Vultures, Hyenas, and African Debt: Private Equity and Zambia

Arewa, Olufunmilayo B. | January 1, 2009

Although the Donegal court explicitly limited its scrutiny to the legal questions raised by the case rather than questions of morality and humanity, 23 the moral and ethical considerations connected with the activities of vulture investors are significant. This is particularly true in Africa, which in the post-colonial period has experienced poor economic performance in both absolute and relative terms, as well as significant and even increasing levels of poverty.24 Poverty has exacerbated political instability in Africa.25 The political situation in much of the African continent is similarly tenuous, with sub-Saharan African states in many instances serving as exemplars of weak or failed states: “Black Africa’s forty-odd states are among the weakest in the world. State institutions and organizations are less developed in the sub-Saharan region than almost anywhere else.”’26 This African institutional, political, and economic context has bearing on the operation of so-called “vulture funds, which are typically private equity or hedge funds that seek to profit by repurchasing debt at a discount and then collecting from the debtor country at face value or an even higher amount. Vulture funds are not a new phenomenon.27 Although some assert that vulture funds serve an important market function by creating a liquid secondary market for developing country debt, the operation of vulture funds reflects an arbitrage of not only prices, but also legal, institutional, and political structures.28 Further, the activities of vulture funds may in fact serve to exacerbate the weaknesses of African legal, institutional, and political structures. At a minimum, the extent to which commercial activities of vulture funds and other commercial actors contribute to or exacerbate economic and political instability should be better understood.