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Chinese lending to Africa continues to witnesses a downward trend 

Xi Jinping

 Beijing, for the first time in December 2021, during the FOCAC meeting had cut down on its investment pledges for African continent. President Xi Jinping, during his speech, did not mention the word infrastructure even once while infrastructure projects were one of the main priority areas in China-Africa cooperation. He committed US$ 40 billion to Africa, a 33.3 per cent drop from the US$ 60 billion in the last two FOCAC summits. 

Continuing with the trend, this is the second year in a row that China trailed behind Japan in bilateral loans to Kenya. Japan has become the largest bilateral lender for Kenya for the financial year 2022-23 after China considerably reduced its development projects in the country. Beijing is projected to lend Kenya US$ 255 million for the fiscal year 2022-23, a sharp cutback from US$ 1.2 billion in the 2015-16. China, however, remains the biggest bilateral creditor by far due to big-ticket deals it has inked with Kenya in the last decade to fund and build mega infrastructure projects such as roads and the Standard Gauge railway (SGR). 

The Kenyan Treasury budget estimates point out that slightly more than half of the projected loans from China, about US$ 135 million, in the coming year will be injected into projects, largely power transmission infrastructure, under the Kenyan Energy Ministry. Other beneficiaries are the Infrastructure Department, largely roads, which will be allocated US$ 49.5 million, while the ICT and Water & Sanitation Ministries will be funded to the tune of U$ 34.7 million and US$ 35.4 million respectively. Funding from Japan is, on the other hand, earmarked for projects under Infrastructure Department U$ 152.8 million, the Energy ministry US$ 79.3 million, and the Treasury US$ 17.3 million, among others. Apart from China and Japan, other bilateral creditors include France (US$ 202 million), Germany (US$ 124.7 million) and Italy (US$ 52.5 million). 

China’s influence on Kenya’s mega infrastructure development gathered steam with the construction of the ‘Thika Superhighway’ between 2009 and 2012 at a cost of nearly US$ 277 million. China Road and Bridge Corporation (CRBC), a subsidiary of China Communications Construction Company, has since bagged the lion’s share of Kenya’s mega infrastructure-at least two railways, two ports and 23 road projects. They include the US$ 3.5 billion SGR, a US$ 398 million oil terminal at Kenya’s main seaport of Mombasa and key road projects such as Southern and Eastern by-passes in the capital, Nairobi. 

However, most of the Chinese lending has now been curtailed due to the increasing debt fears especially in the post Covid-19 era, a byproduct of Chinese ‘Debt Trap’ policy. Chinese lenders have grown more cautious as some nations have reached the limit of their borrowing capacity and the prospect of default looms large. The IMF lists more than 20 African countries as being in, or at high risk of debt distress. Last year, there were rumors around the seizure of the only international airport in Uganda which served as an eye-opener for many African countries about some of the toxic clauses in the loan agreements with China. Similar concerns exist in case of Kenya too that China may take over the Port of Mombasa if the country defaults on a US$ 3.2 billion loan. There is also risk of Beijing seizing the national assets if 

the country defaults on loans procured to finance the loss-making SGR that connects Nairobi to Mombasa. With the debt-trap fears and controversies gaining momentum, China is now being selective with the projects in the African continent. 

According to a report by the Boston University (BU) Global Development Center, Chinese lending to African governments fell to a 16-year low in 2020 as the impact of the Covid-19 pandemic deterred countries on the continent from borrowing. The report highlights that lending in 2020 fell 78% from a year earlier to US$ 1.9 billion, the lowest since 2004. While a collapse in economic growth since the pandemic has strained government finances in the region and increased scrutiny around Chinese lending, Beijing is still the biggest single creditor to sub-Saharan Africa. By 2019, it accounted for 59.3% of total official bilateral debt, according to the World Bank’s Africa’s Pulse report. According to the BU research, from 2000 to 2020, Chinese financiers signed 1,188 loan commitments worth US$ 160 billion with African governments and state-owned companies. The biggest borrowers were Angola, Ethiopia and Zambia. Both Ethiopia and Zambia’s governments are seeking to restructure their debts wherein the Chinese state and commercial creditors account for about one-third of Zambian debt. 

Secondly, the current surge of the Omicron virus in China which is sending one city after another into prolonged lockdowns is having an adverse impact on the economy. Shanghai, which is one of the leading drivers of China’s economy, is witnessing a huge surge in the cases. The Chinese Premier Li Keqiang called for a “sense of urgency” about growing economic risks during his meetings with provincial officials. The changes in the domestic and international situations such as China’s draconian “dynamic zero-COVID” pandemic restrictions and uncertainties including the war in Ukraine, soaring energy prices has casted doubts on the ruling Chinese Communist Party’s ability to reach its target of economic growth rates in 2022. 

On one hand, the Covid-19 pandemic significantly constrained the fiscal discretion of many African borrowers, likely impacting willingness to borrow, while on the other, it has intensified the cautionary lending practices of Chinese banks in recent years. Chinese banks have also learnt their share of lessons over the last two decades of lending to African governments. In their early days, they experimented with financing infrastructure in resource-rich countries by securing loans against resources such as oil, mineral shipments. The rising debts and economic fallout due to the pandemic may force Chinese banks to adjust their lending practices accordingly. Beijing is, therefore, signaling a more cautious approach amid warnings that most of the African countries are struggling to repay their debts and also looking at the slow economic growth rates in Chinese domestic economy. Needless to say that, the decline in the Chinese lending in Africa is direct outcome of Beijing’s own ‘Debt Trap’ policy by way of financing unviable infrastructure projects to trap African countries under huge debts with an aim to seize their sovereign assets.