Posted on September 7, 2018
Everyone second-guesses China, but it is usually as a result of fear of an Asian powerhouse becoming a global giant and exerting influence where western powers once ruled. Since Africa became China’s new darling and the country opened up credit lines for infrastructural development, questions have been asked about Beijing’s true intentions in Africa, with many warning Africa that China would cripple the continent with debt.
Gone are the days when Western considerations determine African decisions. From the infamous Robert Mugabe to the controversial Paul Kagame, African leaders both past and present have over the last three decades increasingly resisted Western influence and pitched their tents with new friends like China. Who can blame them? Decades of Western support have not been able to help Africa overcome its infrastructural deficit, but since China came on board visible progress has been seen across Africa. Kenya owes its $3.2 billion Madaraka Express railway that runs between Nairobi and Mombasa to Chinese money, same is Ethiopia and Nigeria.
Before critics of Sino-African relations started pushing the debt narrative, it was about China’s lack of interest in politics of the countries they partner with. Whether there were human rights abuses or a leader was holding on to power indefinitely against the will of his people, China would still provide infrastructure finance. The narrative eventually became tired as Chinese financing in Africa continued. Many even warned Africa not to allow China burden it with so much debt that it wouldn’t be able to pay back and would not be forgiven. Several countries in Africa have enjoyed forgiveness of debt from the West in the past (and even some from China), but many doubted the Chinese will be able to forgive Africa’s growing debt.
“The West sees a very big debt crisis looming and is positioning for the fallout. The dominoes have already started to fall. Will we really find out if Xi Jinping is Santa Claus?” asked Kenya-based financial analyst Aly Khan Satchu in an article published on Kenyan daily The Star.
The Chinese value loyalty and Africa has been a loyal ally. It was, therefore, not surprising to a few, who understands China, when President Xi Jinping announced it was forgiving the debt of the least developed countries in Africa, which are highly indebted to China and whose debts are maturing this year. He also announced eight new initiatives, as well as an additional $60 billion for Africa, $15 billion of which will be in the form of grants and concessional loans over the next 3 years, a credit line of $20 billion, and a $10 billion special fund for China-Africa development.
The Chinese president announced this at the ongoing Forum on China-Africa Cooperation (FOCAC) holding in Beijing from 3 September to 4 September.
At the last FOCAC in 2015, Xi pledged a $60 billion in commercial loans to Africa in the Action 2016 – 2018 plan. “The ten cooperation plans announced in 2015 have been implemented, showing a partnership hard at work to advance mutual interests of Africa & China,” the South African Presidency tweeted on Monday.
Love for Chinese loans
China had also committed $75 billion in aid to Africa from 2001 to 2011. The aid forms about 20 percent of the total $404 billion calculated by the Organization for Economic Cooperation and Development’s Development Assistance Committee for the period. Although the United States promised more during the same period —$90 billion — African countries seem to prefer Chinese aid. This is understandable; Western assistance often come mainly as outright transfers of cash and material as against the Chinese’s low (or no) interest loans for infrastructure, as well as export credits. These Chinese funds come as fast as they are needed and guarantees flexibility in repayment. Never has any Chinese leaders threatened to cut aid because an African country did not support its agenda in the United Nations or its One China Policy.
However, the ease with which the loans come has pushed several African nations into the red. According to the International Monetary Fund, as of 2012, 15 percent of sub-Saharan Africa’s total external debt was owed to China.
According to the Johns Hopkins SAIS China-Africa Research Initiative (CARI), Africa owes China about $130 billion. But China’s loans to Africa are not the continent’s biggest debt problem. Ethiopia, which has one of the highest Chinese presence in Africa and has taken not less than $12.1 billion from Chinese creditors since 2000, but its debt is $29 billion. The same is true for several other African countries.
Ghana owes approximately $25 billion to external creditors, but only $4 billion of it is owed to China. Mozambique’s external debt is over $10 billion, but Chinese loans amount to $2.3 billion.
According to CARI, in eight of these 17 countries – Burundi, The Gambia, Cape Verde, Central African Republic, São Tomé and Principe, South Sudan, Chad, and Mauritania – Chinese loans are relatively small and have not contributed much to debt problems. As of 2017, there were no Chinese loans in The Gambia, and the IMF noted that debt distress in Central African Republic, Burundi, and South Sudan was due primarily to economic collapse from conflict.
Only three African countries have Chinese loans that put them at risk of debt distress. At the end of 2017, Zambia owed $8.7 billion, $6.4 billion of which it got from China. At the end of 2016, around 77 percent of Djibouti’s debt was owed to China.
Not just debt distress
While data shows that Chinese loans have not considerably heightened the risk of debt distress in Africa, the Asian giant’s relationship with Africa is flawed in the area of trade. In 2016, China exported goods worth $88 billion to Africa. That year, it only imported $40 billion from the continent. But this will also change.
The Forum on Monday launched an ambitious initiative that will promote non resources-based China imports from Africa. The initiative will be accelerated using a $5 billion special fund.
Xi said China follows the principle of giving more and taking less. He called for the building of a China-Africa community with a shared future that takes up joint responsibility, pursues win-win cooperation, delivers happiness for all, enjoys cultural prosperity and ensures common security.
As expected, Xi tied his Belt and Road Initiative to the AU agenda 2063 and UN Agenda 2030 as a related but independent platform that shares similar global visions.
However, an unlikely announcement by Xi was the creation of a China-Africa Peace and Security Fund, with 50 security assistance programs under the BRI, as well as support for countries in the Sahel of Africa and the Gulf of Aden. He also committed to helping to fight piracy in the Gulf of Guinea and provide military aid to the Peace and Security Department of the the African Union Commission.
Xi also wants to deepen cultural partnership with Africa. To foster this, China will open an Institute for African studies, which will host regular exchanges with scholars from Africa. He emphasized how central Vocational Training programs and Human and Social capital development are to sino-African relations. He, therefore announced 50,000 government scholarships, 2,000 student exchange opportunities, among others.
To Chinese firms operating Africa, Xi said: “I hope that our entrepreneurs will act to fulfill social responsibilities and respect local culture and tradition.“I also hope you will do more in staff training and bettering lives for the local people and will put more emphasis on the environment and resources,” Xi said.
Where the onus lies
While we may not have heard the last of how “bad” Chinese loans are for Africa, the ball is in the court of African leaders. The loans are whatever they make of them, just as it is with the loans from every other lender. The current scramble for Africa offers leaders on the continent an opportunity to choose the right partnerships, strike the right deals and pay more attention to how they manage their debt in general.
The recent moves of Kenya’s President Uhuru Kenyatta is an example of how to make the best out of the current rush for Africa. When British Prime Minister Theresa May visited Kenya last week, Kenyatta that his country was keen to seek investment from anywhere in the world. He had just returned from the US, where he met Donald Trump and was preparing to join other African leaders at FOCAC. He told May that Kenya was “keen to seek friends across the world” and “this is the basis of the discussions we’ve had with the prime minister today, as with President Trump and as we shall continue with China”. While in the United States, Kenyatta and Trump the establishment of a United States-Kenya Trade and Investment Working Group. The Group, will among other things look for funding to build a superhighway between Nairobi, Kenya’s capital city and the port of Mombasa. The highway will be constructed by the U.S. construction giant Bechtel.
However, more important than such partnerships and deals, is the need for governments across Africa to formulate policies and bring about reforms that will attract foreign direct investments.