China Offers Debt Relief, But Most African Countries Borrow Elsewhere

Chinese President Xi Jinping, right, shakes hands with the president of the Republic of the Congo, Denis Sassou Nguesso, during a meeting at The Great Hall of People in Beijing, Thursday, Sept. 6, 2018.

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WASHINGTON — Chinese President Xi Jinping promised Monday to cancel debt for some of Africa’s least-developed countries.

Erasing debt tied to interest-free loans has long been a part of China’s policies in Africa. But the announcement, made at Xi’s opening speech at the 2018 Forum on China-Africa Cooperation, or FOCAC, comes amid growing concern over China’s lending practices, which some have deemed “debt-trap diplomacy.”

Yet Chinese loans make up just a small portion of Africa’s debt, W. Gyude Moore, a visiting fellow at the Center for Global Development, told VOA. Moore is Liberia’s former minister of public works and focuses on infrastructure financing in Africa.

He put the continent’s total debt burden at about $6 trillion, most of which is owed to organizations such as the World Bank, the International Monetary Fund and the Paris Club of mostly Western creditor countries. He said Chinese loans make up just two percent of all Africa debt.

Murky details

Debt forgiveness is a small part of a much larger package announced at this year’s FOCAC, and details about affected countries aren’t known, Moore said.

“Because it is unclear what the conditions are to qualify for debt relief, we can’t say for sure what countries will benefit from it,” he said.

In his speech, Xi said the relief would help “heavily indebted and poor countries, landlocked developing countries and small island developing countries.”

That’s consistent with how China has dealt with debt forgiveness in the past.

Deborah Bräutigam, the director at the China-Africa Research Initiative at Johns Hopkins University, wrote earlier this week that the debt-relief policies were nothing new, even if they sounded like a big change.

“These foreign aid loans are a long-standing and relatively modest part of Chinese finance in Africa,” Bräutigam wrote.

‘Net positive’

Critics worry that China wants to create debt problems with its partners to gain leverage with them.

In Sri Lanka, China took over Hambantota Port and thousands of acres of surrounding land as part of a debt forgiveness package, raising concerns about sovereignty.

But Moore thinks that case is an anomaly and points to Venezuela, a country that owes China about $50 billion without having faced similar takeovers of facilities or land, as another example of how things can play out.

More importantly, African nations turn to China to fulfill a need, Moore said.

“Currently, Africa lags every region of the world when it comes to infrastructure. And China, it appears, is the only country with both the appetite and the resources to be able to help Africa meet its infrastructure needs,” Moore said. “I think China has been a net positive partner with most African countries.”

Corruption concerns

But good intentions may not be enough to keep borrowers out of trouble. Bräutigam told VOA that concerns about Chinese debt and doubts about the necessity of some infrastructure projects have merit.

“The Chinese practice has been much more deferential to local sovereignty. And so, in their view, African governments know what they’re doing when they borrow to build these projects. And in their own history the Chinese have also borrowed to build things,” Bräutigam said.

That’s led some critics to fault China for perpetuating corruption with no-strings-attached loans and a policy of non-interference with other nations’ internal dynamics.

Moore said the Democratic Republic of Congo is one example of a country that’s indebted to China but also saddled by corruption.

“The problem with the DRC is not simply something with the Chinese loans,” Moore said. “There was an instance where almost $2 billion in rent collected on mining didn’t make it to the national budget.”


Internal & external pressure

Moore sees an extension of China’s policies in Africa for the foreseeable future, although debt cancellation or restructuring both are likely, he added.

But growing scrutiny both internationally and internally could constrain future Chinese lending, especially in the context of the high-profile Belt and Road Initiative, Beijing’s massive infrastructure project cast as a modern-day Silk Road.

About 100 million Chinese live in poverty, Moore said, and the country’s own debt has spiked in the past nine years from about $6 trillion to roughly $28 trillion. That’s left some in China questioning the wisdom of giving Africa what they see as development aid.

But Chinese money isn’t likely to dry up, and until African nations find other lenders willing to offer comparable terms, the continent will keep counting on China to bolster its development efforts.

“China will continue to, for at least the next decade, be a source of lending to African countries,” Moore said.
– Salem Solomon I VOA