The China-Africa Debt Problem

The China-Africa Debt Problem

Is China good for Africa?  What about their loans, are they worth taking? When taken, how easy is it to pay back?

On many occasions, we’ve seen the World Bank and other western countries forgive our debts, the ones we couldn’t pay back .That makes me uncomfortable when I hear of African countries taking loans from China.

China has done a lot for Africa, and Africa has also done a lot for China. In some ways, the relationship between these two are symbiotic. The Chinese have what Africans need but cannot afford, so somehow they make it available at a price that seems, at least on the surface, far lower than what you will likely pay if you were dealing with the West.

I recall a particular incident, where the design and construction of a power transmission line was awarded to an Italian firm. After a series of reviews and consideration, they dropped out on the construction phase  as it was practically impossible for them to break even at the price the contract was awarded.

As usual, China came to the rescue.  They took over the construction phase and set to work immediately. It still remains a mystery to this day to many western firms how the Chinese are able to penetrate Africa given the very limited amount that some of these African countries have to pay for some of these services.

Still it cannot be excused that the lower prices the Chinese have to offer often comes at the expense of quality.

Often times, the initial costs are low but eventually they stack up skywards in the long run. So who gains in the end?

From mobile phones to power banks, to railway gauges, the Chinese have been offering Africa what they think they can afford.

Earlier this year, two Chinese banks –Export-Import Bank of China and the China Development Bank – committed in loans about $1.902bn into railway and deep seaport projects in Nigeria.

According to the Commercial Consul, Consulate General of the People’s Republic of China in Lagos, Mr Liu Junsheng, during a press briefing on China’s second Belt and Road Forum for International Cooperation, held in Beijing between April 25 and 27.

“The Export-Import Bank of China provided $1.267bn of the concessional loans accounting for 80.14 per cent of the total contract sum of Addendum No.2 and 2A; and the Nigerian Federal Government provides counterpart funds of $314m, accounting for 19.86 per cent.”

In other words, we borrowed money from China,  gave it back to them in contracts, and still we owe them some money. At least, they aren’t violating the terms and conditions of the contract may be excluding the part that involves durability. Hopefully we keep ours too.

Not long ago, a report came out on China taking over some of Zambia’s national assets including their National Electric Power Company. Not surprising if you ask me. Who takes a loan thinking of not paying back?

Just in 2017 alone, the value of Chinese contracted projects in Africa registered $76.5bn, according to  Jeremy Stevens, a Standard Chartered Bank Economist. “However, despite a sizeable remaining infrastructure deficit on the continent, there is a concern that African countries’ debt-service ability will soon dissolve.”

Nevertheless, our own Akinwumi Adesina, the head of the African Development Bank (ADB), a former Nigerian agriculture minister, is among the Chinese defenders. “A lot of people get nervous about China but I am not. I think China is Africa’s friend,” he told the BBC.

According to this report from the BBC, “China is now the single largest bilateral financier of infrastructure in Africa, surpassing the ADB, the European Commission, the European Investment Bank, the International Finance Corporation, the World Bank and the Group of eight (G8) countries combined”. By and large,  if Africa must look east towards China for loans, it must understand that debt forgiveness isn’t a right, and that the Chinese may temporarily forget, but may never forgive.

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