Hello there,Â
In this past week, our spirits have been lifted by announcements that the Vaccines are almost here, maybe Fleets (temporary tweets) but itâs still a struggle to get a PS5. đ¤Ś
Zambia is unable to pay its debt but it's more than that
Itâs been a tough year for individuals, companies and even countries, but most African countries have held up their own end of the bargain in terms of loan repayment, except Zambia.
Efforts to extend the repayment of its loan by six months failed and now itâs past the due date.
How much are we talking about here?
$1.7 billion is due to be repaid in 2020. Think you can help out with something here?
Whoâs Zambia owing?
According to the World Bank, 49% is owed to private lenders, 27% to China, 10% to the World Bank, 9% to other multilateral institutions and 5% to other governments.
Any chances Zambia could get a break?
NO for a multitude of reasons or as Eric Olander putâs it: Investors would not bend. China would not bend. The G20 also wouldnât be of much help soon.Â
Private investors: Of the $1.7 billion due to be spent on external debt payments in 2020, $1.1 billion â 65% â is to private lenders. Now thatâs a whole lot!
But look at it this way. Private lenders lent to Zambia at high-interest rates knowing there was a significant risk the debt would become unpayable. If paid in full, some could make 250% profit. Itâs simply business as these companies also need to meet their clientsâ expectations.Â
China: You might have heard that in May 2020, in the heat of the pandemic China and the G20 announced debt relief for 77 countries, including 40 in sub-Saharan Africa. But one thing that you might have missed is that this applied to only zero-interest loans â loans with no interests.
Zambiaâs loans arenât zero interest and China feels it has been gracious enough. Many countries benefit from Chinese zero-interest loans. To put things in context, between 2000 and 2018, China granted 212 zero-interest loans of approximately $3bn, itâs less than 5% of all Chinese loan commitments during that period but itâs still a lot of money doled out.
G20: About a week ago, The United States, China and other G20 countries agreed on a common way to ease things for countries owing, especially poor countries.Â
Under the new framework, the plan is for creditor countries to ensure theyâre getting the same terms as private lenders. The framework says that debtors requesting relief will provide the IMF, the World Bank and creditors necessary information on all its public sector debt. The aim will be to ensure âfair burden-sharingâ between all creditors.
ButâŚ
A major reason Zambia failed to convince itâs lenders especially the G20 to extend its repayment period is connected to the governmentâs refusal to report transparently on its obligations to different lenders. Simply put, Zambia is probably not treating all its lenders equally.
The bottom line:Â
The long-term consequence of Zambiaâs default may be that Western lenders would think twice before lending to countries where China is already a creditor. A possible lesson from Zambia is that when repayment problems arise, there is no way for Western institutions to know if they will be treated on an equal basis with the Chinese state and private lenders.
SafeBoda pulls out of Kenya
The people of Kenya are going to miss seeing the orange helmet-wearing motorcycle riders of SafeBoda, as the motorcycling hailing startup recently announced that it's ceasing operations in Kenya by the end of this month.
Before now
It launched in Uganda in 2015 and expanded to Nairobi, Kenya in 2018 facing heavy competitors in the ride-hailing industries such as Taxify, UberBODA, and Mondo. Earlier this year, it went live in Ibadan, Nigeriaâs largest city. It avoided Lagos, the countryâs commercial hub and was fortunate to escape a heavy regulatory ban in February 2020.
So why is it pulling out?
The usual culprit of 2020: COVID-19. The company released a statement some days ago stating that its business cannot operate in the Kenyan market sustainably into the future.
However, there are also other reasons such as driver inconsistency. After Kenya started lockdown procedure in March 2020, there were reports that Safeboda drivers stopped accepting orders, and the drivers requested for a fare review because they were not getting enough returns on their rides. It was likely that some riders started taking offline orders or moved to other platforms.
Also, Competition
A major advantage that Safeboda had in Uganda was its early entrance, and because of this, it was able to gain considerable market share in time. This is quite similar to the situation in Ibadan, Nigeria, where it has just one competitor in MAX NG. In Kenya, the startup faced competition from about five major players who have been present in the market before Safebodaâs entry.Â
Where do we go from here?
SafeBoda users in Kenya have between now and November 27 to exhaust the balances on their wallets, after which they will receive a refund.Â
While this may seem like bad news, one thing to note is the growth of the gig economy - a labour market characterized by the presence of freelance work as opposed to permanent jobs. In Africa, it will be nice to see if there are explorable opportunities other than the ride-hailing sector that you can solve a problem and still provide employment opportunities in a particular market.
Well, I guess weâll just keep looking :)
Worth reading đ
Quote đ
Half the battle of creating value is convincing yourself youâre valuable.
â Jack ButcherÂ
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