Fifteen Eighty Four

In the past two decades, African governments have transformed their financial relationships – in the process gaining leverage in foreign relations in ways many would not expect. At the dawn of the 2000s, African countries relied almost entirely on traditional donors like the World Bank and the US for external funding. Over the next decades, new lenders entered the mix, including emerging powers, especially China, and international private creditors.

This greater diversity of financing had profound implications for African countries’ relations with traditional donors, as shown in The Financial Statecraft of Borrowers: African Governments and External Finance, recently published with Cambridge University Press. Long reliant on traditional donor aid to fund development projects and crucial investments, African governments now had much greater choice. With this choice came greater autonomy, and African governments pushed for preferable aid agreements, asking for greater flexibility, more funding for priority projects, or less scrutiny of domestic politics.

Traditional donors, for their part, were willing to accommodate some of these requests as African governments became less dependent on their aid. Instead of welcoming alternative funding sources, many donors worried about their declining relevance and worsening relationships with recipient governments.

As African governments borrowed more from these “non-traditional” lenders, donors responded by offering more attractive aid. Empirical analyses in the book show that as Chinese or private loans made up a larger share of a country’s external finance, the country received larger, more flexible, and more infrastructure-focused aid from traditional donors. This pattern holds true for all low- and middle-income countries and is especially pronounced in sub-Saharan Africa.

However, not all countries benefited equally from these dynamics. Donors were willing to offer greater flexibility to some recipients than others. If the aid relationship was especially valuable, donors were more likely to accommodate recipients’ concerns. In these cases, the recipient’s newfound autonomy and close relationship with alternative donors motivated traditional donors to offer attractive aid to retain a close relationship. Further, the donor’s trust in the recipient government was crucial. Donors granted flexibility only when they were confident the recipient would adhere to the aid agreement.

However, not all countries benefited equally from these dynamics. Donors were willing to offer greater flexibility to some recipients than others. If the aid relationship was especially valuable, donors were more likely to accommodate recipients’ concerns. In these cases, the recipient’s newfound autonomy and close relationship with alternative donors motivated traditional donors to offer attractive aid to retain a close relationship. Further, the donor’s trust in the recipient government was crucial. Donors granted flexibility only when they were confident the recipient would adhere to the aid agreement.

The cases of Ethiopia, Kenya, and Ghana — drawing on over 170 interviews with government officials, donor representatives, and development insiders — llustrate the differences across recipient countries. Ethiopia leveraged its strategic importance to secure more favorable aid terms, while Ghana, with less donor trust, struggled to do the same. Kenya extracted some concessions from donors early on given its strategic importance, but ultimately faltered due to donors’ waning trust in the government.

The book’s findings highlight the opportunities created for African countries by shifts in international financial flows. New relationships with alternative creditors allowed borrowing governments to engage in what I call “debt-based financial statecraft.” Financial statecraft is usually seen as a tool of economically powerful states, deploying sanctions or cutting off access to their banking system to achieve foreign policy goals. Yet even smaller countries, who are reliant on external sources for finance, can use their financial relationships to achieve foreign policy objectives. While borrowing from new creditors does not fundamentally alter their structural position in the international economy, it can give governments a boost in their relations with traditional donors.

Going forward, the book points to important areas for future research. It tells the story of how African governments benefited from the expansion of financing options in their traditional aid relationships, but more recent years raise questions of how governments manage relations with diverse creditors during crisis. The analysis in the book concludes before the global shock of the pandemic in 2020, which left many developing countries facing looming debt crises. Will a diversity of creditors prove to be advantageous in managing debt crisis? The book shows that diverse borrowing can create unexpected opportunities. Future work should further explore how this plays out in crises and debt restructuring. Some of my recent follow-up research suggests that a diversity of creditors can make it more difficult to resolve debt crises, at least in the absence of reliable coordination mechanisms.