June 20, 2020

China-Africa Research Initiative-(CARI) presented an interesting and useful webinar entitled : Debt Relief with Chinese Characteristics, using research presented from a Working Paper #39 and Policy Brief #46. View: CARI: Debt Relief With Chinese Characteristics

In response to China’s growing economic and political influence in the world, especially on the African continent, various propaganda outlets located in the West have launched a new assault on China. Their line of attack is to malign China and African leaders with the false narrative that China is intentionally luring African nations into a ‘debt-trap’ in order to seize control of their natural resources. This cynical view of China’s alliance with African nations flows from the age old doctrine of “geo-politics” that only perceives nations as either winners or losers in a fixed zero-sum view of the world.  In this evil world view, stronger powers, hegemons believe they can only maintain their supremacy by having their foot on the neck of weaker nations. The “geo-political” doctrine rejects the notion that all nations share a common interest.

Misinformation or Disinformation

As Deborah Brautigam, director of CARI has stated before, there is no evidence, none, not one single case of China using debt to seize control of an African nation’s assets. “We found no “asset seizures” and despite contract clauses requiring arbitration, no evidence of the use of courts to enforce payments, or application of penalty interest rates.” Despite no substantiation of China using debt as a weapon against African nations, the ‘debt-trap’ mantra is repeated by either misinformed individuals, including Africans, or by those who are deliberately disseminating disinformation with malice.

The CARI working paper reports the following:

“The rating agency Moody’s warned that countries ‘rich in natural resources, like Angola, Zambia, and Republic of the Congo, or with strategically important infrastructure, like ports or railways such as Kenya, are most vulnerable to the risk of losing control over important assets in negotiations with Chinese creditors.’ These assumptions of a malign China were repeated in publications like The New York Times, which contended that Chinese loans “frequently use national assets as collateral” and require refinancing ‘every couple years’ (our Africa data supports neither of these statements).” (emphasis added)

If there is any honesty or integrity left in our duplicitous culture, all claptrap about China’ alleged ‘debt-trap’ as a nefarious attempt to gain control of Africa’s wealth should cease immediately! If one examines the long history of China’s relationship with Africa and the more recent twenty year period, it is clear that China desires to resolve issues with African nations through consultation. China may choose other means of responding to payment difficulties, but there is no evidence that they want to take over African holdings, contrary to prevalent popular opinion. Read: Chinese ‘debt-trap’ Propaganda Exposed-Time to End Ignorance & Prejudice Against China in Africa

Debt Cancellation

As COVID-19 spreads in Africa, nations are struggling to survive economically and simultaneously defeat the deadly virus.  Debt service is onerous and must be suspended indefinitely or cancelled, as leaders of many Africans nation have rightly insisted. According to Dr. Brautigam, from 2000-2018, China has made loan commitments of $152 billion, and of Africa’ total external debt, China holds 17%, while the World Bank hold 18%, and private lenders 31%.  Thus, China will and has already engaged in debt relief, but will do it differently than western institutions like the Paris Club and World Bank.

“Our [CARI] study found that between 2000 and 2019, China has cancelled at least US$ 3.4 billion of debt in Africa. There is no “China, Inc.”: for interest-bearing loans, treatment for inter-governmental debt and Chinese company loans are negotiated separately, and often loan-by-loan rather than for the entire portfolio. While rescheduling by increasing the repayment period is common, changes in interest rates, reductions in principal (“haircuts”), or refinancing are not. We found that China has restructured or refinanced approximately US$ 15 billion of debt in Africa between 2000 and 20190…Chinese lenders prefer to address restructuring quietly, on a bilateral basis, tailoring programs to each situation.”   

China, up this point has only cancelled zero interest loans, which represent only 5% of loans from China, and are issued from China’s Ministry of Commerce. It is unlikely that there will be unilateral debt suspension.  Thus, we can expect that China will negotiate debt relief bilaterally with each nation, and each loan reviewed separately.

Even if debt cancellation is continued into 2021, which has not yet been agreed to, it will be insufficient. The level of investment required to meet Africa’s’ minimal infrastructure needs is in the trillions of dollars, which belies the “geo-political” nonsense of zero-sum assumptions.  Debt relief must be accompanied by issuance of credit for infrastructure and related sectors of production, otherwise Africa and the world will suffer from the spread of COVID-19 and future zoonotic diseases. Poverty is a co-factor for all diseases. Lack of electricity is a co-factor for the spread of disease and hunger, as is the lack of clean water, and inadequate transportation.

China’s Belt and Road Initiative over recent years has begun to address Africa’s infrastructure deficit, but much, much more is required. Collaboration between the U.S. and China on the development of Africa would be consequential for the continent.

I have addressed this issue in earlier posts: World Needs New Economic Platform to Fight COVID-19, New Economic Order Required to Combat COVID-19 in Africa

View: CARI: Debt Relief With Chinese Characteristics

Lawrence Freeman is a Political-Economic Analyst for Africa, who has been involved in the economic development policy of Africa for 30 years. He is the creator of the blog: lawrencefreemanafricaandtheworld.com