The latest deadlock in Zambia’s protracted restructuring is a blow to hopes the Group of 20’s Common Framework was finally producing results. It bodes ill for other nations, like Ghana, that aren’t as far down the road of negotiation. Both country’s foreign securities slumped.
Official creditors, led by China and France, rejected a pact with the holders of $3 billion of bonds that the Zambian government and International Monetary Fund had approved, showing just how fraught the process is, after three years of talks.
Besides choking debt, nations across Africa are facing severe shortages of foreign currency, hindering their ability to attract investors.
Companies and funds are increasingly focused on countries with enough dollars to allow them to trade easily and to get their money out while shunning those without.
That’s prompted some drastic measures: bartering, currency devaluations, and strict exchange controls to try and protect limited foreign exchange reserves. The IMF and Middle East governments have been stepping in to help.
“The foreign funding squeeze implies African countries are unable to fully finance their current-account deficits,” says Yvonne Mhango, Africa economist at Bloomberg Economics. “The most vulnerable countries are those with overvalued currencies, including Nigeria, Kenya, and Angola, and those with low foreign-exchange reserves, like Malawi.”
About a dozen African currencies have fallen by at least 15% against the dollar this year, ranking them among the world’s worst performers. Kenya’s shilling and the Zambian kwacha have hit record lows. Egypt, Nigeria, Malawi, and Angola have been forced to devalue.
Dollar shortages and weak exchange rates are also affecting consumers and businesses. The soaring costs of importing goods have stoked inflation, with prices for prescription drugs, food, and other essentials skyrocketing.
The Paris Club, talking to official creditors, is confident of a quick end to the Zambia impasse and there could be good news any day now on Ghana’s debt. That would help lift the mood and shift the focus to boosting economic growth again.
Yet, for now, debt piles and currency woes make most of Africa’s frontier markets an unattractive investor bet.
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