Chinese action against debtor countries in Africa

What is another attempt to acquire foreign assets due to loan default, China reportedly took control of Uganda’s Entebbe International Airport and other assets in the West African country the East? Ugandan President Yoweri Museveni had sent a delegation to Beijing for a renegotiation with the Chinese government.

Earlier, the Museveni-led government signed an agreement with China’s Exim bank to borrow $207 million to expand Entebbe International Airport, according to news reports. The authorities have admitted that there are problematic clauses in the loan agreement, as Uganda seeks to amend certain clauses of the agreement. Meanwhile, the Chinese government had also dismissed reports suggesting a forced takeover of Uganda’s airport by creating a ‘debt trap’.

Fearing default, a number of African countries are renegotiating loan terms with Chinese entities, including deferring interest payments and suspending unviable projects. This is due to deteriorating economic conditions following the spread of Covid 19. China is currently one of the top bilateral lenders to 32 African countries and the largest lender to the continent as a whole. The list includes Angola ($21.5 billion in 2017), Ethiopia ($13.7 billion), Kenya ($9.8 billion), Republic of Congo ($7.42 billion). dollars), Zambia ($6.38 billion) and Cameroon ($5.57 billion), we learned.

In the space of a decade and a half, China has become Africa’s largest bilateral creditor, for committing to lend more $150 billion between 2000 and 2018, larger than any OECD (Organization for Economic Co-operation and Development) lender, and close to the World Bank in Africa. Along with growing trade and foreign direct investment (FDI), these capital flows from China, which are accelerating under the Belt and Road Initiative (BRI), have been met with consternation from Western media.

According to IMF estimates, up to $285 billion in additional financing would be needed over the 2021-25 period by African countries to step up spending in response to the Covid pandemic.

These trends have raised fears about Chinese loans as a geostrategic and coordinated tactic, by deliberately putting African countries into debt in order to take control of key assets, in what has become a meme of “debt trap diplomacy”. This asserts that Chinese loans are backed by strategically important assets, from mineral resources to port projects, and that debt is used deliberately to leverage or extract strategic benefits from indebted poor countries – including asset seizures – when are unable to meet their debts.

Loan conditions

According to the authors ofHow China Lends analysis, Chinese loan contracts contain “more elaborate repayment guarantees than their peers in the official credit market,” which essentially guarantee repayment by borrowing countries. These contracts also contain provisions that “give Chinese lenders an advantage over other creditors”. These unique provisions include an undertaking by the borrower to: not disclose the terms of the contract, except as required by law, maintain an escrow account and other special bank accounts to secure the repayment of the debt, exclude debt from restructuring initiatives (such as the World Bank Debt Service Suspension Initiative), and allow the lender to terminate the contract and demand immediate full repayment if the borrower defaults on its other lenders. These confidential contracts have only grown in importance over time.

Critical

In recent years, rising levels of debt, including loans from China, have raised concerns about a looming debt crisis in Africa. Specifically, many fear that increased government spending in the face of the COVID-19 pandemic could trigger a new crisis in the coming years. At the same time, China has been accused of using “debt diplomacy” to obtain certain advantages and benefits in exchange for loans.

In 2015, the World Bank argued that African countries were too indebted and encouraged borrowers to change their behaviors and adjust their risks. Furthermore, in this narrative, China’s role in providing loans has been controversial, even more so than, for example, private sector debt, such as “eurobonds” which have also risen rapidly over the years. 2000, especially in middle-income African countries. countries.

China has been accused of using its loans to vulnerable countries for strategic purposes. For example, in 2019, Mark Green, the former administrator of the United States Agency for International Development, argued that China uses “debt diplomacy” to convert its economic power into political influence in recipient countries, especially when these beneficiary countries are unable to repay their debt. debt. Mr. Green also asserted that unlike the Paris Club, China does not provide debt relief to help recipient countries reduce their debt burden, as evidenced by the recent increase in the size of the Chinese debt held by heavily indebted poor countries. Unsustainable Chinese debt threatens the autonomy of these vulnerable countries.

African academics, who have been highly critical of China’s resources for infrastructure deals in Africa and the opacity of Chinese lending practices and have accused China of ‘debt trap diplomacy’ . Experts have also highlighted China’s “hidden debt” problem, as a significant portion of Chinese lending to African countries goes unreported. According to a recent study by ‘AidData‘, China’s underreported debts to low- and middle-income countries amount to US$385 billion.

In the aftermath of the COVID-19 pandemic, most African countries are facing mounting debt. According to the 2022 International Debt Statistics, published by the World Bank, Sub-Saharan Africa’s stock of external debt increased by 43%, from US$492 billion in 2016 to US$702 billion in 2020. Furthermore, the report observes that the sub-Saharan region, led by Angola, has seen the largest increase in Chinese debt. Although the pace of debt accumulation has slowed since 2018, Sub-Saharan Africa accounts for 45% of end-2020 obligations to China.

Rising debt burdens and slowing economic growth have left fewer options available for African countries. Many African countries have now resorted to canceling Chinese projects. Some also cited poor workmanship and unfair deals. Moreover, African leaders are more critical of Chinese lending practices today. In April 2020, then Tanzanian President John Magufuli described China’s US$10 billion port project at Mbegani Creek signed by his predecessor, Jakaya Kikwete, as a project that could not be accepted only by a “drunkard”. In 2020, the High Court of Kenya voided the rail contract between the Kenyan government and China Road Bridge Corporation for failing to meet the country’s procurement rules. This year, Ghana canceled a Chinese project to develop an intelligent traffic management system for its capital, Accra, over concerns about the quality of the Chinese company’s work. Félix Tshisekedi, the president of the Democratic Republic of Congo, also called for a review of mining contracts under the Sicomines contract – then dubbed “the deal of the century” – which were signed in 2008.

Today, African countries are accused of having taken on too much debt, with the majority of them classified by the IMF and the World Bank as at risk or already in debt distress, in part because of loans from China. It is important that African countries have strategies to deal with current debt repayments and avoid any escalation into crisis due to lack of liquidity. Second, some countries in Africa are more indebted and vulnerable than others.

As mentioned earlier, China is often accused of using “debt diplomacy” to obtain certain political advantages in exchange for loans. Chinese loans are still considered quite opaque. In addition, estimates of the proportion of Chinese lending to developing countries vary widely, allowing for questioning and criticism of the actual amount of Chinese lending.


Post views:
424