Friday, March 1, 2024

China and Lending – Will Africa Suffer From a More Frugal Outlook?

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Staff Writer
Staff Writer
Africa Feeds Staff writers are group of African journalists focused on reporting news about the continent and the rest of the world.

Prior to the popular ‘Africa Rising’ narrative which gained momentum at the turn of the century, the region’s debt crisis was one of the main topics of developmental economics.

This was particularly apparent during the 1980s, when most African nations were trapped in an unsustainable cycle of debt. In fact, Africa’s cumulative debt burden increased from just $8 billion in 1970 to a staggering $174 billion at the end of 1987, or 322% when expressed as a proportion of exported goods and services.

China’s borrowing helped to ease this crisis, of course, but could the nation’s decision to tighten its belt impact adversely on Africa in the wake of the coronavirus pandemic.

The Relationship Between China and Africa

 Interestingly, China played a key role in driving Africa’s recovery post-2000, having lent approximately $150 billion to the region in an effort to curb debt, invest in infrastructure and boost international trade.

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In fact, it was China’s burgeoning footprint in Africa that kick-started the African Rising narrative at the turn of the century, with the former quickly becoming the single biggest investor, source and marketplace for the latter over the course of the last two decades or so.

According to studies commissioned by the World Bank, China’s heavy and sustained investment has created a viable finance infrastructure even in Africa’s poorest regions, with the amounts borrowed being tied directly to resources exports and the raw materials that define Africa’s burgeoning economy.

The numbers here are quite staggering, with Angola the top recipient of Chinese loans having received $43 billion worth of loan commitments over the course of 18 years.

Overall, China is a leading bilateral lender in a total of 32 African nations, while it has also surpassed the World Bank as the top lender to the continent since the year 2000.

Mounting Debt and the Coronavirus – The Future for Africa and China

Interestingly, there has been growing unrest in Africa as the region’s debt levels have continued to mount, with many of the loans granted by China thought to be unsustainable for economical infrastructure projects.

More specifically, there’s concern that African governments could remain indebted to China for decades, while economists have argued that the failure to repay such loans will trigger significant defaults.

These issues have become even more pronounced in the wake of the coronavirus pandemic, which has taken its toll on Africa while creating the potential for further case spikes and significant lockdown measures in the near-term.

As a result of this, the African economy is poised to contract by -4.1% in 2020, before rebounding to a relatively robust 5% over the course of the next 12 months.

Given this and the impact of Covid-19 on China, it’s clear that the country may be less inclined to invest so heavily in Africa going forward, while African nations themselves will most likely avoid such high levels of borrowing from China and similar, high-growth economies.

With this in mind, developments such as the African Continental Free Trade Area (AfCFTA) will hold huge strategic importance for the region in the near-term, as this will drive higher levels of trade while potentially bringing up to 30 million people out of poverty.

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