China, Africa and debt

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China and Africa are in an asymmetrical relationship – China has the power – and here is what we know about it: Since the Cold War, China has viewed Africa has an ally and over the past two decades China and Africa have become more closely intertwined through trade, foreign investments, and debt. As of 2019, the value of bilateral trade stands at around $209 billion. China’s alliance with Africa has given China a lot of influence on the continent. Africa has been a willing recipient of Chinese investment and infrastructure projects. For instance, between 2014 and 2018, data from the United Nations’ Conference on Trade and Development shows, Beijing’s foreign direct investment in Africa increased 44% to $46 billion.

Moreover, in recent years, China has become one of Africa’s largest creditors. According to the China Africa Research Initiative, between 2000 and 2018, Chinese lenders signed US$ 152 billion in loan commitments to African sovereign borrowers and their state-owned enterprises. Further, according to the Jubilee Debt Campaign: 1. African government external debt payments have doubled in two years, from an average of 5.9% of government revenue in 2015 to 11.8% in 2017; 2. 20% of African government external debt is owed to China; 3. 17% of African government external interest payments are made to China; 4. In contrast, 32% of African government external debt is owed to private lenders, and 35% to multilateral institutions such as the World Bank; and 5. 55% of external interest payments are to private creditors.

When it comes to China and debt, the idea of debt trap diplomacy comes to mind. As pointed out by, former chairman of the State Department’s American Institute in Taiwan, Therese Shaheen, through the Belt and Road Initiative – a trillion-dollar program meant to project Chinese influence through a string of investments abroad – China uses debt and related pressure to trap a range of low-income countries into doing its bidding. As part of the Initiative, China invests large sums of money in cash strapped countries, countries that cannot afford to turn the money down, and then China leverages the resulting debt to secure control of strategically important infrastructure in those countries. This is not mere speculation: For instance, by utilising debt trap diplomacy, China now controls a major strategic port in Sri Lanka, and in Djibouti, China now controls a port and a military installation.

Given Africa’s current debt problem, Africa’s Coronavirus recovery is under threat: Africa is short on funds needed for infrastructure development and Coronavirus relief as the necessary funds are earmarked to finance soaring debts. Moreover, “as export and tax revenue decline due to subdued global demand and domestic activity, debt costs are eating up a larger share of countries’ income in a region that already spends less than any other on infrastructure.” These realities can be seen in Nigeria and Ghana, in particular, and sub-Saharan Africa, in general. In Nigeria, in the first Quarter of 2020, the government spent seven times more on debt than new bridges and highways. In Ghana, in the first four months of 2020, the interest payments on debt were the highest since 2016. In sub-Saharan Africa, the external debt service bill, for 2020, will be approximately $36.6 billion. African countries, unlike richer ones, cannot afford to pour money into their economies – African countries “need to take on more expensive debt to deal with the economic fallout from the pandemic.”

Provided Africa’s debt predicament, there is a case to be made for debt relief in Africa amid the Coronavirus crisis. That case is thus:

1. African countries have weak healthcare infrastructure and are not adequately prepared to respond to the challenges the Coronavirus crisis poses. African nations need to channel significant finance resources – resources sorely lacking – to the healthcare sector. At present, the scant resources are used to service debt – certainly not where resources should be directed during a pandemic.

2. African countries, 90% of which, are commodity dependent. And, because of the recent Coronavirus crisis induced demand shock, African nations are suffering from a reduction in revenue. The reduction in revenue has put pressure on already precarious national budgets.

3. African countries, because of structural issues, require larger than normal fiscal spending – according “to the International Labor Organisation, 66% of total employment in sub-Saharan Africa is in the informal sector which is characterized by low wages.” (Add the lockdowns to the mix, governments need all the money they can get hold of to ease the stress on the labor market.)

4. African nations are plagued by poverty – data shows that 27 of the world’s poorest countries are in sub-Saharan Africa and that sub-Saharan Africa has a poverty rate of 42.3%. As a large share of the population does not earn a certain threshold income sufficient to meet their needs, African countries will require large safety nets for its citizens as the Coronavirus crisis protracts.

5. Given the low investment in manufacturing in Africa, many countries have limited access to the medical supplies and associated equipment required to combat the Coronavirus crisis. For instance, as late as April: In Nigeria, population 195.9 million, less than 500 ventilators were reportedly available; In Zimbabwe, population 14.4 million, there were around only 20 ventilators in public hospitals across the country; In the Central African Republic, population of 4.6 million, only 3 ventilators were available. These examples make clear that African countries require significant financial resources to address the shortfall in vital medical equipment.

The crux of the case for relief is: African governments spend a large share of their budgets on repaying the principals and interest rates on debt incurred. However, as the Coronavirus crisis ravages the continent, African governments need flexibility to focus on the crisis and this flexibility can be realised if debt burdens are eased. Additionally, as a relief measure, grants and concessional loans with low interest rates and long grace and maturity periods should be made available to the continent.

Aware of the above, among other reasons, in a previous article, I stated that China should cancel all African debt. I wrote and reasoned that: “Xi has poisoned the world. China has a lot to reform before it can be trusted. A good start would be for China to forgive all debt – African debt. To be clear, this will not be enough, but it would be a welcome start. It is unlikely that China will forgive African debt, [China has] been laying debt traps for decades – China’s posture towards Africa is an ‘Imperialist’ one.” I correctly predicted that blanket debt forgiveness is not likely. However, I want to point out that I am, currently, still in favour of debt relief but no longer in favour of blanket forgiveness. My current position is yes to relief, no to blanket forgiveness. The reason for no blanket forgiveness is as noted by, Nonresident Fellow – Global Economy and Development, Africa Growth Initiative at the Brooking Institute, Yun Sun: Simple debt forgiveness hardly encourages responsible borrowing from African governments down the road. This is evidenced by the African Eurobond rush over the past few years that has also contributed to the current debt problem. Additionally, “debt forgiveness will improve African governments’ debt ratio, and free them to borrow more debts from international financiers.” Blanket forgiveness will not encourage African governments to clean up their fiscal houses – History tells us so.

On debt relief, emerging deliberations show, China, as of June 9, 2020, has made two specific commitments. First, as part of the G-20 Debt Service Suspension Initiative for Poorest Counties, China agreed to suspend both principal repayments and interest payments starting on May 1, 2020 until the end of 2020. “The suspension is applicable to all IDA-eligible countries (76 countries) plus Angola, including 40 sub-Saharan African countries.” Second, China said it “will provide $2 billion over two years to help with COVID-19 response and with the economic and social development in affected countries, especially developing countries.” In its pledge, China left the door open for part of that allocation to be counted toward debt relief or the cost China must carry for such relief. (Both commitments are a decent start but may not be nearly enough as the current crisis protracts.)

Given China’s commitments, some commentators are singing China’s praises. For instance, one commentator is on record saying: “China, as a key member of the international community in the 21st century, has understood the relevance of its role as the world’s second economy and the responsibility it has towards Africa for being its largest investor.” Furthermore, “China’s decision not only represents an act of generosity toward countries facing a difficult time by voluntarily deciding to cancel part of the pending debt but also demonstrates that China feels comfortable in filling the leadership vacuum left by the United States and by the rest of Western nations that have not been able to solve the African debt issue for decades.” This is nothing more than Xi’s propaganda. First, it is necessary for China to make concessions because China is at fault for the current global crisis. I have written all above China’s fault during the crisis and will not repeat myself here. (You can find the commentary in my previous articles.) Second, this line of thought exposes what I have previously written, which is: China senses American weakness and is jostling for power and China is not acting out of some sense of responsibility or benevolence.

African governments ought to realise that although debt relief is a welcome development it is not without negative consequence. Has been pointed out by John Campbell, on a Council of Foreign Relations blog, “research from the College of William & Mary found that if an African country votes with China an additional 10% of the time, it will receive an 86% increase in aid – and a 159% in grants. Further, given China’s indifference to authoritarian governance and human rights abuses, the ability to turn to China for development assistance makes it difficult for Western development institutions to request or impose reforms. Research from Heidelberg University has found that for every percentage point increase in Chinese aid, a nation will receive 15% fewer conditions from the World Bank.” Further, China, in recent past, “leveraged its largesse around the world to keep partners mum on the issue of concentration camps in Xinjiang. In Africa, a dozen nations, some with sizable Muslim populations, have also been compelled to praise the brutality against the Uighur Muslims. Others have gone on to praise the democracy crackdowns in Hong Kong. Likewise, all but one African nation – tiny Eswatini – has complied with China’s demand to cut off relations with Taiwan.” China is trying to buy Africa. Debt relief, and China’s promise to supply any Coronavirus vaccine to Africa first, free of charge is China’s offer to Africa.

In all, I do welcome debt relief. African governments lack of fiscal discipline in non-crisis times has hampered their ability to adequately combat the Coronavirus crisis. Debt relief will help channel scarce financial resources, resources wasted in service of debt during a pandemic, to the Coronavirus fight. Moreover, China caused this crisis – it caused global stress – and thus must do whatever it takes to ease that stress of the crisis. However, Africans must be aware that debt relief comes at a cost – Africa’s soul. African leaders, I implore you: Accept, and even demand debt relief – it is the cost China must bear for poisoning the world, clean up your fiscal houses, and resist Chinese Imperialism.

The views expressed in this article are Nkosi Mfumu’s own opinions and not necessarily those of Business Tech Africa.

About the author: Zambia-based lawyer (licensed to practice in the State of Illinois) holds a BA in International Studies (with a concentration in International Relations) and is also a Juris doctor.

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