Podcast Looks at Africa’s Huge Debt to China

The external debt of the 54 African countries today amounts to US$ 696 billion. This is a high number of countries with an even higher debt, especially when it is known that 22 of these governments are on the verge of defaulting on their foreign loans.

This story gets even more spicy when it turns out that the club’s most recent creditor is China. She started lending money to Africa just over 20 years ago.

The subject is chewed up by the first podcast this year from Chatham House, as one of the most important European NGOs is known, officially called the Royal Institute of International Affairs, created in London in 1920.

Well, the same team of specialists that participated in the podcast also prepared a detailed study on the African external debt and the extraordinary and recent economic power that Beijing has come to have over the region, by far the poorest, most ignored and underappreciated region on the planet.

But now, with default on the horizon – only Zambia, Ethiopia and Djibouti have ceased their payments – China also suddenly finds itself with a new problem in its lap.

The solution she found is one of the most orthodox. It began to apply the rules of the Paris Club, an entity that in the last century created rules for renegotiating debts, and handed over monitoring to the G20 (more industrialized countries) and the IMF (International Monetary Fund).

It’s the “multilateral” solution, says economist Alex Vines, director of Chatham House. Another author of the report and participant of the podcast, economist Creon Butler says that such negotiations are a little messy because China operates in the African credit market with four or five agencies. There is no centralized sector of government or the largest official bank.

That’s curious. It is as if the official apparatus in Beijing did not want to favor one arm over the other in the international credit market. Xi Jinping himself, the highest leader, said in 2021 that the issue should be studied on a case-by-case basis. That is, the Political Bureau or the People’s Bank of China will not be offended.

The order of easing the renegotiation apparently came from above in 2019 and in 2021 in the case of the Republic of Congo, which renegotiated its debt on both occasions. Ethiopia was not so lucky. The head of Chinese diplomacy, Qin Gang, visited the country in January and declared that there would be no forgiveness for any portion of the outstanding debt.

Important detail. Defaults coincided in 2020 with the arrival of the pandemic, which disrupted the economic routine of debtor countries. Other effects of the coronavirus —associated with those of the War in Ukraine—were varied. The price of oil has increased. But that benefited Angola, whose loan contracts were tied to the price of a barrel of fuel. And it hurt those who need to import it.

China backed away from its open-hand policy on borrowing as the pandemic took hold. The first step on the brakes occurred in 2016, the year in which the Chinese lent a record amount of US$ 28.4 billion to Africa. In 2019, that fortune had already dropped to US$8.2 billion. And, in the following year, 2020, with everything stopped due to the virus, Chinese loans towards Africans reached US$ 1.9 billion.

A question that is often asked is about the ulterior motives behind the money that China injects into Africa. In this regard, however, there is no room for conspiracy theories, says economist Creon Butler. The only client that Beijing has openly pressured for political advantages in exchange for cash is Djibouti.

Even so, the tiny former French colony in the Horn of Africa region is strategically located at one of the most strategic shipping points for the supertankers that supply Europe. And it is no coincidence that China built a naval base right there.

Moreover, the Chinese seek to occupy a geopolitical space on the African continent that the United States and Russia left empty with the end of the Cold War in the early 1990s.

The short period preceding the arrival of China was marked by a sense of orphanhood that only the richest Africans, such as Nigeria or Egypt, painlessly compensated for.

That period coincided with the rise of high levels of Chinese growth and the consequent search for suppliers of raw materials, which were partly on African soil. The loans were an automatic consequence of joining the appetite with the desire to eat.

African countries took advantage of the circumstance to make a leap in terms of infrastructure. The proof is in the fact that foreign loans have grown by 500% in just 20 years.

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