The International Monetary Fund (IMF) ‘debt-equity’ swap scheme, muscled into Nigeria in 1988, spawned a deadly seed that is today testimony to the ties that bind private sector wealth and state power in Africa. 

On 15 April 1988, The New York Times carried a photograph of a Nigerian street vendor gazing blankly through the wooden crate of a makeshift stand in the capital, Lagos, that sat incongruously alongside the banner headline, ‘Nigeria Opens its Economy’. 

The New York Times, through the late 1980s, was on an irrepressible crusade against economic nationalism and its Keynesian underpinnings, drawn from the post-Depression statist policies of the British economist John Maynard Keynes. It was especially aimed at swashbuckling American businessmen eyeing developing countries in Africa, where the transition to the market economy had just begun. Every businessman who had known Nigeria’s populous economy instantly recognised the scene of a vast informal economy that pulsed alongside the atrophying formal one.

“For those who know Nigeria, the climate is so improved that it’s the difference between night and day,” one American, who had a decade of business experience in Nigeria, was quoted as saying in The New York Times piece. The difference between day and night, of course, depended on which side of the Atlantic you were. 

Despite its abundant oil endowments, Nigeria was a creaking deficit-ridden economy whose only redeeming feature was to allow people the indignity of “self-employment” as survivalist street traders. In the early years of the World Trade Organisation (WTO), little attention was paid to developing countries, least of all those in Africa. One of the mainstays of African economies, through the 1970s and early eighties, had been the nationalisation of assets; the very words “private property” came to the fore only in the structural adjustment phase of the IMF during the mid- to late-1980s, and few governments really understood its implications. 

Without adequate revenue inflows from domestic economic activity, Nigeria’s foreign debt obligations had breached $27 billion by 1983, sending its federal state officials scrambling to the IMF to reschedule the debt. Now the debt was an opportunity to get in on the action, and it was American and European multinational corporations, not banks, as had been the case during the 1970s, that were angling for new bargains. 

Outgoing Nigerian President Muhammadu Buhari inspects the Guard of Honor at the Presidential fleet review held at the Naval Dockyard in Lagos on May 22, 2023. Nigeria’s President Muhammadu Buhari on Monday commissioned an oil plant billed as Africa’s largest oil refinery, after years of delays and a week before stepping down from office. Photo: Samuel Alabi / AFP

After General Muhammadu Buhari’s coup in 1983, Nigeria’s military government used the cover of “war on poverty” to decree a sweeping privatisation plan involving 67 state companies, including the national airline, and the partial privatisation of the major banks, whose shares would be mortgaged to US foreign investors. 

One can only imagine the exhilaration that must have sprung from the oxygen of free trade and investment, yet many took it as an invitation for brazen abuse. As the British journalist John Pilger observed in his brilliant account of the era, “deals between the Nigerian political elite and US corporations were, in fact, hardly investments at all”. “Central to Nigeria’s privatisation decree,” wrote Pilger, “was a new ‘loan-back’ scam with the IMF and US creditor banks that entailed swapping debt for equity stakes in state enterprises, the reconversion of US dollars to the local currency, and the repatriation of those dollars to the United States Federal Reserve Bank.” 

At almost exactly the same time as Nigeria’s loan-back deal, Zaire, under the dictatorship of Mobuto Sese Seko, introduced similar measures. Some 47 state companies were scheduled for liquidation, or “reorganisation” in official parlance, on commercial lines, including Air Zaire, the Compagnie Maritime Zairos, and Petrozaire. And the red carpet was rolled out for foreign companies, with the free repatriation of profits permitted for the first time in a decade. Uganda soon followed suit, then Rwanda, Togo and Ghana –in that order. 

Having begun in Latin America during the late 1970s, with Chile as the lab rat, the ‘debt-equity swap scheme’, a pejorative moniker by which it came to be known among its critics, eventually had the effect of building altered practices and leaps of legal interpretation that legitimised state-private sector corruption in all but name, and it was normalised through references to the malleability of IMF lending policies and the urgency of responding to the debt crisis. 

However, generating political enthusiasm among African governing elites for the foreign acquisition of state companies was still something of a problem. As roughly 80% of foreign “investment” was not really investment at all but the stripping of state corporations, local infant companies’ only chance for inclusion into the elite masonry was through a process of co-option by foreign multinationals as junior partners. 

In its barest form, the scheme suited two elite blocs – mainly US multinational corporations in cosy deals with Nigerian black-empowerment enterprises – in cahoots with the state that effectively proclaimed the start of the zeitgeist of neoliberal economics in African countries. It was an “extraordinary gift”, ironised RT Naylor in his encyclopaedic book, Hot Money and the Politics of Debt. It was reassuring, perhaps, to aspirant middle-class Africans wary of the folly and blatant corruption of the old dictatorships. It sounded exciting to young entrepreneurs eager to get onto the fast track of a privatised, export-oriented industry. And it was a siren song to IMF officials and US corporations who appreciated open economies. 

Former President of the Democratic Republic of the Congo, Joseph Kabila sits in a garden at his personal ranch on December 10, 2018 in Kinshasa. Photo: John Wessels / AFP

As the 1990s dawned, a US State Department official commented that American corporations were “very bullish” on investment opportunities in Africa. So, too, were African governments. If markets were to be opened to foreign investors, new “localisation” (read: empowerment) rules would be imposed. Henceforth, foreign citizens and corporations could no longer purchase or own private enterprises without local partners. In many countries, foreign holdings would be sold off or reduced to debt-equity partnerships. 

A deadly seed had sprouted. Throughout the 1990s, when many erstwhile military regimes declared themselves civilian democracies and market economies, the traditions of an earlier period, when African countries were ruled by arbitrary party diktats, lingered. In this twilight zone between dictatorships and the new “free market”, one of the most difficult and combustible questions was the relationship between public and private interests. In the passage to neoliberalism, the lines between the public interest and private gain were blurred. Having obeyed their western creditors and “restructured” their economies to accommodate foreign players, wrote Naylor. Most African countries would, thence, facilitate the debt-equity repatriation deals between western companies and African elites as “an unending party of grand theft”. 

Thus, talk of progress in Africa since the 1990s – stability, democracy, prosperity – has paradoxically highlighted its failing. It was the old carrot-and-stick chestnut. The assurances that various African dictators quietly gave foreign investors were a marvellous palliative. Inside what was formally known as “development projects” in African countries, a whole panoply of privatised assets was being grabbed by party elites and foreign multinationals. As sociologist Roger Southall tells it, “elite interests helped themselves to the public purse and the ‘New Africa’ leaders let them have it.” 

A glimpse of how the system really functioned was provided by a loose collective of investigative journalists in a 2015 report published by the Africa Investigative Publishing Collective (AIPC): “Governments would say, ‘We’ll cut you in for a price – just tell us what you want’. Having manipulated these schemes through black empowerment policies, various governments were now in a position to guarantee, by presidential dispensation, that foreign businesses would enjoy preferential benefits as long as they showed enthusiasm for their regimes and investment.” The empowerment policies were to be used as leverage and applied selectively – to any foreign businessmen who refused to offer a piece of the action. 

Kickbacks, bribe inducements, and other forms of extortion were similar to armed robbery, but they were not carried out in such a blatant fashion. And the foreign companies involved thought they were worth it. As the AIPC put it, “Empowerment, if it is to be called that, was only a pretext; the deals were cooked by elites.” 

Throughout the first decade of the millennium, a new capitalist leviathan was legible in fundamentally changed rules of the game, but the full scale of its impact wasn’t as visible because African governments threw up a nearly impenetrable wall of secrecy. Then, in 2016, an explosive cache of documents chipped away at the wall, exposing a vast network of high-level political leaders implicated in the abuse of state resources. The most prescient of those who discovered the rising oligarchical structure of African capitalism in the second decade of the millennium was the AIPC. The group had made a specialty out of studying African elites and was perfectly primed to see the leviathan emerging out of the fog. 

In 2017, AIPC carried out research on the Panama leaks, painstakingly compiling lists of the government officials named in the Panama Papers and their links with wealthy foreign businessmen, and then made crosschecks and diagrams, trying to piece together companies and empires. Then they conducted interviews to find out how it worked. The result was a 37-page report in 2017 bearing the thudding title, ‘The Plunder Route to Panama: How African Oligarchs Steal from Their Countries’. What they saw did not fit neatly into the Washington idea of brave African reformers led, first, by the Organisation of African Unity (OAU) and then by its successor, the African Union (AU). The age of liberal reforms masked a dark side of the new Africa that bore all the hallmarks of the debt-equity swap scheme. 

The authors of ‘The Plunder Route to Panama’ pioneered the idea that African political elites were using their clout to amass wealth in shady deals with multinational corporations. More than just a story about wealth or the blatant mixture of power and money, the economies they looked at were becoming a clannish system of private tyrannies – a group of African dictators who possessed both wealth and power. This perspective most conspicuously came into plain view in the Democratic Republic of the Congo (DRC) with the rise to power of the Kabila clan during the mid-2000s, headed by President Joseph Kabila. 

Using records in the Panama files, AIPC journalist Francis Mbala found evidence confirming claims by the Canadian multinational First Quantum that the Kabila government had a direct hand in something larger than petty corruption. Two places of circumstantial evidence in the Panama Papers were First Quantum and Kabila’s twin sister Jaynet’s hand, as an empowerment beneficiary, in kickbacks and mining licences from the state. When it came to money, Jaynet Kabila delighted in using privilege. 

When Mbala asked Saint Augustin Mwenda Mbali, the Director-General of the anti-corruption agency OSCEP (Observatoire de Surveillance de la Corruption et de l’Ethique Professionnelle), why Jaynet Kabila’s appearance in the Panama Papers had not been investigated, he shrugged off the insinuation of corruption. The OSCEP had been set up by none other than Joseph Kabila himself, amid much public fanfare, on the promise of “zero tolerance” for corruption and “filling the jails with economic criminals”. Overnight, it was part of the new order, the visible superstructure of Kabila’s regime, with not a single economic criminal in jail. 

Jill Biden (R), wife of the US President Biden, and Jaynet Kabila, twin sister of the former Democratic Republic of Congo President and head of the Laurent-Desire Kabila foundation, pose for a picture, in Kinshasa, on July 4, 2014. Photo: Junior D. Kannah / AFP

Since his election into office in 2006, Kabila had built up a hierarchy of power in the DRC that harked back to the Mobutu era. He won the presidency again in 2011 with such embarrassing ease that authors of a 2011 Amnesty International report titled, ‘Making a Killing: The Diamond Trade in Government-controlled DRC’, mused, “And who invented this system?” The way the authors answered the question, and not without equivocation, was that “it used to take a different form, but it was invented by the West”. Slowly, power was drained from the executive, from parliament, from the regions, the judiciary, business, and the media. It all found its way into the hands of the Kabila clan. 

Rather than indulging a flair for the public spotlight, like some of his peers in the AU, Kabila’s power was a kind of social contract struck between his government, local empowerment companies, and foreign capital. The terms were unwritten but well understood. It was a sensational scenario, revealing the dark underbelly of the DRC’s covert network centred around the merger between the state and private enterprise. 

Nowhere was this more apparent than in neighbouring Rwanda, where the invention of the “party-statal” term – an oblique reference to the open merger of the ruling party and state enterprises – produced Crystal Ventures, the Rwandan ruling party’s business empire. In their report, the AIPC team revealed an inexhaustible flow of state money, “ostensibly to propel development and grow the economy”, to Crystal Ventures, with President Paul Kagame at its helm. In his financial audits over 2015 and 2016, Rwanda’s own Auditor-General highlighted mismanaged and wasted state money. More than $100 million poured into empty office buildings and other abandoned or badly executed construction projects. 

In Togo, similarly, the country’s president sold phosphate resources under the market price to shady shippers. In Mozambique, villagers were violently removed from large rugby fields licenced to generals and ministers. Foreign currency controlled by the Burundi presidency was earmarked for certain companies, creating shortages and damaging the economy. Recent investigative projects by the Premium Times in Nigeria, Maka Angola in Angola, and Global Witness in Zimbabwe unearthed similar looting by ruling elites. And South Africa’s former president, Jacob Zuma, mortgaged in a little over a decade the entire state to an Indian family, the Gupta’s, through a spider’s web of front companies under a Zuma-Gupta oligarchy colloquially known as the Zuptas. 

These were only some of the performances of oligarchic capitalism that became the trademark of African governments since the debt-equity swap scheme was first muscled into Nigeria in 1988. It was a backdoor giveaway to foreign and local elites so blatant that, across Africa, millions of people who would have felt the impact of the “free” market were not free to act, while an emerging elite were invited to witness the final act, and even shape it, to suit their interests. The very presence of such a delicate moment – the marriage between foreign players and local elites – is today testimony to the binds between state power and private wealth.  

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Malcolm Ray is a research consultant and author of two scholarly books, titled Free Fall: Why South African Universities are in a Race against Time and The Tyranny of Growth: Why Capitalism has Triumphed in the West and Failed in Africa. Malcolm’s subject speciality is economic history. His writing deals directly with themes of power hierarchies, race and gender discrimination, and class inequality. His current work focuses on the shifting dynamics of urban livelihoods, economic growth and power relations that allow for the development of theorisations of the economy and polity more relevant to post-colonial contexts. Malcolm began his career as an anti-apartheid activist during the 1980s and early 90s. He practised journalism for more than a decade before becoming a financial magazine editor in the early 2000s. He was a Senior Fellow in the Faculty of Humanities at the University of Johannesburg and editor of four premier South African and pan-African business and finance magazines.

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Malcolm Ray is a research consultant and author of two scholarly books, titled Free Fall: Why South African Universities are in a Race against Time and The Tyranny of Growth: Why Capitalism has Triumphed in the West and Failed in Africa. Malcolm’s subject speciality is economic history. His writing deals directly with themes of power hierarchies, race and gender discrimination, and class inequality. His current work focuses on the shifting dynamics of urban livelihoods, economic growth and power relations that allow for the development of theorisations of the economy and polity more relevant to post-colonial contexts. Malcolm began his career as an anti-apartheid activist during the 1980s and early 90s. He practised journalism for more than a decade before becoming a financial magazine editor in the early 2000s. He was a Senior Fellow in the Faculty of Humanities at the University of Johannesburg and editor of four premier South African and pan-African business and finance magazines.

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