Limited sovereignty as mortgage resources from African countries to China
]African governments have mortgaged their natural resources to obtain loans from China, a trend that often triggers debt distress when commodity prices collapse.
Angola, Democratic Republic of Congo (DRC), Ghana, Guinea, Sudan and South Sudan are among the countries on the continent that have used future revenues from natural resource exports as collateral for Chinese loans, a new study conducted by the China-Africa Research Initiative (CARI) at the Johns Hopkins University fairs.
“Outsourcing future revenues from natural resource exports as loan repayment is a way both for borrowers to attract finance and for lenders to mitigate repayment risks. However, this loan modality can pose problems when the prices of raw materials fluctuate, ”notes the study.
Angola and the DRC, both of which used their huge oil and copper resources to secure loans from China, fell victim to collapsing commodity prices, which forced them to negotiate relief. debt.
The study comes as China faces mounting criticism, especially from the United States, for adding to Africa’s debt load, a situation that has led some countries like Zambia to default on their obligations. in terms of debt as the number of countries struggling with debt distress increases.
Zambian and Kenyan authorities have denied reports that China could seize strategic national assets such as utility company Zesco and the port of Mombasa in the event of default.
The latest debt sustainability analyzes from the International Monetary Fund indicate that 11 countries in sub-Saharan Africa are currently at high risk of debt distress, with six countries in debt distress. The debt burden in the region is worsening, with the ratio of public debt to gross domestic product climbing to 65.6% from 56.4% before Covid.
According to the CARI study, the Chinese and its public financiers committed $ 153 billion to African public sector borrowers between 2000 and 2019, with at least 80% of loans going to infrastructure projects, mainly transport, electricity, telecommunications and water.
In 2019, Chinese financiers pledged $ 7 billion to African borrowers, down 30% from $ 10 billion in 2018. The four largest Chinese banks involved in lending to African countries are China Eximbank, China Development Bank, Industrial and Commercial Bank of China and Bank of China. .
During the period from 2010 to 2018, Angola, Ethiopia, Zambia, Kenya and Nigeria were the main participants in Chinese loans, borrowing a total of $ 71 billion. In 2019, Ghana was the largest recipient of Chinese loans with $ 1.25 billion, followed closely by South Africa and Egypt.
“Rather than continue to blindly pour funding into countries with debt problems, Chinese financiers have moved away from those countries to look to borrowers with stronger economies and debt management,” the Chinese said. study.
He adds that the onset of the Covid-19 crisis has accelerated the change in Chinese finance as more borrowers have experienced debt problems and requested debt restructurings. Zambia and Kenya are among the countries that have requested debt restructuring under the G20 Debt Service Suspension Initiative, a temporary stay due to the Covid-19 dislocations.
Top image: underground gold mine, Mali, West Africa (Dave Dyet / CC BY NC 2.0)
The views expressed here are those of the author and not necessarily those of The Maritime Executive.