Africa's Debt Crises Not the Fault of Creditors Alone

Forum on China Africa Cooperation, also known as FOCAC (file photo).
18 February 2019
analysis

G8 countries cancelled the debts of 18 African countries in 2005. But many of these countries now face bankruptcy again. Is China really to blame, as many in the West believe?

At the China-Africa Friendship Night in Beijing in January, a big screen showed four key words that were supposed to describe the relationship between China and the African continent. In addition to the words "innovation", "efficiency" and "transcendence", there was also "exploitation" in English. The Chinese sign on the screen actually meant "openness" or even "pioneering work". But the error in translation pointed to some issues in relations between China and Africa.

China has been criticized for its overbearing presence in Africa. Between 2000 and 2017, Beijing granted loans to African states and companies amounting to $143 billion (€126.5 billion), turning it into Africa's largest creditor. Some Chinese are critical of this largesse. "Why is China, a country with more than 100 million people still living below the poverty line, such a generous donor," the influential Chinese law professor Xu Zhangrun asked in a 2018 letter to President Xi Jinping. International critics also claim that China plunges African countries into debt to make them dependent on Beijing.

Respite for Cameroon

China took the accusations to heart. In 2018 Xi promised to cancel part of the debt of some poorer African states. Cameroon saw $78.4 million of its debt pardoned in January. According to the China Africa Research Initiative (CARI) at the Johns Hopkins University School of Advanced International Studies (SAIS) in Washington D.C., since 2000 Cameroon has borrowed $5.6 billion from Beijing. Its total debt now stands at around $10 billion.

Lucy Corkin, business manager at Rand Merchant Bank Africa, points out that Beijing regularly pardons a certain amount of debt at the triannual China-Africa Cooperation Forum, introduced in 2000. These are not huge sums, but they have a positive effect on diplomatic relations, she told DW.

The Democratic Republic of Congo was another country that benefitted from debt reduction by China, according to Annalisa Prizzon, Senior Research Fellow at the British think tank Overseas Development Institute. "It's a breathing space for recipient countries that can't meet their obligations," she said. Debt relief results in a greater fiscal leeway for social spending and enables countries to take out new loans. For the economy to grow, you need to invest, Prizzon added.

African countries 'lack a sense of responsibility'

But Cameroon is not the only country in financial trouble. In 2017, the International Monetary Fund (IMF) identified nine low-income sub-Saharan states, including Cameroon, Ethiopia and Zambia, as countries at high risk of debt distress. According to the IMF, six more countries are deep in debt: Chad, the Republic of Congo, Eritrea, Mozambique, Southern Sudan and Zimbabwe. They are considered Highly Indebted Poor Countries (HIPCs), able to benefit from debt relief under the Western group of most industrialized countries G8's HIPC Initiative. So far, the initiative has approved debt reduction packages totaling $76 billion for 36 countries, including 30 in Africa.

"China is the largest moneylender for only three of these countries: Djibouti, DR Congo and Zambia," Prizzon said. She believes that China is not primarily responsible for the debt crisis in Africa. Lucy Corkin also sees no issue of exploitation by China. "In most cases if there is exploitation, it occurs in terms of the relationship or the responsibility and the lack of responsibility that is shown by the African governments to their own people," the South African bank manager said.

Corkin added that in many cases "African governments are the ones that go to China to seek these loans and then they will negotiate the terms for it." While some have the national interest and welfare of citizens in mind, others are simply concerned with their own advantages. Responsibility for a country's development cannot be constantly shifted to external actors, Corkin said. Chinese loans will often finance projects that Western lenders are unwilling to support.

Troubled relations

Sierra Leone was the first African country to pull the emergency brake. In October of 2018, Sierra Leone's Minister of Aviation Kabineh Kallon announced the cancellation of a deal with China to finance the construction of a new airport. China had agreed to a loan and related construction work services to the equivalent of $318 million dollars.

Initially China's willingness to open credit lines for Africa triggered huge enthusiasm on the continent. But cooperation does not always run smoothly, Corkin said. "We're all familiar with the tensions between Chinese workers and Africans in the various countries where projects haven't worked so well." While there are some positive aspects to China's credit policy in Africa, there are also disadvantages. One case in point is an agreement between China and the DR Congo which allows Chinese investors to freely choose their suppliers and workers - with no obligation to hire Congolese.

The role of the West

China is not the only international player on the African markets. "It is important to effectively look at the role that China is playing in African countries within the context of what other actors are also doing in Africa. Otherwise there is a danger of singling China out, whereas there are a lot of things that other countries do that are very, very similar," Corkin warned. With $54 billion in foreign direct investments, the USA are the largest investor in Africa. An estimated 600 US companies are present in South Africa alone, including some of the largest.

The European Union (EU) is Africa's largest trading partner and accounts for 36 percent of all exports. During the fifth EU-Africa Summit in Abidjan in 2017, the EU pledged to mobilize more than $54 billion in "sustainable" investment for Africa by 2020 - a move echoed in 2018 by President Xi, when he announced additional $60 billions in loans and other financing.

Annalisa Prizzon says that this is not about good or evil money lenders. It is about enabling the borrowers to establish whether the debt they are incurring is worthwhile and if the country can guarantee it. "I would like to shift the narrative to empowering countries to make informed decisions on borrowing," Prizzon said.

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