Over the previous two decades, China has positioned itself as Africa's top bilateral lender, helping to fund critical infrastructure projects in the region. However, according to new research from Boston University's Global Development Policy Center, Chinese financing for Africa may be drying up.
China is also gradually changing how it funds African initiatives. The Asian country's financial obligations are turning away from large-scale infrastructure projects and toward improving trade flows and commercial investments.
Loans Drying Up.
According to the Boston University Global Development Policy Center, Chinese aid to Africa has dropped by 78% in the two years since COVID-19's outbreak. Some say, however, that the decrease may not represent a definitive pullback and may only be temporary.
The Boston University's reports states that, Chinese financiers made 1,188 loan pledges worth $160 billion to African governments and state-owned enterprises between 2000 and 2020. Chinese lending soared in 2016, but has gradually fallen since then.
According to the report, Angola, Ethiopia, and Zambia were the largest borrowers between 2000 and 2021. Both Ethiopia's and Zambia's governments are struggling to pay back their loans. About a third of Zambia's debt is held by Chinese governmental and commercial creditors.
The drop in loan pledges from Chinese sources could be temporary and does not necessarily indicate a reduction in Africa's borrowing from China. According to the Boston University analysis, Chinese loan quantities change during times of crisis and exposure to structural risk levels. The drop is also in line with Chinese loan pullbacks in other regions of the world during the last two years.
The COVID-19 pandemic severely limited many African borrowers' financial choices, presumably affecting their willingness to borrow, and heightened Chinese lenders' cautious lending standards in recent years.
A Shift Away From Infrastructure Development in Favor of Trade and Investment
There is also fear that Beijing may be limiting the Belt and Road Initiative's projects. At the Forum on China Cooperation (FOCAC) ministerial meeting in Senegal last November, China said it was open to exploring alternative funding methods such as public-private partnerships (PPPs) and growing foreign direct investment.
China wants to shift its focus away from massive infrastructure projects and toward improving trade flows and commercial investments. The Asian country revealed an action plan at FOCAC that comprised roughly US $40 billion in trade finance, commercial investments, and a share of China's Special Drawing Rights.
The new Chinese action plan includes a commitment to provide small trade finance loans over the next decade to support African exports. By the end of 2024, China hopes to have imported $300 billion of goods and services from Africa.
The strategy also aims to enhance the competitiveness of African agricultural products by facilitating and expediting the admission of small-scale agricultural producers into formal processing, marketing, and distribution networks, as well as streamlining cross-border trade by increasing digitalization.
Small loans will be offered to African financial institutions in the form of credit lines for lending to small and medium-sized businesses on the continent.
While a drop in economic development since the pandemic has put a strain on government finances in the area and increased scrutiny of Chinese loans, China remains the region's largest single creditor.