It was in April 2017 in Beijing, the Chinese capital city, when this writer had attended a long lecture on China’s flagship project known as, Belt and Road Initiative (BRI) augmented with ‘Chinese vision of Africa’. And outside the lecture room waited for Chen Xiaochen, a Renmin University professor who had been delivering the illuminations of this mighty initiative that entails building motorways, ports, dams and railways as part of efforts to expand China’s trading links, and influence, around the globe.
Escorting Prof. Xiaochen to a nearby comfy seat this writer had asked; what was all about China’s deal for Africa? The young professor was confident to his answer and said: “China is like a chef. It prepares anything that is needed across the globe. Therefore, it is up to Africa to choose what best suits it.” That was it! Ever since that answer was devised this writer has been trying to make sense of Beijing’s intent towards Africa in many frontiers among which is debt management. Beijing has poured billions of dollars into the continent over the past decade as part of its BRI.
The notion of debt cancelation was inconceivable two decades ago when the global anti-debt movement took off. Today, new urgency for cancelling Africa’s debt is trending while rallying Africans towards China’s forgiveness also becomes an important political-economic pendulum that swings between West-and-East. As full debt cancellation is being discussed in Africa; the Group of Twenty (G-20) industrialized countries, the International Monetary Fund (IMF) and World Bank remain the major focal entities for this optimism to wear body. Amid the COVID-19 global pandemic there again is growing concern among Africans that the situation may prove a watershed time in the drive to cancel the continent’s foreign debt.
It is generally accepted that Africa’s debt is too high to afford. The continent’s external debt profile and structure underwent significant changes during the 1980s and have signaled a continuous situation what economists refer it as crisis – for decades that followed. In 1982, when the debt crisis emerged, Africa’s total debt stock stood at 140 billion USD, but by the end of 1990 the region’s debt had skyrocketed to 271.9 billion USD. According to the African Development Bank Group, the region’s debt then amounted to roughly 19 percent of the total outstanding debt of all developing countries, estimated at over 1400 billion USD. Latest figures say Africa’s debt of about 350 billion USD is the highest of any developing region, as a proportion of gross domestic product and of export earnings.
Professor Alemayehu Geda on other hand analyzed in his paper – “The Historical Origin of African Debt Crisis” – that although the share of African debt in the total debt of developing countries is very low, its relative burden is very high. Nonetheless he noted external finance problem in general and the debt crisis in particular is one of the major external problems of African countries. For Prof. Alemayehu another dimension of the structure of African debt is the changing pattern of its creditors.
China has long been accused of luring Sub-Saharan Africa into a debt trap through the loans it offers for development projects. Beijing neither ignores nor often hits back on such accusations mainly thrown by the western establishments. However it stood with its argument saying that not a single country has been “mired in debt” because of cooperation with it. Rather, its Foreign Ministry says these countries cooperation with China has helped them enhance their capacity for self-driven development and improved their people’s livelihood.
A large part of China’s debt to Africa carries commercial terms. A South China Post analysis has quoted Bradley Parks, executive director of AidData, a research lab at the College of William and Mary in the US state of Virginia, as saying that China’s loans were directly overseen by the central government – through the Ministry of Commerce – and Beijing had previously forgiven these types of debts “en masse”. According to Parks, most of the debt African countries owed to China was related to concessional and commercial loans from Beijing’s policy banks – China Eximbank and China Development Bank – and state-owned commercial banks.
China is also accused of using foreign policy channels to pursue debt rescheduling or debt reductions depending on the country and type of loan. Parks says interest-free loans from China’s government were smaller in size and they were not managed by policy banks or state-owned commercial banks.
Between 2000-2017 Beijing through its banks and companies lent some 143 billion USD to Africa, according to a Johns Hopkins University data. By some estimates, Chinese lending now dwarfs World Bank loans in Africa. On the contrary unlike what has been propagated about breathtaking developments going on within the African continent China’s own development gets quite impressive day by day.
In the past, China has mostly cancelled interest-free loans that had reached maturity, but these make up less than 5 percent of Africa’s outstanding debt to China, according to Deborah Brautigam, a professor of international political economy at the Johns Hopkins School of Advanced International Studies.
Regardless of IMF’s categorization of China as an emerging economy with per capita income of 10,153 USD in 2019, Beijing itself has strong desire of leveling itself as a “developing nation”. This simply means it wants to make financial and economic returns on its investments watching its economies lurch towards recession especially at this difficult time.
Despite Africa’s yet a small fraction of the COVID-19 infections globally, experts say African countries have taken a disproportionate hit due to plummeting oil and commodity prices and weaker currencies, which ramp up external debt servicing costs. Thus, African finance ministers are calling for a 100 billion USD stimulus package, of which 44 billion USD would come from not servicing debt – bilateral, multilateral or commercial. The western establishments expect Africans to force China to cancel some debt owed by Africa’s poorest nations.
Given China’s vast but mounting stake in Africa it is apt for Beijing to gauge a way-out to help ease this crisis for Africa. As written by Prime Minister Abiy Ahmed in a latest piece on New York Times, “the benefits of rehabilitation of the economies of the hardest-hit countries will be shared by all of us, just as the consequences of neglect will harm all of us.”
Nevertheless many analysts think the very unlikeliness of seeing direct loan forgiveness to Africa for a substantial bulk of loans from major western countries that granted debt relief in the past. To the worst trap, industrialized countries may lack interest to pour significant resources into debt relief for Africa especially when they are thinking the money will indirectly goes to Chinese creditors.
At least for now Beijing wants to remain optimistic to embrace a brighter future with Africa. Chinese Ambassador to African Union Liu Yuxi, in his latest commentary has called for mutual trust between Africa and China. “When everybody adds firewood, the flames will rise high,” he wrote.
The Ethiopian Herald May 12/2020
Kiram Tadesse
Contributor
