Vultures, Hyenas, and African Debt: Private Equity and Zambia (Private Equity Symposium)

Olufunmilayo Arewa, Northwestern University School of Law


A 2007 U.K. court case involving Donegal, a private equity fund, and the Republic of Zambia, has contributed to an ongoing debate about the operation of so-called vulture funds in African and other developing countries. Donegal sued Zambia for more than fifty-five million U.S. dollars in connection with a debt owed by Zambia to Romania for Zambia's acquisition of agricultural machinery from Romania pursuant to a credit agreement dated April 17, 1979. Donegal acquired the Zambian debt from Romania in 1999 at some eleven percent of face value. Although the Donegal court explicitly limited its scrutiny to the legal questions raised by the case rather than questions of morality and humanity, 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. Poverty has exacerbated political instability in Africa. African institutional, political, and economic contexts have 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. Commercial transactions such as the Donegal-Zambia relationship should be considered in light of the realities of such contexts.