Covid-19 reveals the pitfalls of Chinese ‘debt-trap diplomacy’ for Africa

Sub-Saharan Africa has asserted itself as a key component of China’s global strategic agenda over the past 20 years. This is demonstrated by China’s status as the region’s largest trade partner since 2012, with Sino-African trade topping $200-billion a year.

McKinsey & Company suggests that there are more than 10,000 Chinese-owned companies operating in Africa, and that the value of these businesses amounts to more than $2-trillion. 

Chinese access to natural resources forms a key aspect of this trade narrative. A recent study by the Massachusetts Institute of Technology’s Observatory of Economic Complexity indicates that many of the continent’s most resource-rich countries depend on the Chinese for their exports.

For example, by 2017, 95% of Sudanese crude petroleum exports were sent to China, while by 2019, Angola was ranked as China’s second-largest source of oil imports after Russia. 

China has disbursed resource-backed loans to African countries to facilitate the ease of access to these resources, which amounted to 33% of loans to Africa from 2000 to 2014. China’s agreement to lend Guinea $20-billion over 20 years in exchange for bauxite and ore aluminium concessions in 2017 is a recent example of such an initiative.

China has embarked on steps to expand its economic engagement with Africa beyond access to natural resources. In a bid to boost trade and economic co-operation, it has participated in the development of roads, ports, railways and other forms of economic infrastructure. 

Recent examples include the $4-billion 756km Djibouti-Ethiopia railway, the 480km Nairobi-Mombasa Standard Gauge Railway, and the $1.5-billion Nairobi-Naivasha railway line. These projects were completed in 2017, 2018 and 2019 respectively.

China is also set to develop the 679km Trans-Guinean railway network in Guinea. In 2018, China established a $1-billion Belt and Road Infrastructure Development Fund as part of $60-billion aid packages with the ongoing application of its Belt and Road Initiative.

Preferred to Western aid

Chinese foreign aid and investment have been welcomed by African leaders, much to the disdain of the global North. This is because Chinese aid challenges the Western monopoly over aid distribution, which is primarily administered by the International Monetary Fund (IMF) and the World Bank.

Chinese aid is seen as interrupting the Western hegemonic agenda. Chinese loans are also not tied to conditions such as the adoption of democratic principles and economic liberalisation reforms in return for the disbursement of loans. This appeals to sub-Saharan African governments, which have historically had negative experiences with the conditional approach imposed by Western bilateral partners and multilateral financial institutions (MFIs).

Western MFIs have used this to outsource the management of African economies to external experts and consultants, mandated to implement policies adopted without the input of local administrations. This was exemplified by the IMF’s and the World Bank’s structural adjustment programmes for countries that experienced economic crises. They ran from the 1960s through to the 1990s and were reformulated and renamed in the late 1990s and 2000s.

China does not have explicit loan conditions, and the Chinese government suggests this is because it has an international policy that is pro-sovereignty and non-interventionist. 

Scepticism about Chinese aid

Despite being marketed as non-conditional loans, African states have learned that there is no free lunch and that Chinese loans pose as much of a threat to the exercise of national sovereignty as loans emanating from traditional Western donor partners. In fact, Chinese financial assistance might produce worse repercussions for African governments than borrowing from the West.

China is accused of practising “debt-trap diplomacy”, a predatory system used to ensnare countries into debt by providing loans, and subsequently taking control of national key points for defaulting on loan payments.

In Sri Lanka, the government handed over control of the newly built port of Hambantota to a Chinese operator because of a loan default. There have also been reports from Zambia that Chinese lenders requested the control of mining concessions as collateral for unpaid debts. The government of Kenya raised concerns over Chinese plans to take over strategic seaports if the country is not able to settle its debts. China currently holds 21% of Kenya’s national debt.

Debt forgiveness and Covid-19

In May 2020 South African President Cyril Ramaphosa, in his then capacity as African Union chair, called on global lenders to implement a two-year moratorium on sub-Saharan African debt payments. The objective of this was to enable states to channel optimal financial resources towards public health interventions in the wake of the Covid-19 pandemic. 

The proposal was equally motivated by the impending global economic downturn. The IMF’s Regional Economic Outlook projected that economic growth in the region would shrink by an unprecedented 1.6% in 2020, the lowest level in close to 30 years. The IMF brief advocated for support from developmental partners to address the financing and debt relief needs of the most vulnerable countries.

According to research from Johns Hopkins University, African countries owe China more than $143-billion. It is estimated that China holds 20% of all African governments’ external debt and is the single largest creditor to sub-Saharan Africa. 

By default, China is a crucial player in Africa’s Covid-19 recovery plans and is in the driver’s seat for debt relief in Africa. Despite this scenario, China has been reluctant to grant immediate, blanket debt relief concessions to the most vulnerable countries in the region. The Chinese have rather opted for one-on-one bilateral debt relief arrangements.

In May 2020, the Chinese foreign ministry told Reuters, “The origin of Africa’s debt problem is complex, and the debt profile of each country varies.” 

Although it is true that African states do not have homogenous economies, this statement was made after the establishment of the G20 Debt Service Suspension Initiative for the world’s poorest countries, which authorised a moratorium on principal debt and interest payment from 1 April 2020 to the end of the year, and the IMF’s approval to cancel $500-million in debt payments for 25 countries, 19 of which are in Africa.

... in 2015 China pledged $60-billion in loans to African countries, with 9% made up of zero-interest loans. In 2018, an additional $60-billion was pledged, with 25% of this allocation consisting of zero-interest loans. This trend clearly indicates that commercial and concessional elements make up the bulk of African countries’ debt to China.