Theo Jong AFRODAD: Urgent Call for Better Sovereign Loan Terms

• African nations face rising debt burdens and high borrowing costs, spending $90 billion annually on debt servicing plus an additional $75 billion in interest due to risk premiums.
• AFRODAD's Theo Jong highlights problematic sovereign loan terms including confidentiality clauses, foreign jurisdiction for disputes, and governing laws from external nations.
• Further challenges include borrowing in foreign currencies, which complicates debt servicing during economic fluctuations, and contracts signed in languages unreadable by local officials.
• Nigeria's public debt stood at N159.35 trillion as of March 31, comprising N87.40 trillion domestic and N71.95 trillion external debt.
• AFRODAD advocates for African countries to adopt a common negotiating position with creditors to secure more transparent and equitable loan terms.

The current structure of sovereign loan agreements often undermines the very transparency and accountability essential for responsible borrowing, forcing African nations into disadvantageous positions.

African nations are grappling with escalating debt burdens and the prohibitive cost of securing loans, reigniting concerns over the conditions attached to government borrowing and subsequent debt management. For example, Nigeria's public debt reached N159.35 trillion by March 31, with domestic obligations accounting for N87.40 trillion and external debt totaling N71.95 trillion, according to the Debt Management Office.

Collectively, African countries allocate approximately $90 billion annually to service their debts. An additional $75 billion is paid in interest due to the elevated risk premiums associated with their borrowing. This financial strain compels governments to make difficult choices, often prioritizing debt servicing over crucial investments in public health, education, and climate resilience, even as the continent requires an estimated $1.3 trillion each year to achieve its Sustainable Development Goals.

Against this backdrop, the African Forum and Network on Debt and Development (AFRODAD) convened the sixth African Conference on Debt and Development (AfCoDD VI) in Nairobi, Kenya, in August. A key outcome of the conference was AFRODAD's urgent call for African countries to enhance their collaborative efforts when engaging with creditors, recognizing that fragmented negotiations weaken their collective bargaining power.

Theo Jong, AFRODAD's Interim Executive Director, a Cameroonian development professional, academic, and researcher, has extensively studied sovereign loan terms. He argues that African countries significantly diminish their negotiating strength by approaching creditors individually. During an interview on the sidelines of the AfCoDD VI conference, Jong emphasized the critical need for improved debt governance, transparency, and accountability to resolve the continent's debt crisis, discussing issues ranging from sovereign loan agreements to resource-backed borrowing.

Among the most concerning aspects of current sovereign loan agreements, Jong identified two primary issues. The first is a pervasive lack of transparency, often stemming from confidentiality clauses embedded within these loans. These clauses restrict public access to loan terms, preventing scrutiny by citizens, media, and parliamentarians. This secrecy undermines accountability and the principle of responsible borrowing, which should ultimately benefit African citizens rather than impose economic hardship on their nations.

The second major concern revolves around jurisdiction and governing law. Many contracts stipulate that any disputes arising from the loan can only be litigated in foreign jurisdictions, such as London, Paris, or New York, rather than within the borrowing African country's own legal system. Furthermore, these loans are frequently governed by the laws of foreign jurisdictions, adding another layer of complexity and potential disadvantage for the borrowing nations.

Beyond confidentiality and jurisdiction, AFRODAD's research, as articulated by Theo Jong, points to other structural challenges within sovereign loan terms. A significant problem arises from the currencies in which African countries borrow, typically dollars, euros, Japanese yen, or Chinese yuan. This creates a fundamental challenge because debtor nations must first earn these foreign currencies to service their debt obligations. When economic conditions shift, such as during periods of inflation or currency devaluation, the task of debt servicing becomes considerably more arduous.

Another critical issue concerns the language barrier in some loan contracts. Jong highlighted instances where agreements are signed in languages that parliamentarians and government officials cannot read, citing Chinese as an example. When clauses that could exacerbate debt distress are embedded within such contracts, governments face immense difficulty in managing these provisions if they do not fully comprehend the terms they have agreed to. The current structure of sovereign loan agreements often undermines the very transparency and accountability essential for responsible borrowing, forcing African nations into disadvantageous positions.

The cumulative effect of these problematic loan terms—confidentiality, foreign jurisdiction, currency mismatches, and language barriers—places significant economic stress on African countries. While borrowing itself is not inherently problematic, the conditions under which these loans are secured frequently lead to unsustainable debt trajectories and divert resources from vital public services. The core principle, as Jong underscores, is that borrowing should serve the welfare of African citizens, not subject their countries to undue financial strain.

To counter these systemic disadvantages, AFRODAD and Theo Jong advocate strongly for African countries to adopt a common position when negotiating with creditors. A unified approach would significantly bolster their collective bargaining power, enabling them to demand more equitable and transparent terms. This strategic shift is seen as crucial for fostering better debt governance and ensuring that future sovereign loan agreements genuinely contribute to sustainable development across the continent.

Source: Reporting based on an interview with PREMIUM TIMES