Africa’s development aspirations have always rested on the possibilities and policies inherent in achieving rapid industrialisation. Africans believe that key interventions in industrial policy would lay the foundation for sustained growth, business and job creation. In contemporary China, African policy makers seem to have found a development partner whose interests, experiences and capacities match these continental ambitions.
And yet, a decade after celebrating the rising tide of Chinese finance into neglected areas such as infrastructure and its preliminary investments into the manufacturing sector, the talk has shifted to China as an obstacle stymieing development possibilities through unwieldy debt obligations that shackle African economies.[1] Cutting through these rhetorically charged debates it is clear that the role of Beijing as creditor puts it in an unprecedented conundrum. This is exacerbated by the deleterious effect of Covid-19 on African economies, threatening the continent’s progress towards achieving industrialisation.
Africa-China Industrialisation Plan
The Chinese contribution to African industrialisation has been twofold, focused on underwriting infrastructure development through loans and providing investment into labour-intensive industry. Starting in earnest in the early 2000s, these initiatives have led to a massive expansion in transportation networks, port facilities and telecommunications infrastructure across the continent. Concurrently, Chinese investments in manufacturing plants in a diversity of locations from Ethiopia, South Africa, Senegal to Nigeria, Rwanda and Kenya have opened up new possibilities for export earnings that tap both regional and international markets. The launching of the African Continental Free Trade Area (ACFTA) in 2019 is meant to build on these developments by providing a coherent policy framework that liberalised trade by lowering tariffs across the region. The clustering of production sites along infrastructure transportation networks as seen in Ethiopia’s industrial corridor and Kenya’s projected LAPSETT corridor exemplified the critical role played by Chinese-lending and construction in support of industrialisation.
Africa’s Debt Crisis 2.0 and the Covid-19 Threat
Unfortunately, as these policy initiatives were gathering steam, the prevailing conditions which sustained high rates of lending for infrastructure development and seeded industrial expansion changed dramatically. The fall in commodity prices starting in 2014 hurt Africa’s resource-dependent economies earnings and, at the same time, weakened its ability to meet dollar-denominated debt payments. While much Western media attention was given over to African debt to China, in fact debt obligations to Beijing are only deemed to be serious in Djibouti, Republic of Congo, Ethiopia, Kenya and Zambia.[2] That being said, China is the leading bilateral lender in 32 of 40 African countries and has even surpassed the World Bank ($62 billion) as the top lender ($64 billion) to the continent. China has loaned upwards of $147 billion to African governments between 2000 and 2018, accounting for 20% of the continent’s obligations while multilateral debt stood at 35% and private debt at 32%.[3] All of these factors had an ominous ring to those who remembered the commodity price collapse and subsequent debt crises in the 1980s which produced anaemic growth and chronic under-investment in Africa for two decades.
On top of these concerns, the onset of the Covid-19 virus in late 2019 produced a risible shock to the global economy. China’s effective shut down of economic activity for months was followed in close succession by countries in Asia, Europe and the Americas. These conditions accelerated a further collapse in commodity prices, even bringing oil prices briefly into negative territory, but more worrying were the longer-term trends for Africa and the global economy. By April, the International Monetary Fund (IMF) was predicting that African economies would contract by -1.6% in 2020 while the Eurozone countries were expected to shrink to -7.5% and even the once-dynamic Chinese economy down to 1.2%.
It was in these dire circumstances that African governments petitioned the G20 countries to suspend debt payments – or even cancel them outright. Securing their agreement on a moratorium on payments for 40 African countries until the end of 2020, African representatives sought further assurances that G20 countries would provide a $100 billion stimulus package for beleaguered African economies. Notably, this decision by the G20 on the debt moratorium included China as a founding member and was based on terms agreed by the Paris Club.[4] However, a significant portion of Africa’s debt at this time – unlike the period of the first African debt crisis when the NGOs campaigned for debt cancellation resulting in the Highly Indebted Poor Countries (HIPC) initiative – is bilateral, non-concessionary or commercial in origin.
In this context, China’s bilateral debt stands out and its efforts to date have been limited to suspending no-interest loans which, while laudable, represent less than 5% of its total debt stock. The more contentious decisions regarding concessional and non-concessional loans owed by African governments to Chinese policy and commercial banks remain unaddressed. The World Bank has been quick to point out that, with less than $4 billion of the total $14 billion in bilateral debt held by Paris Club members, ‘it will be critical to have broad and equitable participation of all official bilateral creditors to make a difference’. Moreover, as an ECPDM report made clear:
“Without substantial debt negotiation with China and Africa’s other creditors (commercial and multilateral) or alternative ways of accessing finance suggested by the AU’s Group of Special Envoys, it is not clear how African countries can raise the more than US$100 billion they need to address the economic and health impact of COVID-19.”
Keeping Africa’s Industrialisation on Hold
The absence of coordination between creditor countries and its impact on ongoing industrial development projects is already evident in places like the Republic of Congo-Brazzaville. In the aftermath of the commodity price collapse, the Republic of Congo government’s debt surged to 117% of GDP in 2017, causing it to open negotiations with the IMF in October that same year for a bailout. For its part, the international lenders refused to consider debt alleviation measures until the Republic of Congo had addressed its bilateral debt with China, which stood at 40% of the country’s total debt obligations. The IMF’s position impacted on other lenders as well as shutting down access to capital markets, effectively freezing a range of projects including those in the revenue-generating oil sector and forcing the government to impose a 50% reduction in public spending. Extended negotiations between the Chinese and Congolese governments began in February 2017 and were only concluded with the inking of a debt restructuring agreement between the Republic of Congo and the China ExIm Bank in May 2019. It was only after this point that the IMF agreed to release $500 million in bridging funds, unlocking the resources to restart a host of other development projects in the country.
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 this respect, Beijing’s continuing ambiguity on its participation in multilateral forum is complicating the international response to debt. On the one hand, the endorsement of the G20 signals de facto compliance with Paris Club’s coordinated multilateral approaches while, on the other hand, China seeks to maintain the maximum latitude available to it through bilateral negotiations. This mirrors the unease with which Beijing views other Western-instigated donor organisations such as the OECD’s Development Advisory Committee with its provisions for data transparency and coordinated aid policies.
At the same time, the Chinese government has hit back at multilateral lenders like the World Bank, chastising them for not participating in the Covid-19 debt suspension agreement and disputing its rationale for not doing so. In a statement issued after the April agreement, Beijing’s Minister of Finance declared that by ‘fail(ing) to participate in collective actions for suspending debt service payments, (the World Bank group’s) role as a global leader in multilateral development will be seriously weakened, and the effectiveness of the initiative will be undermined’.[5]
The seeping of geopolitics into development finance and debt management is evident in other sectors as well. For instance, China’s proposed construction of a new headquarters for the Africa Center for Disease Control – a signature legacy of USAID funding of Africa’s public health institutions and trilateral cooperation with China – is inspiring a fearsome backlash by American officials.[6] Beijing’s critique of the World Bank over debt suspension too may have been influenced by deliberate reductions in overall lending to China under its president David Malpass, a Trump-appointee.
All of this is a worrying sign for Africa. With debt piling up, the global economy grinding to a halt and commodity export earnings stuck in the doldrums for the near future, the prospects for African industrialisation are severely restricted. Impasses in collective responses to the debt crisis and critical areas like public health, whether inspired by global power competition or more venal sources, can only further damage the continent’s development ambitions. Against the backdrop of an unprecedented twinning of economic crises and pandemic, this threatens to cast a shadow over the outlook for a swift African recovery.
[1] For rise of debates, see Deborah Brautigam (2019) ‘A Critical Look at China’s “Debt Trap Diplomacy”: the rise of a meme’, Area Development and Policy 5:1, https://doi.org/10.1080/23792949.2019.1689828
[2] Chukwuka Onwekwena and Mma Amare Ekeruche (2019) ‘Is a debt crisis looming in Africa?’, Brookings Institution, 10 April, https://www.brookings.edu/blog/africa-in-focus/2019/04/10/is-a-debt-crisis-looming-in-africa/; Jubilee Debt Campaign (2018), ‘Africa’s growing debt crisis: who is the debt owed to?’, October, https://jubileedebt.org.uk/wp/wp-content/uploads/2018/10/Who-is-Africa-debt-owed-to_10.18.pdf;
[3]Jubilee Debt Campaign, ‘Africa’s growing debt crisis: who is the debt owed to?’, October 2018, https://jubileedebt.org.uk/wp/wp-content/uploads/2018/10/Who-is-Africa-debt-owed-to_10.18.pdf; also see China Africa Research Initiative data, http://www.sais-cari.org/data
[4] Kevin Acker, Deborah Brautigam and Yufan Huang (2020) ‘Debt Relief with Chinese Characteristics’ SAIS-CARI Working Paper 39, June, p. 31; G20 Communique, ‘G20 Finance Ministers and Central Bank Governors Meeting’, 15 April 2020 (virtual), https://g20.org/en/media/Documents/G20_FMCBG_Communiqu%C3%A9_EN%20(2).pdf
[5] Kun Liu, Minister of Finance, Peoples Republic of China, 101st Meeting of the Development Committee, Washington, D.C. (virtual), 17 April 2020, p. 3, https://www.devcommittee.org/sites/dc/files/download/Statements/2020-04/...
[6] ‘China’s plan to build Africa’s CDC headquarters a threat to Africa’, Medical Brief, 12 February, https://www.medicalbrief.co.za/archives/chinas-plan-to-build-africas-cdc-headquarters-a-threat-to-africa/; Callie Aboaf (2020) ‘US-China Collaboration in Creating and Supporting the Africa Centers for Disease Control and Prevention’, Africa-China-US Trilateral Cooperation Research Series No. 4, Atlanta: Carter Center, pp. 1-9.
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