77% of the bilateral official credit that is really dealt between China and the African countries and, also, there is 17% of commercial band project, but also a very small proportion of sovereign bond under the G20 DSSI mechanism.

So, coming to the point that China seems to be – want to construct that argument itself. It is not a debt predator for Africa, but instead, and China will be much more interested to construct – present that narrative that China is actually the partner to collaborate with the African economies, irrespective with the infrastructure building, or irrespectives on debt relief. So, that is the narrative that China inclined to present.

Now, the second interesting point on what China’s trying to tell that story, I mean, this has not change, irrespective its lending behaviour or not, is that China keen to making this further argument that itself as being the leader of the so-called Global South and therefore, want to distinguish itself, compared with the members of Paris Club and when it come to a discussion under the conditionality, when it come to discussions under the good governance or irrespectives on many other aspects that generally the Western creditors is look into. So, that’s a one case of difference in here.

Now – and, also, what I found – what I particularly found really interesting, throughout this entire publication of the report, is that when they come to the decision-making, being lending of – especially the Chinese lending, when they come to – it is a foreign aid assistance or is from foreign direct investment, it is not exactly could be decided singlehandedly by President Xi himself.

So, we’re talking about there’s different African agencies in this game of development finance. On the other hand, there’s also different agencies within Beijing, come within this development finance and also try to make decisions or try to persuade the senior leaderships to make decisions on development finance. And so, on the one hand, you have the Ministry of Foreign Affairs and Ministry of Commerce, which are far more interested in a prioritised, a political objective and strategic objectives when it come to development assistance and when it come to lending towards African countries. Whereas, on the other hand, you have the Central Bank and the Minister of Finance that really look into long – medium to longer-term return on investment, when they come to the lending to African countries.

So, it’s a – I would say there are many cooks in this one particular soup and it’s not singlehandedly decided by President Xi himself, and for some reason, following the philosophy and the tradition of the Chinese decision-making, there’s no any consensus has been reached among these very central departments, which I’ve mentioned and, therefore, the most – the sen – the most senior leadership will not give a very clear answer when they come to the international platform. So, part of the reason why President Xi has suggested that “Let’s look into African country debt relief case-by-case,” scenario, is precisely because there have been no agreement has been reached, among various central institutions within China and even until today, as far as my understanding. So, this has really left a complex picture when they come the decision-making for the debt relief.

Now, another interesting issue what I found out and even throughout this entire research process, is also to do with we’re talking about a changing China. Changing China that appetite, in terms of foreign direct investment, in terms of development finance and, also, in terms of letting its state-owned enterprises to go abroad. That appetite has significantly shrinked in the time of COVID and now, that trend will continue after the COVID process. So, that is a part of the reason I would say you are expecting far less active Chinese agencies on the front of the development assistance and also, in terms of foreign direct investment towards Africa. This is not just only apply for African countries, but equally apply for South Asia and South East Asia countries that participated the Belt and Road Initiative. So, what China introduce its own dual circulation strategy, much of the financial resources will have to be redistributed back to domestic market.

Now, interestingly, this also concurred with what Nicholas Young has suggested last weekend in his government report, in time of National People’s Congress last week. He suggested that China will have to put forward a so-called “comprehensive thrifty package,” in terms of the government resources, which inc – also include the financial resources and where they have to spend their money wisely. And I guess this is also against the background of what has happened between Ukraine and Russia, and China realise its own supply chain has been disrupted, especially on grain supply and various other supplies and, also, if the sanction has rampant through the Russian economy, the Chinese economy will also be hit hard, as well. Therefore, China will have to make sure putting their money very carefully and spend their money very wisely and not to putting all the eggs in the basket, the so-called debt relief and development assistance. So, I end it in here and much look forward to hear your comments and questions.

Creon Butler

Thank you. Thank you very much, Yu Jie. That’s – I think that completes an enormous range of material we’ve got on the table now, starting with the immediate situation and the overarching response to debt distress, the – Africa’s longer-term financing needs and then, the two perspectives on China, which is an absolutely key player in this and then, also, as Alex pointed out, the very great variety of different situations in different African countries.

So, what I’d like to do, to start off with, is actually come back to where, in a sense, we started, which is the immediate response to the 21 countries, which are facing – either are in debt distress or face a high risk of debt distress. And, clearly, this could suddenly get very much worse, depending on how developments go, in terms of interest rate movements, exchange rate movements and so on. And Guillaume, at the start, you mentioned the fund has put forward a number of proposals as to how to, you know, make the Common Framework work better. I mean, I think everyone recognises that when it was announced, it was really quite an achievement to be able to get agreement across all G20 countries on that approach, and I think that’s very clear and very important. On the other hand, there are only three countries that are currently in the process, and they have been there for quite a long time, and there are others that may well come down the tracks.

So, what I’d like to do, particularly – perhaps starting with Guillaume and Ting, is just to get your views on what, exactly, is needed and what might be done, particularly through the upcoming G7 and G20 Presidencies, particularly on the issues, as I understand it, firstly around transparency, secondly around the involvement of the private sector. There was, for example, recently, a publication from the Bretton Woods Committee, which went into a vast range of things that could be done to improve transparency and, in a way, that was presented as being one of the things that would help get the private sector more fully involved, as well.

There are issues around the equivalence of, you know, what the private sector wants, in terms of debt restructuring, versus what other key players, you know, potentially, China, wants. So, you know, some would want an immediate write off, potentially, if there was to be debt restructuring. Others might want to actually, as in the case of the eurozone, an extended period of – you know, extended maturity, with potentially, much lower interest rates, and there’s a whole issue of debt sustainability. I mean, Ting mentioned that China had come out with its own view as to how to do debt sustainability. I think the agreement under the Common Framework is, basically, that it will be the fund and the bank that do the debt sustainability, but there’s obviously still a lot of issues and I think, both for other – for the private sector, but also for other creditors, as to exactly how that’s done.

So, Guillaume, can I come to you and just say that, you know, the fund has got a plan to try and enhance, strengthen, improve the Common Framework. Can you tell us about that and maybe comment on any of those points that I’ve made, as well?

Guillaume Chabert

Let me try, Creon.

Creon Butler

Yeah.

Guillaume Chabert

Let me have a look, yeah. But perhaps if you allow me taking one step back, I would like to say three things and it’s that one is precisely on the Common Framework. But I think the first element I wanted to mention is, I think the previous speaker and we also agree, there are huge financing needs, of course, at which the Sustainable Development Goals to finance the infrastructure of the [inaudible – 52:50], to finance the social spending, that are absolutely needed to build bet – a stronger institution, capacity development, etc. We completely agree with that.

Second point is to get to that point, and we did some research, economic work on that. I think we, also, would all agree that if we – be a need for combining different sources. One of the sources will be, of course, the external financing, coming from the multilateral institutions, the bilateral partners, the private creditors and we should shape a system, let’s say, which, indeed, increases the external financing.

Just to mention that, on the IMF side, we have scaled up our concessional financing. The product region and gross price facilities have been reformed last year. So, we are scaling up this financing. But it could be fair to say that we are not a development institution as such. We provide the elements to stabilise the economic, to help build a macroeconomic framework that is conducive to development, but it has to be done, of course, with partners and we are working with the World Bank, African Development Bank and others, on that.

I think it was mentioned that the flows of official development aid is below what was committed at the UN level and definitely, in terms of presentation of GDP of low-income countries, it has also decreased. In fact, it has increased in absolute volume terms, but not in terms of share of GDP of low-income countries. So, the – secondly, we are advocating for more ODA flows coming into the low-income countries, that’s certain.

But of course, the recipient countries themselves have a role in that, in terms of domestic reforms, in terms of creating a business environment that is conducive to private sector development in the country and, also, to foreign development investment, of course. That is related to transparency, very much, because – in particular, in terms of infrastructure financing, you need public procurement that are robust, you need PPPs that are not opaque and leads to contingent liabilities that are not known. You need a framework that is robust and some efforts on the side of the countries are, of course, necessary and they know that. I mean, I’m not think that they don’t know that. I think that the countries know that very well. Also, in terms of tax mobilisation, mobilisation of private settings, there are a number of reforms that are necessary, and we are working with the authorities to help them implement the reforms. It’s complex, it’s sensitive, it’s sometimes difficult to convince your population to do those reforms, but that’s absolutely necessary.

And then, there is, of course, the debt parts and, where necessary, the debt restructuring part. The reason why I wanted to come to that third aspect last is because debt restructuring is about past debt, which were made in a certain way, where there was opacity, where there was collateralised features that are not necessarily the best way forward. That is cleaning, you know, the mess of the past, if I may say so, in a sense. So, we need to have a two-track approach there, building better for the future, in terms of transparency, in terms of purposeness of the framework, but also being capable of acting fast to deal with past situation, which is what debt restructuring is all about.

And I think the transparency discussion is a bit different from the – for the future and for dealing with the past. When you deal with debt restructuring, what you need is to have a sure understanding between the creditors, the debtor, the international financial institutions, on what are we talking about, in terms of past debt? Building for the future is something different. It’s creating the transparency framework that, indeed, will help all investors, be they public or private, know what the country risk is and assess the risk correctly. It would lead to lowering the risk premium, it will lead to a positive circle of investments and financing.

On the – on your target question on the Common Framework itself, two things. One is we definitely need that some improvements in the implementation of the Common Framework are feasible and necessary. First, the process and timelines of the process are unclear at this point in time. When a country undertake debt treatments, it’s precisely at the point in time where the country’s under severe financial stress. So, you have to act fast and we, as an institution, are there to help countries facing crisis. It’s our, you know, it’s our mandate, but we cannot lend if that is not sustainable, and to lend we need to have commitments from creditors that they will undertake the debt treatment that is necessary to put debts, again, on a sustainable path. We don’t need to have the actual treatment before we lend, but we need to have the commitment from the lenders that they are ready, they are committed to implementing these debt treatments. That’s what we call the financing assurances, and that has to go fast.

Usually, in the past, when a country was in such a situation, you had maybe three/four months between the time of the requests and the time where the IMF could lend. Because there was, you know, habits of working together, it went fast. We had the processes in place, it went well. I think it’s fair to say that, with the Common Framework, there are new creditors, a new community and a trust and a habit of working together that has to be created. So, it was fair to say that the first year of implementation of the Common Framework was the, kind of, tests and we weren’t that surprised that it took a bit longer.

But it has to go faster. Zambia comes to mind. Zambia, we have reached staff-level agreements following a programme with Zambia early December. At this point in time, there is still no creditor committee formed. We are three months after. I mean, that’s not act – that’s not working, something has to go faster. And it is related, also, to a very point – very important point that was made, which is the domestic decision-making process in our country is, believe me, is very complicated. You mention at some point that I was working for France in the past. I was the – very much involved in that field. Even in a country such as France, which chairs the Paris Club, the internal processes are complex. So, it’s just logical that it’s complex, because you have different objectives, different functions, between the different departments, Ministers, agencies, that’s for sure. But something has to be worked out to go faster. That will…

Creon Butler

Guillaume, can I just ask about this, I mean, how do you – you know, how – do you just have a timetable that everybody agrees to at the outset? I mean, the – in a way, as you say, there are many actors, different official creditors, the country itself, and maybe even some private sector creditors. All have got different timetables, interests and so on. So, you know, what vehicle can one use to impose a timescale on these situations?

Guillaume Chabert

The framework is very, in principle, efficient in the sense that there is an estimate – I mean, the Common Framework includes a clause of comparability of treatments. The private creditors have to deliver at least the same amount of relief as the official creditors. So, the official creditors are in the driving seat there and the private creditors know very well, because that’s practices that have been implemented for decades, they know how it should look. And as soon as the official creditors provide the IMF, us, with financing assurances, we can lend, which stabilises situation, which gets the recovery ongoing much quicker, which is in the interest immediately of the creditors, official or private.

We knew the country that’s – that delivers proof to have your claims in good faith. So, the sooner you act collectively, the better everyone is at the end of the day, the country itself, of course, and its population, in the first place, but also the creditors. And usually, you know, the typical timeframe was you had a request for the treatments and a request for – and the finalisation of the negotiation with the IMF Foreign Direct Programme and you have the timespan of three to four months before the IMF could lend and you had time then to do the actual treatments, because you had the anticipation. With Chad…

Creon Butler

Yeah, may…

Guillaume Chabert

…far beyond.

Creon Butler

Yeah, go on, go ahead, sorry, Chad.

Guillaume Chabert

So, it’s…

Creon Butler

We just…

Guillaume Chabert

…much too long. The timespan should be three/four months between the requests and the…

Creon Butler

Sure, yeah.

Guillaume Chabert

…provision of financing occurrences and then you do the actual treatments much later. And to – since it’s new, since it’s maybe a bit longer before we come to this very short period in time, we are advocating very strongly for creditors to provide a debt standstill during the period of negotiation. Our proposal would be a country making a request for a treatment under the Common Framework and having reached, with the IMF, staff-level agreements, meaning that there is a seal of approval of since advance in a very, very robust manner, creditors should be ready, should stand ready, at least the official bilateral creditors, should stand ready to say, “Okay, look, we suspend your debt service. You are under a very serious financial stress. We suspend the debt service the IMF lends you, and in a few months’ time, when we will do the actual treatments, we will take into account these additional reports that we’ve had – we will have done during the period of the investigation.” That would just make sense.

Creon Butler

And – yeah, indeed, and now the DSSI is ended, it’s obviously even more important, in a way, that one has that standstill.

Guillaume Chabert

Absolutely.

Creon Butler

Maybe I could move to Ting now and just say, you know, there are a number of issues here around where Cra – where Chi – you know, you mentioned that, you know, this is new for China and, therefore, it’s taking time. And, you know, China is an absolute key player for some of these countries, but can you see a situation, either on the issue of timescale, but also on the issue of transparency, where, in a way, these – you know, China – and, potentially, also, you know, the speed with one which agrees with that sustainability analysis? Can you see on these issues circumstances in which China will be able to move more rapidly, and has been the case in the past, since the framework was put in place? If I could put that question to you, Ting [pause]. Not – Ting, did you get my – I’m not sure if you can hear me.

Dr Wan-Ting Xiong

Sorry.

Creon Butler

Sorry, I was just saying the – whether that you see circumstances in which China – on the issues of speed and, you know, maintaining momentum, now that China has become more used to how the framework works, to what extent you can see situations on the issue of speed, transparency and, you know, agreeing that sustainability analysis and so on. Circumstances in which this can all happen a lot farther – faster and in a way, China can be part of a process, which makes this happen, you know, as Guillaume has said, you know, in a much, much smarter timeframe, in the space of three/four months, rather than the much more extended periods we’ve seen over the last few months – mon – over the last 18 months?

Dr Wan-Ting Xiong

The internet connection is not that good. I think I got part of your question.

Creon Butler

Okay.

Dr Wan-Ting Xiong

It’s about transparency and it’s about progress of the Common Framework debt treatment and how to…

Creon Butler

And particularly…

Dr Wan-Ting Xiong

…pick them up.

Creon Butler

…speed. Yeah, particularly the speed with which the Common Framework approach can be developed and to what extent China’s able to, now that it’s got familiar with it, actually move much more quicker – quickly on a number of the key decisions that need to be made. I mean, this is partly Chinese authorities, but it’s also, obviously, Chinese lending institutions as well.

Dr Wan-Ting Xiong

Yes, on the issue of transparency, we have a lot of discussions in China about the new AidData paper on how China lends, on the non-Paris Club clause, on the non-transparency clause and, also, we are – we intensively follow the BWC paper on how that, on how to enhance that transparency. And there are a lot of policy discretions in public agencies in China and, ooh, and we pay a lot of attention to them, and we are think – still thinking about how should we become more transparent?

The general idea would be that – the attitude in China would be that we do not hate transparency. We – most of people – most people agree with trans – being more – become more transparency, because – transparent, because nobody like white elephant projects and nobody want to waste their money on a project that does not give financial returns. So, we like transparency, but the problem is how to become more transparent, and I – there are some discussions and, also, there are – in major public banks in China, and they are working on their own standard about what is high quality infrastructure and how they should evaluate these projects, and these are the progress they are making. And yeah, I think in this year or next year, there will be a version of China’s principles about own better transparency and better – and a high – and a standard for high quality infrastructure. There will be guidelines coming out, there will be, like, a case study coming out.

And, also, about the progress of the G20 Common Framework, I want to say one thing, is that why this programme is delaying, and I think one of the problem is that there are not that many debtor countries applying for help under this framework. And why? Because they – many countries – many debtor countries are afraid of being downgraded by credit agencies and if this happens, they cannot borrow from the international capital market, or there will be much higher costs for them to borrow. And I will see that the delay – the problem of delay is because private creditors are not fully participating in the Common Framework and I – there is a very recent blog from the World Bank. I think the suggestion from them are very good and they give two suggestions.

The first is to work on the technical details about how to define comparable terms of debt relief, and the second is to involve the private sec – to work out ways to involve all these bondholders that are allocated anywhere in the world and you – there are millions of them. You just don’t know who they are and to form a group for – form a group that include them. So, I think these are the reason that are delaying the progress of the Common Framework.

Also, China, I think the China – China’s attitude towards Common – G20 and Common Framework is very active, as you can see, as in the DSSI and, also, the CBB’s voluntary involvement in the DSSI. So, that would be my…

Creon Butler

Thank you, Ting.

Dr Wan-Ting Xiong

Thank you.

Creon Butler

Thank you very much. What I’d like to do is now starting picking up some of the questions that we’re getting from our audience, and a number of these relate to the longer-term financing flows, which Professor Urama and Alex and others have spoken about. And there are a couple of questions I would like to highlight in particular, to get views on. So, one of them is actually around build, operate and transfer and, indeed, to what extent this is actually problematic or to what extent, actually, a build, operate and transfer model can actually be a much clearer way of, you know, in a sense, having an investment, but then, ultimately, passes over to the country for their own long-term control and disposition. So, that’s the first question.

Then, also about equity investment and there’s a question around the fact that – essentially, how much equity versus debt is China investing in Africa and, you know, what is the perspective of equity versus debt as a way of doing longer-term finance? So, I wonder if I could come to – perhaps if I could ask Alex and Cherry, first, to comment on those first two points and then, I’d like to come to Professor Urama after that. So, Alex, on the view of build, operate and transfer as a mechanism for long-term financial flows into Africa, what’s your view on that? And then, Cherry, perhaps I could come to you on the equity versus debt question.

Dr Alex Vines OBE

Thank you. I mean, we need to look at how the Kenya model is going and so, the build, operate-transfer model there, in particular, is an interesting one, but there, you know, there are variations now of interpretation of what it’s actually offering, how much did it really cost and, kind of, the details. My view is it all goes back to the issue of transparency and disclosure and so, that’s the way of dealing with this.

But I do think this is a way of not mortgaging indefinitely the cou – a country’s future. So, I always thought that the Angola mode of, kind of, oil-backed loans, in terms of the Angola experience, or the Republic of Congo, was very inefficient. It was hostage to the volatility of commodity prices and we – you needed a different approach. And I think this is where we are seeing evolution, thinking about where you can get more effective models that don’t necessarily infringe, potentially, on sovereignty. And it was very interesting on what Dr Wan-Ting was saying about that China itself is thinking about how to get checks and balances to have better delivery of infrastructures. This is a massive problem in China, so China’s thought about this for a long time, but how to ensure that, with the going-out strategy, that its international companies fulfil high standards, even when they’re not necessarily held to account in the way they should do by host governments and institutions, I think this is a really key issue.

Creon Butler

Thanks very much, Alex. Cherry – Yu Jie, on the question of equity versus debt, and China’s role in that respect.

Dr Yu Jie

Sure. I’m not sure I can give a precise percentage in here, but what I have seen so far, it seems to be quite significant change, in terms of investment in Africa from the Chinese agencies. You know, it’s no longer just about the state-owned enterprises that interestingly and put forward, in terms of managing the equity and debt. But instead, you actually have many shrewd private investors that begin to take – paid it attention and take a dives on African market. So, you would expect they are as shrewd as any other international investors and that look very carefully, in terms of debt and equity ratios in here. So, I can’t give a precise answer, but I think the nature of that invested in Africa and, also, the nature of development assistance has – certainly has changed in this landscape and for China.

I mean, just to – even adding on Xio – on Dr Xiong’s point on the check and balances, it’s fair enough we’re talking about having check and balances, but when it come to implementation, in terms of check and balances and how are we going to balance, on one hand, the strategic need, the strategic objective, on the foreign – China’s foreign affairs, and vis-à-vis the actual seeking for return on investment? I think that’s, ultimately, that’s the key question Beijing will have to answer.

Creon Butler

Indeed, thank you. I want to, actually, come to Professor Urama now, if I may, which is from the other panellists, there’s been a great deal of talk about transparency and I think both in terms of the immediate challenge of the Common Framework, but also in terms of long-term investment. Again and again, people are saying this is the solution and as I mentioned, the Bretton Woods Committee has put out a report on transparency and Guillaume, I think, was suggesting that, basically, transparency may be easier to achieve going forward, you know, locking transparency into future financial flows, than it may be, in terms of dealing with some of the outstanding debt that exists. So, I wonder for – speaking from your perspective, in the AFDB, what is your – a) do you see transparency as being as important as everybody else does, in terms of securing these long-term financial flows, and what do you think the approach should be, in particular, because it’s not just about transparency for the creditors? It’s also about the local governments, African nations themselves saying, “Actually, we believe in transparency and we’re going to put this in our legislation,” and so on. So, I wonder, Professor Urama, if I could come to you on that question.

Professor Kevin Chika Urama

Thank you very much for that. Transparency is always good for everyone and on all sides. I want to address this from the point of institutional capacity to implement [audio cuts out – 75:12] currency, or when you have institutions that don’t – that does not have what it takes, the technical capacity to even understand, you know, dealing with some of the contract negotiations that involve – that are involved, then it’s very difficult to implement that. So, what we are doing at the African Development Bank is that we have actually developed a strategy for economic governance in Africa, with defined purpose of helping to build that capability within our regional member countries to be able to address some of these issues. I’ve also worked with the African Legal Support Facility that helps countries in such contract negotiations on [audio cuts out – 76:00] what they are getting into and how to be able to enter into these contracts. And, like already have said in terms of clarity, even in the G20 Common Framework, you also need a lot of transparency there from all the issues that also already been raised by colleagues, that I don’t want to have to repeat there.

So, a simple answer to you is that transparency is top on our agenda, it’s top on the of agenda of many African countries, but the main one there is institutional capacity for governance to make that happen. So, this is one way that we can – to help of building capacity of these institutions to be able to get that done and we are working with the IMF and colleagues on what we call the Public Finance Management Academy for Africa – African countries, to be able to shore up the capacity at the different levels of managing public finance, including in the potential borrowing principles within their – within the member countries. So, transparency is a song that we all sing, but then, sometimes, implementing it, it takes two to tango, both sides to ask for it and wish for it, going forward.

Now, when I talk about, also, the financing needs, one point, and I don’t want us to overlook, is the financing needs. Some of the financing needs for African countries are actually for solving and addressing global comms challenges and then, the fundamental of looking for profit and return on investment may not necessarily be very optimal for global sustainability. So, we also need to think about how it would benefit low cost construction of finance for African countries to be able to address some of those issues, like their climate change challenges that we’ve been talking about, because most of the other countries grew their Economists by actually offering us environmental badge, which everyone has to suffer for. And the one thing to see is African countries chatting in part because of [audio cuts out – 78:28]…

Creon Butler

I think we just lost you, Professor Urama, but we – hopefully, we’ll be able to come back to you shortly. What I’d like to do, actually, is…

Professor Kevin Chika Urama

Well, yeah.

Creon Butler

Oh, okay, good, you’re back. We lost you briefly then. We heard the rest of it very well, but we just lost you, your final point.

Professor Kevin Chika Urama

Okay. So, I was saying – let me just touch on the question of the build, operate and transfer that has been raised. Of course, it varies, depending on country – the capacity of the countries to govern such transactions and one of the things that is in this context, so is that the [audio cuts out – 79:12]. In terms of encouraging global companies, established companies, and operate from within the continent, that will also help to create jobs and create – I mean, help with poverty and deprivation. And it’s also good for the environment, because of the carbon footprint of products. If you have to move materials up, all the way to China, then [audio cuts out – 79:40] so on and so forth. So, there are several moving pieces that we need to think about.

And on the company [audio cuts out – 79:51] the point that’s been raised, the transparency issues also [audio cuts out – 79:57] different ages and the processes. How long will it take from one process to the other? All these are not clear and on the list the fears by countries about downgrades that has – that are – has already been raised, that’s the real one that is there. So, how do we also address them going forward? Thank you.

Creon Butler

Thank you very much, Professor Urama. Actually, just on the final point you mentioned about downgrades and rating agencies and so on, I think there is an argument that, in practice, countries are too – well, there are countries, middle income countries, who have gone through debt restructurings in the past and actually, they can come back to the market very quickly. And the rating agencies are now being much – are now very clear about exactly what it is you need to do in order to – you will, initially, have your rating downgraded, but you can come back, provided you do various things. And, obviously, as – you know, Guillaume is nodding because the, you know, the fund provides a framework, which is designed precisely to do that. But I do think there is an issue around – and this may be another aspect of capacity building, around governments in African countries not really being fully aware of what is possible and how, actually, relatively short a downgrade can be as a result of, you know, a debt restructuring. And this may well be an area that is worth looking at in some more detail. What I…

Professor Kevin Chika Urama

Sorry.

Creon Butler

Sure.

Professor Kevin Chika Urama

Sorry, maybe just on the last point you made about the relative shortening of the period at the downgrade, the main issue here, the – is it has to do with the discount rates of the poor. So, the urgency of having something now, in order to address the rising thing fragilities and these – in these different countries, makes it difficult for officials to start thinking medium to longer term issues. So, we all know the downgrade of the poor is very high, so we need to also put that into consideration as we were having these discussions. So, it’s very clear why some of the countries are not willing to come forward for that opportunity that is provided by the Common Framework. Thank you.

Creon Butler

And thank you very much. Guillaume, I’ll come to you quickly. You have your hand up.

Guillaume Chabert

No, I just wanted to echo what you said on the downgrades and the need to work further, definitely, with the different stakeholders. There was a question in the chat on “How far were African countries themselves associated to the discussion?” and that’s a very good question, I have to say. We, at the IMF, we engage very closely with African Ministers, finance and also stakeholders, on those issues, but as we know, at the G20 level, Africa is not very well represented. So, that’s definitely something we have to address.

Just also mentioning that we did some research on why did we have only three countries requesting the treatments under the Common Framework? And, definitely, there are different reasons, of course. Fact that in 2020 and 2021, there was an extraordinary support, in fact, to those countries through the spill-over – the positive spill-over of the extraordinary measures undertaken in the fund’s economies, but also the support through the DSSI, the emergency financing provided by the international institution, etc. 2022 will be much more difficult and that was done before the Ukraine war and those kind of additional complication.

And definitely, I completely agree that the uncertainty about what would credit rating agencies do has played a role in the decision to not request a treatment, for sure, for some countries. But let’s be clear, if that is not sustainable, you will have to retreat – to treat the debt and that will lead to a downgrade, that’s for sure, yeah. There is no way to do otherwise. What is really the key is to have those countries to come back to the market very, very soon after the restructuring and we have experience on that, and definitely, we should work with the countries with what we can do to help, indeed, these potential markets for a company, but that’s a little. So, let me stop here.

Creon Butler

Thank you very much. Well, unfortunately, we’re – only have five minutes left. I – Ting, I’ll come to you very quickly, as well, thank you. Please go ahead, Ting.

Dr Wan-Ting Xiong

Oh, oh, thank you.

Creon Butler

Yeah.

Dr Wan-Ting Xiong

I just have a follow-up question for Guillaume on his last comments. Do you think there will be a huge – a greater moral hazard problem if the debtor country can come back to the financial market very soon, and how to take – and take these problems under control? And the other question is that what do you see the hike in interest rate in the next two years, which is, oh, is going to have impact on Africa and, also, like, the – all the hiking inflation as well? Because the food inflation is going to be very high and food shortage is – problem is very serious in Africa. Do you think these will enhance the – Africa’s problem and to what extent? Thank you.

Creon Butler

Thank you. Guillaume, if you could answer those two questions very quickly, ‘cause I have a question I want to put to Alex, as well, as the final wrap up. So, Guillaume, to you next and then I…

Guillaume Chabert

Well, very quickly…

Creon Butler

…must move on.

Guillaume Chabert

…yes, we see concern rising and not only in Africa, I mean, all low-income countries. It’s not specific to Africa and there is a technique and in unintentional financial conditions, there are many aspects that lead to more debt challenges going forward, as early as 2022. And that’s where, indeed, we need that having efficient, quick processes to restructure debt where necessary is needed and part of it is, of course, to ensure that countries can come back to the markets quickly afterwards, because that’s necessary to financial developments. Let me stop here.

Creon Butler

Thank you, and I actually, for the final two or three minutes, and I wanted to come to both my two colleagues, Alex and Yu Jie, and it’s a question, actually, that was the las – one of the last question – well, most recent questions we’ve asked, which is whether African countries actually use their negotiating, you know, levers as well as they can in these situations? I know you’ve spoken about, in your comments, about African agency being very important, but the step beyond that is are they actually deploying their negotiating capabilities as effectively as possible? And then, my question to follow that, to Yu Jie, was what do you think China’s response to a more powerful, if you like, negotiating stance by a number of African countries would be? I mean, generally, you get good outcomes if you have a – you know, everybody’s in a strong negotiating position and they wall want to get an agreement, but you know, how would China respond if, indeed, African countries do get better at negotiating their position? Alex, quickly – quick response from you.

Dr Alex Vines OBE

Okay, well, again, it depends on the country and the capacity. Professor Kevin spoke about the variable capacities that there are in the continent and some countries are much better at negotiating and have better capacity that they’re building than others. What we are seeing is more African policymakers at the technical level having Mandarin, but it is – you know, at the moment, it is spotty, but it is improving and, also, it’s learning by doing. So, what you are seeing is that African countries are becoming more shrewd and experienced of China and they’re not necessarily, and it was one of the questions in your Q&A – in the Q&A, they’re not necessarily, even if they are very indebted to China, necessarily voting, always, for China. Often abstaining, which is the default African position, and sometimes opposing. So, again, you’re beginning to see the rhet – the narrative out of Beijing of self-self, that we’re all together, that’s changing, and that’s a good thing. Africa is – and African policymakers, are beginning to be more discerning on what their policy responses should be.

Creon Butler

Thanks very much, Alex, and Yu Jie.

Dr Yu Jie

Yeah, just quickly. I mean, again, I agree with Alex in here. African countries could become shrewder and not necessarily vote in favour in China’s preferences within the UN. I think we have to take this, really, with a sense of wisdom in here. It could be double-edged sword. Actually, while we’re talking about the check and balances and here much needed for the Chinese agencies and Chinese institutions, if we do have more competitive African negotiators and that would, perhaps, also facilitating internal changes for China that much needed, in terms of check and balances, as well. So, put forward a much stronger mandate and agenda to negotiate with African countries, too.

So, it’s not necessarily, firstly, a bad thing. Now, secondly, what I’m worried about in here, I mean, as someone from geopolitical angle, that while we’re not having these Russia and Ukraine conflicts, that the trust between West and Russia is running extremely low and, therefore, that would also impact on China’s trust towards the West, as well. Whether China will be – take this opportunity as, you know, as a way of mending its relationship with the West, we don’t really know yet and perhaps we’re heading to the opposite direction, that even if on the issues on debt relief, that we can talk, in the past, and perhaps China may refuse to discuss with the West, as well. So, it’s the trust issue in here that would become as a very strong headwind, too.

Creon Butler

Thank you very much, Yu Jie. Well, unfortunately, we are now finally out of time. I do want to thank all our panellists for their contributions and for giving us their time, but also their great insights. And for struggling with the internet connections, and particularly Professor Urama, I really do appreciate it, but we got some great points from you, so thank you for persevering with that.

As Alex has mentioned, there is a Chatham House paper, which gives our perspectives on quite a few of these issues, that’s currently just gone to the Editors. So, it will appear by the end of this month, that’s the plan, but we will actually have a look at the draft and just see if there’s anything, in terms of what’s been said today that we need to quickly reflect in our text, but we do appreciate, very much. And, also, just thanks to our audience for being with us and for all their comments and questions, some of which we got to, but unfortunately, some of which we don’t. So, until the next time that we meet again, virtually or in-person, I’d like to thank everybody for taking part and see you all again soon. Goodbye.

Professor Kevin Chika Urama

Thank you, bye, bye.