The governments of Ghana and Zambia recently took a decision that could have serious consequences for other African countries. The decision relates to arrangements on how the two countries will repay the debt they owe to Africa Export-Import Bank (Afreximbank).
They have both taken decisions to relegate Afreximbank to a commercial lender from a preferred creditor. This means that the terms on which Afreximbank has lent money to these two countries will change. And it will lose certain protections. For example preferred creditors are repaid first, before any other lenders.
This protects preferred creditors’ balance sheets and enables them to continue lending during crisis periods when others cannot. In contrast, commercial banks get paid later or might not get paid at all. This higher risk factor means that they charge higher rates.
Based on decades of researching Africa’s capital markets and the institutions that govern them it’s my view that the long-term consequences of this precedent are detrimental. If other African borrowers follow suit, treating loans from African multilateral development banks as ordinary commercial debt during restructuring, it will erode the viability of these institutions. Investors who fund Afreximbank through bonds and capital markets may reassess its risk profile, pushing up its cost of funding and making future lending less affordable.
The ultimate losers will be African countries themselves, especially those with limited access to international capital. Afreximbank, along with other African financial institutions, is a lifeline for trade finance, infrastructure development, and crisis response. Undermining its legal protections weakens the continent’s capacity for self-reliant development.
Afreximbank was created under the auspices of the African Development Bank (AfDB) in 1993. It was set up with a public interest mandate to develop African trade and promote integration. Its legal status and structural features place it closer to international multilateral development banks than to private creditors, justifying its treatment as a preferred creditor.
The decision by Accra and Lusaka signals lack of confidence in African financial institutions. It suggests that they do not trust them to the same extent as global institutions like the International Monetary Fund and World Bank. These are treated as preferred creditors, on the assumption that they will lend to countries in crisis or distress when commercial lenders retreat.
The actions of Ghana and Zambia set a dangerous precedent by sidelining African financial institutions in favour of external creditors. That risks weakening Africa’s financial institutions and undermining the very concept of African solutions to African problems. Investors will become more sceptical and pessimistic, demanding more interest.
The continent needs to develop an ability to independently design, finance and implement its economic development policies without support from external financial institutions. Afreximbank helps to achieve this through financing African-designed infrastructure and counter-cyclical lending.
Ghana and Zambia still have an opportunity to correct course. In my view they should do so for the sake of the bank, its member states and the future of African economic sovereignty.
The background
Ghana and Zambia have both defaulted on their external bonds in the last four years. Zambia in October 2020 and Ghana in December 2022. This forced them to negotiate new sustainable terms with creditors.
During their respective debt negotiations, both countries have announced that they would include African multilateral development banks such as Afreximbank and the Trade and Development Bank in the debt restructuring.
This followed private and bilateral creditors contesting unequal distribution of restructuring burdens, where they face losses while some multilateral institutions are shielded. The International Monetary Fund and World Bank, which are preferred creditors, do not fund infrastructure, they only offer balance of payments support.
The decision by Ghana and Zambia to relegate Afreximbank was made during an ongoing comprehensive debt restructuring. Ghana and Zambia have been negotiating with creditors for over a year in an attempt to resolve their sovereign debt crises.
The two countries were complying with International Monetary Fund supported restructuring terms. Bilateral creditors were also demanding fair burden sharing with African multilateral banks.
Afreximbank: not just another lender
Ghana and Zambia don’t have a legal leg to stand on.
Afreximbank’s preferred creditor status is not an informal privilege but derives from Article VX(1) of its founding agreement. The agreement has been signed and ratified by member states into national laws, including Ghana and Zambia.
This status is further reinforced by the bank’s diplomatic immunities and privileges and its ability to operate across African jurisdictions under protected legal frameworks. The role of Afreximbank, therefore, goes beyond that of a traditional commercial bank.
Preferred creditor status protects development finance institutions in a number of ways. The biggest protection is that lenders are prioritised for repayment. This protects their balance sheets, enabling them to continue lending when others cannot.
A preferred creditor status is accorded for a reason. It is to ensure that development finance institutions can lend in times of distress with confidence, on the guarantee that they will be repaid ahead of other creditors. Country actions that violate this principle disrupt the implicit covenant that enables counter-cyclical financing. This is breaking the financial lifeline that countries might need when nobody else is willing to help them. This is precisely the kind of support that Ghana and Zambia relied on during their respective debt crises in December 2022 and October 2020, respectively.
A bank that has consistently stepped up
It is worth recalling that during the COVID-19 pandemic (2019–2021) and again when global markets closed access to Eurobond issuances for African countries, investors didn’t want to lend African countries for fear of defaulting. Afreximbank was one of the few institutions that continued to lend to African sovereigns. This included US$750 million to Ghana and US$45 million to Zambia.
When Ghana, Zambia and other commodity export-dependent countries faced acute foreign currency shortages and tightening global liquidity caused by the 2015/16 commodity crisis of low prices, Afreximbank did not hesitate to deploy resources.
Zambia has also benefited significantly from Afreximbank’s trade and development finance in energy, agriculture and healthcare. These are areas that many commercial banks view as too risky or low-margin.
For Zambia and Ghana to classify Afreximbank in the same category as hedge funds, bondholders or purely commercial lenders, is ahistorical and unwarranted.
Restructuring loans from Afreximbank risks inadvertently raising the cost of capital for African countries. If Afreximbank can no longer be shielded under preferred creditor status norms, it may be forced to adopt more conservative lending practices, charge higher risk premiums or retreat from high-risk markets altogether.
The knock-on effect is reduced access to affordable, timely financing for countries that need it most.
Afreximbank has rejected the idea that its loans ought to be restructured.
Ghana and Zambia should correct course
Ghana and Zambia still have an opportunity to correct course. They can reaffirm Afreximbank’s preferred creditor status, exclude it from restructuring tables meant for commercial creditors, and honour their legal commitments.
In doing so, they would not only preserve their reputations as reliable debtors but also strengthen the broader fabric of African financial solidarity.
African countries must be cognisant that no one else will build their institutions for them. If they do not defend and respect them, they cannot expect the rest of the world to do so. The credibility, sustainability and legitimacy of Africa’s financial independence depends, in large part, on how they treat the institutions they have built.
The decision to treat Afreximbank and the Trade and Development Bank like commercial lenders is short-sighted and self-defeating. It must be reversed.
