What you need to know:
- Western critics have hit out at China’s plan for $60 billion worth of loans to Africa saying there is a real concern that it could create a new debt crisis.
- Beijing responded by saying that, unlike the West, its loans come with no strings attached and go to where investment is vitally needed.
- China is now Kenya’s largest bilateral creditor, accounting for 72 per cent of all foreign loans.
- China has taken to seizing critical national assets in lieu of payment in the event of a default.
A war of words is emerging between China and the West over who has the best interests of Africa at heart when it comes to vitally needed investment.
With political analysts talking about a ‘new scramble for African resources’ following the high level meeting in China attended by 54 African states last week, questions have been raised as to who will really benefit from the increased interest.
The event was preceded by UK Prime Minister Theresa May’s plan for £8 billion worth of Britain’s investment in the continent much of it in the technological sector during her visit.
Western critics have hit out at China’s plan for $60 billion worth of loans to Africa saying there is a real concern that it could create a new debt crisis.
Beijing responded by saying that, unlike the West, its loans come with no strings attached and go to where investment is vitally needed. China is now Kenya’s largest bilateral creditor, accounting for 72 per cent of all foreign loans.
Kenya is also one of the five most indebted nations in terms of money owed to foreign creditors such as IMF and countries like China — a total of $22 .2 billion — along with South Africa on $143 billion, Angola on $37.7 billion, Ethiopia on $22.5 Billion and Ghana on $21.2 Billion.
Following the high level meeting between President Xi of China and 54 African nations, Beijing insists that its new $60 billion package of loans and aid will not create a new debt crisis for the continent as it will pay for vitally needed infrastructure, investment that will enable the continent to grow more rapidly.
Chinese involvement in Africa has increased dramatically over the past 20 years, with trade increasing more than 20-fold to US $220 billion since 2000. In contrast, the value of UK trade with its three largest trading partners — which include Kenya — was only £13 billion last year.
Now, international experts are mulling over the new Chinese proposals, which some fear will create a new debt trap for many African countries.
While Chinese officials say their support for the continent does not come with strings attached, it is noteworthy that most construction work is carried out by Chinese companies and workers.
Beijing is also in active pursuit of new oil and raw materials and mining concessions for its manufacturing sector and Chinese aid will only go to countries that recognise it as the legitimate and only voice of the Chinese people.
William Gumede, Professor of Public Management at the University of the Witwatersrand told Deutsche Welle: “African debt to China is not yet as high as its debt to industrialised countries. But over time it is going to be equal to or more than, that owed to industrialised countries.”
The fear is that many African countries will become stuck in a debt trap, undermining economic development, just 13 years after the Multilateral Debt Relief Initiative, which cancelled debt for countries that met economic-management and poverty-reduction criteria.
Kenya owes more to China than it does to Western lenders, the traditional source of loans to Africa. As Beijing throws open its credit line to Africa, analysts are warning of the risk of a double-debt stranglehold.
Angola, Ethiopia, Sudan, Kenya and the Democratic Republic of Congo respectively, were the top beneficiaries of these loans. At present Chinese direct foreign direct investment in Africa of around $210 billion still outweighs its loans. But these loans are complex and difficult to quantify.
For Kenya, which has been the beneficiary of the $4 billion Nairobi to Mombasa rail line, the problem is that much of its loans are to Chinese banks who expect the loans to be repaid. Since 2000, China has made $136 billion worth of loans to Africa and now does three times more trade on the continent than the United States.
“China’s investment is often in the form of equipment, materials and a skilled workforce,” the Times newspaper said in an editorial. “But when it comes to paying back the debt it wants hard currency. Failure to pay a debt is already leading China to seize strategic assets in lieu.”