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China helps African countries with debt relief

China's foreign minister Wang Yi. Picture: Jacques Naude/African News Agency/ANA

China's foreign minister Wang Yi. Picture: Jacques Naude/African News Agency/ANA

Published Jan 25, 2021

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By Helmo Preuss

The news on January 19 that China is willing to suspend debt service payments for Kenya should not have come as a surprise to keen observers of China’s multi-decade engagement with Africa. The visit to African countries at the start of the year by the Chinese Foreign Minister is a tradition that goes back to January 1991, and is aimed at cementing ties between African countries and China. It is also an opportunity to announce new deals and to reap positive headlines.

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Chinese Foreign Minister Wang Yi paid official visits to Nigeria, the Democratic Republic of the Congo (DRC), Tanzania, Botswana and Seychelles from January 4 to 9. A consistent message during this trip was that China would help its African friends, and this motive is encapsulated in the quadruple aims of supporting African countries in economic recovery, debt relief and the fight against the epidemic, as well as promoting the joint construction of the Belt and Road Initiative (BRI) to build a closer China-Africa community with a shared future.

While he was in the DRC, Wang announced that China had waived some of the debt owed to it by the DRC without specifying the amount of relief. China had extended loans amounting to $2.4 billion (R36.5bn) to Kinshasa, mainly to build infrastructure, since 2000, according to the China Africa Research Initiative.

China has extended debt relief worth more than $2bn to developing under a Group of Twenty (G20) framework known as the Debt Service Suspension Initiative (DSSI). The DSSI offers debt relief on repayments due on bilateral loans made by the G20’s members and their policy banks to 73 of the world’s poorest countries, spreading the repayments over four years as the world recovers from the Covid-19 pandemic. This has helped other African countries like Angola, Ethiopia, Djibouti and Zambia. Now the DRC and Kenya can be added to the list. In total, China has already signed debt suspension agreements with 12 African countries while providing waivers on matured interest-free loans with 15 others, in line with the DSSI.

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The DRC also signed up to be the 45th African country for the BRI as investment in infrastructure is a requirement for turning the dream of increased trade flows between African countries into a reality.

That is why Chinese construction companies were involved in projects like the Kazungula Bridge that links Botswana to Zambia across the Zambezi River, and the Maputo Bridge in Mozambique that cuts the journey time from the Kosi Bay border post in northern KwaZulu-Natal to the Central Business District of Maputo to 90 minutes from six hours.

In the same way that you as an individual go into debt to finance a capital asset such as a car or house, so African countries have gone into debt to finance necessary infrastructure such as airports, bridges, ports, railways and roads. Over the past two decades much of this infrastructure spend has been financed by China, which has emerged as the biggest bilateral lender to Africa, transferring nearly $150bn to governments and state-owned companies to boost economic growth and secure commodity supplies for its booming economy.

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China’s share of bilateral debt owed by the world’s poorest countries to members of the G20 rose from 45% in 2015 to 63% in 2019, according to the World Bank. For many African countries, the share of China in offshore debt is even larger as eight Sub-Saharan African countries like Angola and the DRC have borrowed more than $5bn apiece in the past two decades.

Angola, Africa’s second-largest crude oil producer, has been the continent’s biggest borrower from China, receiving $43bn or almost 28% of the total lent by China to African countries. Ethiopia is another large borrower with at least $13bn in loans to finance factories, roads and a railway line to Djibouti so that it has an outlet to a sea port.

The Chinese initiative on debt relief is also being helped by the loans that the International Monetary Fund (IMF) provided in 2020 to counter the economic ravages caused by the Covid-19 pandemic. In less than nine months, the IMF approved fast-track loans of $16.2bn to African states, including South Africa.

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This is about 10 times larger than its usual volume over nine months. It shows what can be achieved when countries and multilateral development finance institutions work together.

* Preuss is an Economist at Forecaster Ecosa

** The views expressed here are not necessarily those of IOL.

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