China’s loans to Africa are likely to get complicated for years

Huge Chinese loans to Africa have created a dilemma in which China will struggle to recoup its money while maintaining its image as a friend of developing countries, researchers at London-based think tank Chatham House have said.

Frica’s external debt has quintupled to US$696 billion (€657 billion) between 2000 and 2020, with Chinese lenders accounting for 12 percent of that, according to a new report.

While Chinese lending to Africa has been criticized by the US and other Western nations as opaque and aimed at seizing African assets offered as collateral, the researchers said that was not the case.

“Far from being an elaborate strategy to dispossess African assets, profligate Chinese lending in its early stages may have created a debt trap for China and entangled it deeply with stubborn and increasingly assertive African partners,” they said.

China, for example, is a big creditor to Zambia, which has defaulted on its debt. It has also lent to other African nations struggling to meet their debt obligations, including Angola, Ethiopia, Kenya and the Republic of Congo.

The economic fallout from the pandemic and Russia’s invasion of Ukraine have eroded the ability of many African nations to service their sovereign debt.

The continent is heading for a debt crisis, with 22 out of 54 nations threatened by a so-called debt crisis, according to World Bank and International Monetary Fund criteria.

China has been criticized for its perceived lack of engagement in global efforts to reduce developing countries’ debt burdens; US Treasury Secretary Janet Yellen has repeatedly said that Beijing has become the biggest obstacle to progress.

Jose Fernandez, US undersecretary for economic growth, energy and the environment at the US State Department, said China needs to be more transparent about the debts of African nations.

Concerned about the inability of many nations to repay their loans, Chinese institutions have slashed the amount of credit they will lend to Africa, Chatham House said.

New Chinese loans to African governments fell from a peak of $28.4 billion in 2016 to $8.2 billion in 2019 and just $1.9 billion in 2020, the researchers said.

“China’s approach to African debt is a dynamic shift, with patterns of Chinese infrastructure-linked lending in Africa moving from resource-based profligacy to more calculated business or geostrategic decision-making,” said the Chatham House researchers in their report, titled “The Response on the debt crisis in Africa and the role of China”.

“The image of China as a predatory lender intent on expropriating African assets is, in most cases, not tenable,” they wrote.

Still, there are indications that China may have lent money to the tiny Horn of Africa nation, Djibouti, to secure political clout, they said.

Between 2012 and 2020, China provided Djibouti with $1.4 billion in investment and infrastructure loans.

China now faces the dilemma of enforcing its right to receive payments or adopting a more accommodating approach to maintaining its political ties, the researchers said. China’s loans to Africa are likely to get complicated for years

Fry Electronics Team

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