Africa’s growing public debt had sparked a renewed global debate about debt sustainability on the continent well before the Covid-19 pandemic took centre stage. Africa’s alleged unsustainable indebtedness is largely owing to the emergence of China as a major financier of African infrastructures, resulting in a narrative that China is using debt to gain geopolitical leverage by trapping poor countries in unsustainable loans while pushing them to over depend on Chinese credit, companies, labour and goods. Although most Chinese lending has targeted large financing gaps in the development of Africa’s transportation and energy infrastructure, managing this new role as Africa’s creditor poses unprecedented challenges for Beijing, as well as uncomfortable questions for creditors and debtors alike. This has become all the more evident in the past few months as the Covid-19 outbreak not only placed a new degree of urgency over the resolution of the debt issue but is also requiring an exceptional degree of coordination, nonetheless uneasy to achieve. This dossier gives a snapshot of the current situation, unpacks a number of underlying dynamics and suggests a number of innovative solutions that could contribute to debt sustainability on the continent.

Giulia Pellegrini provides a state-of-the-art overview of the complexity of Africa’s creditors’ landscape, which evolved in the past 20 years to include a variety of actors (from multilateral lenders such as the World Bank, to new bilateral lenders such as China and commercial creditors) that today are unwilling or unable to participate in debt relief initiatives making it difficult to find avenues to help African countries reduce their debt burdens and address the current Covid-19 crisis. Daniel Bradlow shifts the attention onto the dilemma currently facing African governments, caught between the obligation to help their populations deal with Covid-19 and the obligations towards their creditors, in particular private ones, with the risk of losing access to international financial markets should repayments not be delivered. David Dollar unpacks the uneasy relation between China and Western aid donors. Though China joined, for the first time ever, a multilateral initiative on debt management, i.e. the G20 moratorium, unless it works more closely with the International Monetary Fund and the Paris Club, development on the continent is likely to be heading towards a dead end enhancing the risk that debt relief from the West simply repays Chinese loans in a number of countries. Yunnan Chen evaluates China ‘debt trap’ narrative (i.e. fears over Chinese lending as a geostrategic and coordinated tactic, deliberately indebting African countries in order to gain control over key assets) suggesting that, in contrast to perceptions of predation, China’s approach is one of ‘far greater flexibility and leniency in dealing with debt’ and that no ‘cases of ‘asset seizure’, nor the use of penalties or enforced payments — in contrast to OECD lenders’ – are observed. Lu Jiang sheds light on China’s vulnerable external debt management system and China’s shifting approach to lending – from hands-off to cautionary, with Chinese companies starting to move away from being EPC-style (Engineering, Procurement, Construction) contractors to BOT/BOOT-style (Build-Operate-Transfer/Build-Own-Operate-Transfer) operators and investors, especially in the infrastructure and power sectors, hence potentially contributing to alleviate the dilemma between the provision of needed infrastructure and deepening debt difficulties. Chris Alden takes us through the core question of the nexus between Africa’s industrialization and debt arguing that Africa’s current creditors’ mix, and in particular Beijing’s continuing ambiguity on its participation in multilateral fora, is complicating the international response to debt. He argues that this ‘uncoordinated approach to debt management by international creditors is producing negative effects in the short term, as access to capital dries up, projects are put on hold and national budgets shrink; and in the longer term, damaging the capacity of African governments to carry forward their industrialisation plans’. In order to avoid further negative effects, Mma Amara Ekeruche first provides an overview of the pros and cons of four available options for debt restructuring (debt forgiveness, debt rescheduling, debt swap, and debt assumption) arguing that rescheduling and debt swaps are the most viable options, given the complexity of the creditors’ mix. Then she suggests that ‘while the debt relief efforts are commendable, they expose the need for a new debt restructuring architecture’. She sees it as an opportunity, for the international community, to create a more inclusive debt management system. Angela Benefo adds to this that to avoid a full blown debt crisis, African countries need to simultaneously look inward – ‘improving business environments, ensuring highly productive investments from all debt taken up, and focusing as much on intra-African trade as much as extra-African trade’ – as well as outward, forging a more resilient relationship with the rest of the world.

Unless debtors and creditors look to a future where they equally share responsibility for righting the vulnerabilities the pandemic has exposed, the shadow over the outlook for a swift African recovery remains looming. In a shifting geopolitical and geoeconomic context, Africa’s resilience (or lack thereof) to this extraordinary shock is not merely an African problem but rather one that is deeply connected with the future shape of the world’s political economy.