AFRICA’S CHINESE DEBT SERVICE SUSPENSION INITIATIVE
By MUBANGA LUCHEMBE
AFRICA’S development aspirations have always rested on the possibilities and policies inherent in achieving rapid industrialisation.
Africans believe that key interventions in industrial policy would lay the foundation for sustained growth, business and job creation. In contemporary China, African policy makers seem to have found a development partner whose interests, experiences and capacities match these continental ambitions.
And yet, a decade after celebrating the Chinese finance’s rising tide into neglected areas such as infrastructure and its preliminary investments into the manufacturing sector, the talk has shifted to China as an obstacle stymieing development possibilities through unwieldy debt obligations that shackle African economies. Cutting through these rhetorically charged debates it is clear that the Beijing’s role as creditor puts it in an unprecedented conundrum. This is exacerbated by the deleterious effect of Covid-19 on African economies, threatening the continent’s progress towards achieving industrialisation.
The Chinese contribution to African industrialisation has been twofold, focused on underwriting infrastructure development through loans and providing investment into labour-intensive industry. Starting in earnest in the early 2000s, these initiatives have led to a massive expansion in transportation networks, port facilities and telecommunications infrastructure across the continent. Concurrently, Chinese investments in manufacturing plants in a diversity of locations from Ethiopia, South Africa, Senegal to Nigeria, Rwanda and Kenya have opened up new possibilities for export earnings that tap both regional and international markets.
The African Continental Free Trade Area (ACFTA) launching in 2019 was meant to build on these developments by providing a coherent policy framework that liberalised trade by lowering tariffs across the region. The clustering of production sites along infrastructure transportation networks as seen in Ethiopia’s industrial corridor, South Sudan and Kenya’s projected transportation corridor exemplified the critical role played by Chinese-lending and construction in support of industrialisation.
Unfortunately, as these policy initiatives were gathering steam, the prevailing conditions which sustained high lending rates for infrastructure development and seeded industrial expansion changed dramatically. The fall in commodity prices starting in 2014 hurt Africa’s resource-dependent economies earnings and, at the same time, weakened its ability to meet dollar-denominated debt payments. While much Western media attention was given over to African debt to China, in fact debt obligations to Beijing are only deemed to be serious in Djibouti, Republic of Congo, Ethiopia, Kenya and Zambia.
That being said, China is the leading bilateral lender in 32 of 40 African countries and has even surpassed the World Bank (US$62bn) as the top lender (US$64bn) to the continent. China had loaned upwards of US$147bn to African governments between 2000 and 2018, accounting for 20% of the continent’s obligations while multilateral debt stood at 35% and private debt at 32%. All of these factors had an ominous ring to those who remembered the commodity price collapse and subsequent debt crises in the 1980s which produced anaemic growth and chronic under-investment in Africa for two decades.
On top of these concerns, the Covid-19 pandemic’s onset in late 2019 produced a risible shock to the global economy. China’s effective shut down of economic activity for months was followed in close succession by countries in Asia, Europe and the Americas. These conditions accelerated a further collapse in commodity prices, even bringing oil prices briefly into negative territory, but more worrying were the longer-term trends for Africa and the global economy. By next April, the International Monetary Fund (IMF) was predicting that African economies would contract by -1.6% in 2020.
It was in these dire circumstances that African governments petitioned the G20 countries to suspend debt payments – or even cancel them outright. Securing their agreement on a moratorium on payments for 40 African countries until the end of 2020, African representatives sought further assurances that G20 countries would provide a US$100bn stimulus package for beleaguered African economies. Notably, this decision by the G20 on the debt moratorium included China as a founding member and was based on terms agreed by the Paris Club. However, a significant portion of Africa’s debt at this time – unlike the period of the first African debt crisis when the NGOs campaigned for debt cancellation resulting in the Highly Indebted Poor Countries (HIPC) initiative – is bilateral, non-concessionary or commercial in origin.
In this context, the China Africa Research Initiative (CARI) reports official information about global Chinese debt relief in the Covid-19 era, 2020-2021. Chinese debt relief falls into four categories: G20 Debt Service Suspension Initiative (DSSI), debt cancellation under the Forum on China Africa Cooperation (FOCAC), ad hoc debt relief, and contributions to the IMF’s Catastrophe Containment and Relief Trust.
Zambian government officials announced in February 2021 that the country had requested debt restructuring under the G20 Common Framework. Zambia previously requested DSSI treatment for both 2020 and 2021. The Zambian government and China Development Bank (CDB) reached a deal in October 2020 to defer interest and principal for a commercial loan facility. Zambian debt statistics showed US$391m outstanding debt to CDB, which corresponded fairly well with CARI data on CDB total loan commitments of US$584m (2000-2019). In November 2020, the then-Secretary to the Treasury announced that under the DSSI, Zambia and China Eximbank reached a debt suspension agreement for US$110m worth of interest and principal payments due between 1 May and 31 December of 2020.
Zambia’s newly-elected President Hakainde Hichilema took over an office with an overflowing in-tray. Top on the to-do list is an economy reeling under enormous debt which the previous administration increased from US$2bn in 2011 to nearly US$13bn – although President Hichilema recently revealed that it was higher than officially stated by US$2bn. The debt has impacted the delivery of social services such as healthcare and education as the bulk of the revenue goes to servicing debts (40%) and paying the civil service wage bill (50%), leaving only 10% for public services. The unemployed youths that lifted him to power are waiting for the jobs he promised and he knows this too well, as he has referred to this campaign promise in almost all his presidential speeches.
