The Chinese Communist Party welcomed more than fifty African leaders to Beijing for a summit in a grand ceremony to compete with the United States and Europe for the strategic high ground of Africa. However, after 24 years of operation in Africa, opaque loan contracts have led to a surge in African countries’ debt, with many of China’s “Belt and Road” projects left unfinished. This situation may present a new opportunity for Africa and the West.
From September 4th to 6th, 2024, the Forum on China-Africa Cooperation (FOCAC) summit was held in Beijing. Established in October 2000, the FOCAC quickly rose as Africa’s largest trading partner after replacing the United States and Europe.
During and after the Cold War, American companies dominated the African market. However, according to a report by the Atlantic Council, from 2001 to 2020, China’s trade with sub-Saharan Africa grew by 1864%, surpassing trade between sub-Saharan Africa and the United States and the European Union. China’s share of sub-Saharan Africa’s total trade rose from 4% to 25.6%, while the U.S. and EU’s share declined by 10 and 8 percentage points, respectively.
Despite the growth in China-Africa trade, the relationship is unbalanced. Prior to the FOCAC, South African President Cyril Ramaphosa expressed his desire to reduce the trade deficit with Beijing. China is South Africa’s largest global trading partner, but last year, South Africa imported far more from China than it exported. China failed to fulfill its promise made at the 2021 FOCAC summit to purchase $300 billion worth of products.
In August 2022, the Biden administration stated in its “U.S. Africa Strategy” that “governments, institutions, and people in sub-Saharan Africa will play a critical role in addressing global challenges.” China views Africa as a way to challenge the rules-based international order, promote its narrow commercial and geopolitical interests, undermine transparency and openness, and weaken U.S. relations.
China-Africa cooperation has brought not just trade imbalances but also a surge in debt. According to the China Africa Loan Data (CLA) database managed by Boston University’s Global Development Policy Center, from 2000 to 2022, 39 Chinese lending institutions provided 1,243 loans to 49 African countries and 7 regional organizations, totaling $170.08 billion, mainly for infrastructure projects related to the Belt and Road Initiative.
In 2022, Africa’s public debt skyrocketed to a staggering $1.8 trillion, a 183% increase from 2010. What is more concerning is that this pace is nearly 300% higher than the GDP growth rate in the same period.
According to Debt Service Suspension Initiative (DSSI) data, in seven low-income African countries facing severe debt issues, China holds more than 25% of their external debt, including Angola, Cameroon, the Republic of Congo, Djibouti, Ethiopia, Kenya, and Zambia.
For example, Kenya owes over $6 billion to China, with most of the debt used to fund the construction of the 700-kilometer standard gauge railway between Mombasa and Nairobi. Initially, Chinese designers promised the railway would be self-sustaining, but this promise was not fulfilled, leading the government to shoulder the debt burden.
According to Kenya’s National Treasury data, including owed funds to the World Bank and other multilateral lending institutions, Kenya’s debt is expected to reach 67% of its GDP by 2024, up by approximately 50% from when Kenya signed onto the Belt and Road Initiative a decade ago.
Furthermore, Djibouti owes China around $1.4 billion, equivalent to about 45% of the country’s GDP. Angola’s debt to China exceeds $19 billion, accounting for 49% of the outstanding government debt.
Ethiopia signed loan agreements with Chinese lending institutions totaling nearly $14 billion. The country owes China about $8.7 billion in outstanding debt, representing 32% of its total public debt.
The loans obtained from China make up 45% of the Republic of Congo’s external debt.
However, the surge in African countries’ debt is closely related to China’s opaque and harsh loan agreements. These agreements often have short repayment terms, usually within 10 years, compared to the World Bank’s 35-year repayment period. Additionally, interest rates are often higher. For instance, the Export-Import Bank of China charged fully commercial rates for its financing of the Ethiopia-Djibouti railway project, higher than rates offered by international multi-lateral lending institutions like the World Bank.
China’s loan agreements often require recipients to provide business to Chinese contractors without competitive bidding. For example, the contract between the Export-Import Bank of China and Kenya for financing the standard gauge railway connecting the port city of Mombasa and the East African Rift Valley stipulated that most construction materials would be sourced from China. The Kenyan Appeals Court found that the project’s design was manipulated to increase costs, and construction and supervision fees were overcharged.
Such agreements have helped Chinese construction companies dominate the African continent. A study by the University of London found that 80% of the 32 major international contractors involved in significant construction projects in Ethiopia in 2017 were Chinese contractors.
China’s loan agreements are often opaque, leading to a lack of transparency on loan terms and the inability for the public to oversee them. In some cases, these opaque agreements and unethical business practices may foster corruption.
For instance, the Industrial and Commercial Bank of China funded a major dam project in Angola, disregarding various warning signs, including the involvement of the daughter of Angolan President José Eduardo dos Santos. The World Bank listed Angola as one of the seven African countries in higher risk of facing debt distress in 2020.
“Many African countries are deeply mired in debt, making it difficult to invest in sustainable development,” United Nations Secretary-General, Antonio Guterres, stated at the FOCAC summit on Thursday. The inability of African countries to receive significant debt relief and scarcity of resources is a root cause of social unrest.
Excessive debt leads to defaults. Zambia, one of China’s major debtor countries, became the first African country to default at the end of 2020. In January 2023, Djibouti also suspended repayment of its debts to China.
Meanwhile, the COVID-19 pandemic has hit the Chinese economy as well. To address issues such as a sluggish real estate sector, currency depreciation, and declining exports, the Chinese government deployed the China Development Bank and the Export-Import Bank of China, which provide most loans to Africa, to support the domestic economy.
As a result, in the past four years, loans from China’s state-owned banks to Africa have plummeted.
In 2016, China provided a traditional loan of $28.8 billion to Africa through state-owned policy banks. However, by 2020, the loans dropped to $2.9 billion, further decreasing to $1.6 billion in 2021, and reaching $1 billion in 2022.
In 2023, China approved a loan of $4.61 billion to Africa, the first annual increase since 2016, but still significantly lower than the peak of $28.4 billion in loans provided to Africa in 2016.
On September 5th at the China-Africa Cooperation Forum, Chinese leader Xi Jinping pledged to provide $50.7 billion in funding support to Africa over the next three years, promising to create at least one million job opportunities.
However, given China’s economic slowdown, whether they can fulfill this commitment remains in question.
Professor Chen Shimin of the Department of Political Science at National Taiwan University told the Voice of America that although the amounts committed by China in terms of loans and aid seem relatively consistent over the past six years, China’s current economic weakness—with its growth rate dropping from 7% to a struggling 5%—raises doubts about whether they can fulfill their promises.
The breakdown in the funding chain has resulted in numerous unfinished projects across Africa.
In Kenya, the ultra-high-speed railway from Mombasa Port to Uganda abruptly ends in a rural village 468 kilometers from the border. Kenya is now refurbishing a railway built during British colonial times in the 19th century to complete the line.
In Cameroon, the $450 million highway linking the capital Yaoundé to the economic center of Douala began construction in 2012. However, due to China’s Export-Import Bank halting loan disbursements, the highway stalled in 2019.
The $823 million light rail project in Nigeria’s capital Abuja seems to have been abandoned. Nigeria spends $50 million annually to repay loans for the project. When Bloomberg reporters visited the railway facilities, they found locked train cars, desolate station caves, and guest lounges filled with bats and bird droppings.
On September 3rd, Angola’s Finance Minister Daufs said that if China wants Angola to purchase more Chinese-made products, such as solar panels and electric cars, China needs to increase its financing to Angola. The former OPEC member country is considering allowing Beijing to compete with Europe for bid proposals.
Daufs added that Beijing not only needs to provide more financing to help Angola reduce high inflation and increase job opportunities in the short term, but also ensure the country has robust industries to rely on in the future; otherwise, China may lose out to competition from Europe. Europe is willing to provide financing to Angola in exchange for Angola purchasing their products.
Last year, the Angolan government awarded the construction contract for a 260-kilometer railway to a Portuguese-Brazilian joint venture entity rather than a Chinese company.
Charles Ray, a member of the Foreign Policy Research Institute’s board and Chairman of the Africa Program, expressed, “China’s reduced financial support for African infrastructure has opened the door for the United States and Western Europe to fill the void.”