News
| 12.06.2025

African governments’ debts give a boost to firms’ access to financing

Theogene Habimanas disputation, en man som sitter och skriver på datorn
New research shows that African governments’ external borrowing can enhance corporate access to capital, not hinder it. The reason is that external debt enhances market confidence. Unlike domestic borrowing, external debt brings fresh capital into the economy, enabling firms, especially listed and internationally active ones, to access financing more easily.

In his doctoral thesis Theogene Habimana explores how government borrowing relates to corporate debt in Africa. Government domestic borrowing reduces corporate debt access, but Habimana has found a rare phenomenon: when governments borrow externally, firms — especially those publicly or foreign-listed — gain better access to capital.  

External government borrowing strengthens sovereign credit and draws in foreign investors, making it easier for firms, particularly listed ones, to secure funding.  

“In 29 African countries that I use in my first essay, for instance, Eurobond issues support increased firms’ borrowing. Our findings show that external borrowing by African governments helps firms raise funds from international markets. This is a unique pattern not seen elsewhere,” Habimana says. 

The thesis also highlights how armed conflict and foreign aid affects corporate borrowing. During conflicts, domestic firms in construction and mining often increase debt to take advantage of government spending and rebuilding efforts.  

“In contrast, multinationals pull back due to heightened geopolitical risk, supply chain disruptions, and concerns over asset security, which leads them to reduce exposure and preserve liquidity,” Habimana notes.  

According to Habimana, foreign aid often leads to a stronger local currency, which makes exports more expensive and less competitive abroad, which is hurting export-oriented firms. However, this same appreciation lowers the cost of repaying foreign currency debt, improving the balance sheets of firms that owe money in dollars or euros.  

“This research urges researchers and policymakers to reconsider one-size-fits-all economic models,” Habimana summarises. 

You can read the whole thesis here: Government Financing and Corporate Leverage: International Markets Evidence 

Theogene Habimana will defend his thesis on 18 June 2025 at 12:00 at Hanken School of Economics, Arkadiankatu 22, Helsinki.  

The doctoral defence will be held on site only. 

Opponent: Professor Lemma Senbet (University of Maryland) 
Custos: Professor Gonul Colak (Hanken School of Economics)

Contact:
Theogene Habimana 
Email: theogene.habimana@hanken.fi 
Tel: +358451623411 
theogenehabimana.com