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MISUNDERSTOOD

The truth about Africa’s “debt problem” with China

How Hwee Young/POOL Via REUTERS -
Chinese president Xi Jinping with African counterparts during the Forum on China-Africa Cooperation (FOCAC) 2018 Beijing Summit last September.
  • Yomi Kazeem
By Yomi Kazeem

Africa reporter

Two months ago, the Chinese embassy in Nigeria was forced to deny plans to seize any of Nigeria’s national assets amid local debates over the possibility of “losing” sovereignty to China over bad debts.

It was an episode that finely captured the scale of misunderstanding of Africa’s debt commitment to China in the wake of the Asian giant’s deepened influence on the continent over the past two decades. As more African countries have looked to China for financing and technical support to rapidly boost infrastructural development, there have been loud musings about the scale of China’s lending to African countries as well as the Asian giant’s motives, which have been described in some quarters as “debt trap diplomacy.”

The reality, however, suggests talk of Africa’s heavy indebtedness to China has been somewhat overblown.

“Africa does not have a debt problem with China,” Eric Olander, co-founder of The China Africa Project, said at a Quartz Africa virtual event on Thursday discussing the impact of China’s influence in Africa on the global economy. “Often times, we hear that there’s an African debt crisis with China but [only] about 10 African countries have a debt problem with China…That leaves a majority of countries that do not have a debt problem with China.”

China’s debt trap diplomacy is often described as a long-term goal to entrap African nations in debt commitments they cannot fulfill and ultimately leverage that pretext to obtain resources, commodities or key assets. But data from Rhodium Group, a New York-based economic and policy research firm, suggests otherwise. “We continue to find very limited evidence that China’s policy banks have wiped away bilateral debt in exchange for control of strategic assets,” the firm said in its latest report.

The report shows instead that China is engaging in renegotiations of debt commitments, and in some cases agreeing to deferrals on payment deadlines with indebted countries. So far this year, China has engaged in debt renegotiations with 15 countries globally with nearly half of those being African. For its part, Angola’s debt renegotiation resulted in a three-year deferral on principal payments of its $6.2 billion loans. “It really highlights the fact that they’re not pursuing this debt trap strategy that others are so worried about,” Olander says.

So where does the idea of China’s debt trap diplomacy come from?

Mainly from the United States. While concerns about China in Africa has been voice by previous administrations the relationship has been put under a much harsher negative spotlight by the Trump White House.

Over the past decade, as the US has increasingly lost ground to China on the continent, fostering fears of China’s motives in Africa has become a reflex reaction. When Rex Tillerson, then US secretary of state, embarked on a five-country visit to Africa in March 2018, the dangers of China’s growing influence on the continent, particularly the risk of a debt trap, featured prominently. And two years later when Mike Pompeo, Tillerson’s successor visited Senegal, Angola and Ethiopia on his first African trip, China’s influence on the continent once again came under focus.

But some of the problems are also rooted in the opacity of China’s dealings in Africa. With the financial details and terms of its loans and commitments to governments on the continent typically remaining vague, a “big vacuum of information” exists with stakeholders on both sides typically unwilling to be upfront about their dealings.

“We always place the burden of transparency on the Chinese side and yet it takes two to tango,” Olander says. “Transparency is an issue that extends beyond the Chinese and also onto the African side as well.”

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