China Expected to Cut Back on Lending to Africa Amid Coronavirus Crisis
Africa is facing a possible loan drought from China in the medium term as lenders fear debt defaults in the wake of the economic-crippling coronavirus pandemic and Beijing grapples with its own economic slowdown, experts have said.
China is currently the biggest bilateral lender to Africa after transferring nearly $150 billion to governments and state-owned companies on the continent over the past two decades.
Between 2000 and 2018, Johns Hopkins University’s China Africa Research Initiative estimates that the Asian nation poured up to $148 billion into Africa, a continent that has become a “centerpiece of Beijing’s foreign policy.”
As of March this year, Nigeria had borrowed a total of $3.121 billion from China, represent around 4% of the country’s total public debt, data from the Debt Management Office shows. Loans from Beijing accounted for 11.28% of the country’s debt from external sources.
Most of the lending from China was for infrastructural projects in Africa – ports, railways, highways, and hydropower dams – in line with Beijing’s Belt and Road Initiative, a global network of infrastructure projects. At the 2018 Forum on China–Africa Cooperation, China made up to $60 billion in commitments.
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But according to the World Bank, several countries in Africa are currently in debt distress – a situation where a country is unable to fulfill its financial obligations and debt restructuring is required. These include the Republic of Congo, Mozambique, Somalia, São Tomé and Príncipe, and South Sudan.
Meanwhile, Zambia in November became the first African country to default on its Eurobonds since the pandemic started. The South African country had requested a six-month grace period on its $3 billion worth of bonds but was denied. Beijing has since offered debt relief to Lusaka.
According to New York-based consultancy Rhodium Group, no fewer than 18 processes of African countries renegotiating debt with China had taken place this year. Also, 12 countries were still in talks with Beijing as of the end of September over $28 billion in loans.
Chinese policy banks are now more cautious in their lending seeing as debt is a major concern for economies in Africa. The consensus is that China would cut lending to Africa amid the debt crisis and as the country tightened up on wasteful lending, said Yun Sun, director of the China programme at the Stimson Centre in Washington.
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“The general direction after Covid-19 should point to more financial discipline and caution coming to foreign lending, and more stringent procedures for the loan approval,” she said.
Expectations are that the majority of financial aid from China to Africa henceforth would be debt relief and some bilateral budget or project support with the goal of maintaining good relations with key partners on the continent.
However, African countries are projected to recover soon from the pandemic and China’s lending to the continent should increase again in the long term. This is especially because the structural factors that encouraged China-Africa lending are all still in place, global emerging markets economist at Fitch Solutions John Ashbourne said.
As well as being Africa’s largest bilateral lender, China is also the continent’s biggest trading partner. Trade between both parties has been steadily increasing for the past 16 years, reaching $185 billion in 2018 from $155 billion in 2017, according to the China Africa Research Initiative. It grew to $208.7 billion in 2019.