China and the Burgeoning African Debt Crisis

By Eric Olander / China-Africa Project

Over the last week we’ve reached two critical milestones that put the worsening African debt crisis into sharp focus:

First, the good news. Angola appears to have reached an agreement with some of its major creditors at the International Monetary Fund and in China to reschedule billions of dollars of loans. Although we still don’t know the full details of these arrangements, there is a palpable sense of relief among key stakeholders that one of Africa’s most indebted nations has been pulled back from the brink.

The same cannot be said of Zambia, where the government yesterday uttered the words that terrify finance ministers the world over: we will not be able to meet our obligations.

Zambia now has the distinction of becoming the first African country to default on some of its debt since the COVID-19 outbreak began earlier this year.

To be fair, Zambia was an economic basket case long before the pandemic, so this was probably going to happen regardless.

What’s interesting here, especially for our purposes, is China’s role in all of this. Given the outsized weight of Angola’s debt in China’s entire African loan portfolio, the fact they’ve come to some kind of agreement is hugely important.

Furthermore, contrary to the swirling rumors on African social media and in the local press about the supposed imminent danger of Chinese asset seizures in Zambia, it’s not the Chinese that are the problem here… it’s bondholders on Wall Street and in The City.

The fact remains that private creditors have done absolutely nothing to help relieve the debt crisis in Africa. The financial industry’s “Private Creditor Working Group” that was announced in May to represent bondholders in their talks with African borrowers is a joke. It’s little more than meaningless corporate propaganda.

Moreover, the governments who have jurisdiction over the financial markets in New York, London, and Paris have similarly done nothing to pressure these asset management firms to loosen their grip.

For now, Chinese creditors are not the problem here. While there are legitimate, well-documented reasons to be concerned that Chinese lenders are going to try and convert some of their African debt into equity stakes — which would be a diet version of the “debt trap” accusation —  that hasn’t happened yet. For now, it’s still just speculation.

The fact is that there’s a political component to the Chinese loans that’s missing from most of Africa’s other debt. In the short term, that means the Chinese are likely to be highly sensitive to the debt trap accusations promoted by the U.S. and African civil society. 

In the medium-to-longer term, say in 5-to-10 years, if low-income countries in Africa are still unable to repay their Chinese debts, then there’s good reason to be concerned that Beijing could leverage that asymmetric advantage to keep states within its geopolitical orbit (e.g. preventing a country from challenging any of China’s core “4THKXJ” issues).

This is why it’s so important to step back and look at the current African debt crisis from a wider perspective, so the agendas of the various actors become clearer. It’s not easy, though, as this is a confusing, complicated landscape that is rapidly changing.

CREDIT: The Post China and the Burgeoning African Debt Crisis first appeared in chinaafricaproject.com on 23rd September, 2020.