This is for anyone that's interested in investing in frontier markets, especially in the countries that the article mentions.
Today the median debt level is over 50% of GDP. That is low by international standards, but interest rates are generally higher for African countries, which collect relatively little tax.
Borrowing makes sense for poor countries if it finances things like roads, schools and hospitals, which improve welfare and support economic growth. But the keenest borrowers in Africa are also feckless spenders. Take Ghana, which racked up debt as it ran an average annual budget deficit of 10% from 2012 to 2016. When a new government entered office last year, it found a $1.6bn “hole” in the budget. The new chairman of the state cocoa board found that a $1.8bn loan meant to fund cocoa production in 2017 was “all gone”.
In Mozambique, three state-owned companies borrowed $2bn in deals arranged by European banks. Most of this was done in secret. The proceeds were squandered on overpriced security gear and a bogus fleet of trawlers. An audit could not trace $500m. The once-buoyant economy sank and Mozambique defaulted on its debt last year.
A study of 39 African countries from 1970 to 2010 found that for every dollar borrowed, up to 63 cents left the continent within five years. The money is often siphoned out as private assets, suggests Léonce Ndikumana, one of the researchers, based at the University of Massachusetts, Amherst
As it is, the costs of bad borrowing rarely fall on leaders or their lenders, which often makes politicians borrow (and steal) more. “It’s the common man that actually bears the brunt,” says Bernard Anaba of the Integrated Social Development Centre, a Ghanaian advocacy group.
TL;DR: Investing in countries with high levels of corruption can be risky.
Submitted March 14, 2018 at 01:19AM by COMPUTER1313 http://ift.tt/2Inep4V
