Africa Pays 9% to Borrow. Asia Pays 4.7%: The Borrowing Gap Costing Africa $75 Billion a Year and Blocking Its Rise
https://www.ebc.com/forex/9-vs-4-7-the-borrowing-gap-costing-africa-75-billion-a-year-and-blocking-its-rise
Africa Pays 9% to Borrow. Asia Pays 4.7%: The Borrowing Gap Costing Africa $75 Billion a Year and Blocking Its Rise
https://www.ebc.com/forex/9-vs-4-7-the-borrowing-gap-costing-africa-75-billion-a-year-and-blocking-its-rise
38 Comments
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5% interest is not what is causing africa to fail to excel in the world. civil unrest, exploited people, and war are the cause.
Cause and effect is backwards. If Africa was stable and thriving it would be able to borrow cheaply.
If you want investors to take a risk and give you money that you might never pay back after a civil war, you have to pay extra
Is the % difference due to the risk/reward?
I’d assume Africa has borrowed a lot in the past and their ability to repay is not as reliable as Asia…no?
I understand the sentiment but this is suggesting it is deliberate/nefarious. Instead it is a market rate based on the fact loans to Africa run a higher risk of not getting repaid, thus the higher interest rate.
Its about risk.
Two friends ask to borrow your car.
Friend A had a collision when they were younger but has been taking driving lessons since and can likely afford to get it repaired.
Friend B can barely drive, gets into accidents often, and is in and out of work so might not be able to pay to get it repaired.
Who are you more likely to lend your car to?
Banks are like this with everyone. The higher risk, the more interest. This makes it sound like banks are specifically punishing Africa when they’re just being banks lol.
Not having 2% home loan is blocking my rise in the real estate market
Argentina has similar rates due to history of mismanagement. Same issue in Africa. Asia worked very hard to create good investment environment. Even poorer countries like India significantly improved their credit ratings and borrowing costs. Industrialization is a tough road, there are a lot of basics African countries are just not doing. But that doesn’t mean western credit agencies are completely fair, that is true.
“Africa” is a bit if a pointless thing to say here, there is a huge difference between African countries and the stability and risk of borrowing between them. The same for Asia, but if youre averaging them out, it’s just not a genuine or reasonable thing to do if you want to make a legitimate and meaningful point.
Not the best time for this article!
Borrowing is based on risk, what’s riskier loaning money to a middle class Japanese man or a broke African one?
But the current average credit card interest rate is 25.22% which is blocking my rise. Seems like Africa should look at it from my perspective .
This makes so much sense when you think about it. The interest rate gap basically guarantees the gap in development stays the same. Africa pays more to borrow, so builds less, so looks riskier, so pays more to borrow. Its a cycle that’s almost impossible to break without outside intervention and yet the outside world is the one charging the premium in the first place.
Africans eat and steal this money. Communism and Islam also contribute to economic stagnation.
They should try not being immensely corrupt
It’s the premium to pay if you’re at risk of civil war etc.
Banks do not give a shit on the race or color of their borrowers skin. Money does not know color. It is rule of law and willingness and ability to repay the loans that define the risk. Africa is badly lacking in these areas, therefore they have to pay the price.
Mainly because when Africa borrows, it goes into the pockets of our politicians (and generations of Africans keep paying these odious debt); whereas when Asia borrows, it goes into the development of their nations.
Because many African countries are where investments go to die. Half of the 50 or so countries there are either in an active conflict or have authoritarian/corrupt leader that would weaponise the money into bribes or kickbacks to maintain power. Many of these authoritarian dictatorships also have a bad habit of nationalising anything of value in their country the nanosecond times get tough (looking at you Zimbabwe), run said asset into the ground and then complain that output is dogsh1t.
Even the more stable countries spend a good portion of their time threatening to destroy each others infrastructure, look at Egypt and Ethiopia…. Investors probably wouldnt be best pleased if their shiny new dam is turned to rubble before it has a chance to pay anything back.
TLDR – I wouldnt invest in a product with a 10-20% risk of default short term, and neither should our nations/national banks.
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Har
It’s risk based. No one cares if it’s Africa, Asia or bumfuck-nowhere. As long as the risks are the same – the loans will have the same price. When big money is at play no one cares about your Twitter/reddit racism warriors. Money is money. And risk is risk.
Suggesting that lenders, who literally just care about making money, have some sort of nefarious plot to hold down Africa through higher borrowing rates is stupid as fuck. Its the most standard version of risk premia.
Shall we publish about Venezuelan bonds holding down the people next?
if risk is higher rate is higher
My neighbor the millionaire pays 3% on his mortgage. I pay 7%. The gap is blocking my rise to millionaire status.
The influence of racism has been proven to exist in just about all structures. While yes, it’s abundantly clear banks care about making money a lot, so do just about all companies, and there’s endless examples of companies not doing what would be worth more money for them because of the prejudice of their executives.
For example, there’s now been dozens of studies showing increased productivity showing that a 4-day week increases productivity. Yet companies don’t implement that because they have decided it’s not the case based on their prejudice.
Why are most people here so certain racism doesn’t influence the decision? Sure, quantifying it is probably impossible currently, and that new credit agency will hopefully help solve that, but to me the default should be that it does, there’s been enough historical examples of precedent.
IMF controlling the world order
Whoever think the premium is unjustified should buy Africa bonds.
Africans are currently burning Ebola aide tents because they think Doctors cause Ebola, so to be honest I’m having trouble giving a shit about Africa’s self inflicted problems.
I mean, the title sounds like it some sort of evil plan to keep Africa poor when in reality its the risk.
If your country has an annual coup, i tend to find that risky and will ask for more money back.
Not hard to understand now, is it? If singapure asked for cash, they’d get it for 1% because you KNOW they’ll pay back.
The interest rate is not the only problem with these credits. While other credit institutions who just lend money, China has a whole bundle of contracts coming with the credits.
These credits are mostly for infrastructure. Unfortunately, the jobs being created this way do not go to Africans, but Chinese guest workers who do not pay income tax or something. They have to buy Chinese materials as well and this is a hughe revenue loss for a nation. no newly created building jobs/income for workers and due to this no income tax for the state, no revenue and no jobs being created for processing materials and so on.
So China gives a credit and earn the most of the money back _and_ has a hughe interest rate. And if the African nations can’t pay it back, they have another infrastructure facilities (like a port) as security and so these facilities are on risk.
The problem with Africa is the temperate climate ( no harsh winters) and the physical resilience of the people. You can abuse them and they take it.
Try abuse any other people and they die directly from the stress or indirectly because no good preparation for winter. Or the people resist the abuse because they know it is a risk to their survival while africans know it is merely annoying and put up less of a fight/ resist less. They are suffering from success.
In lots of places we protest against 4 year old working in the mines, not in Africa. Different mindset.
really, it’s all about risk of return
african countries have and still are going wild lengths with money and inflation, and corruption is still big there
it’s not like the corruption does not exist in europe and as we’re seeing in the usa, but it’s far more “predictable” and “regulated”
it is still a bit unfair how african countries, like mozambique, are being treated by the west, see credit suisse and them nearly bankrupting the country…
We are still benefitting from colonialism after all this time. No wonder Russia and China have a good image in Africa while Europe is largely hated.
Guess what, many countries in Asia, mosz notably S.Korea and Japan, are way more stable and thus way more likely to pay back loans, reducing interest rates as it needs to cover less colleteral in case of failure.
Also I am not sure how much e.g. China’s BRI ‘Loans’ jump up that Africa Number, given it’s a Scheme by China to Debt-Trap other, weaker countries…
If only there was a pan African vision led by someone to solve this issue.
Oh wait, we killed him.
It’s all just money Africa got from the world anyway. Without all the foreign aid and medical aid there would be hardly 20 million Africans living there.
At this pace they’ll be half the world population sooner than later.
It was a self-solving problem before.