Colonialism or supersanctions: sovereignty and debt in West Africa, 1871–1914

Abstract

West Africa has been neglected in literature on sovereign debt before 1914. However, it presented arguably the biggest test of investors' willingness to overlook poor economic fundamentals due to colonial status. This paper presents data on bond yields for three British colonies and independent Liberia along with qualitative evidence on the mechanics of borrowing by West African countries. It suggests that a variety of imperial interventions were important in reducing borrowing costs for the poorer periphery of the empire. The contrasting case of Liberia shows that supersanctions did not fully replicate the effects of colonial rule.

The Collapse of the Gold Standard in Africa: Money and Colonialism in the Interwar Period

“…The Liberian government had raised its first loan of GBP100,000 in London in 1871, though on terms so onerous that it went immediately into default and remained in default until 1899. It raised a further loan of GBP100,000 in 1906 with the intention of funding the establishment of a rubber plantation (Gardner 2017). Neither loan achieved its stated goal, and they left the Liberian government with little to show other than an accumulating set of obligations denominated in sterling.…”

“… 2. For alternative explanations for the so-called “empire effect” on the terms of government borrowing, see Gardner (2017), Ferguson & Schularick (2006), or Accominotti, Flandreau & Rezzik (2011). …”

Public Sector Growth in the British Cape Colony: Evidence From New Data on Expenditure and Foreign Debt, 1830‐1910

“…The “Empire effect” literature emphasises the fact that colonial bonds enjoyed more favourable terms than those of sovereign nations given that colonies were considered sub‐units of the British Empire (Flandreau and Zumer, 2004; Accominotti et al ., 2011; Ferguson and Schularick, 2006; Gardner, 2017). CA based in London played an essential role for the Cape, as they did for many other British colonies.…”

“…The major problem for the investors in London was the information asymmetry problem since the colonies were in distant locations. The CA office helped the colonies by acting as a “semi‐autonomous body which acted as a general commissary service for colonial administration…and were active in trying to ensure the marketability of colonial loan issues” (Gardner, 2017:245). According to Sunderland (2007:1), the CA worked and formed close relationships with colonial administrators and understood that their survival was premised on the continued happiness of their clients.…”

‘Propitious contrast’: Romanian borrowing in a Balkan mirror, 1878–1913

“…They document twelve cases of such extreme measures under the classical gold standard, and find that fiscal discipline improved and bond traders lowered their assessment of the default risk in countries subject to them. Importantly in this context, Gardner (2017, 2020) considers three British West African colonies and contrasts their experience with that of independent Liberia, finding that ‘supersanctions’ were not a complete substitute for colonial rule.…”