China is the world's single largest creditor, and Africa is the largest economy in partnership with China. It has often been accused of debt-trap diplomacy in Africa because of the scale of China's lending to African countries and the secretive nature of its loan contracts. The volume of China loans to the public sector in Africa is large but surprisingly decreasing.
It was researched that Chinese lenders require revenue from the project funded by the loan and or cash unrelated to the project to be in escrow or bank account at the lending institution or at a bank acceptable by the lender. At the same time, the contracts say the accounts are part of the debt repayment process, as they act as security.
Over the last 20 years, China has been the continent's largest source of development finance and now accounts for about one to a fifth of lending to Africa. The lending until recently was concentrated in seven strategic or resource-rich countries: Cameroon, Angola, Djibouti, Ethiopia, and Zambia. These countries’ debt peaked at $29.5bn in 2016 but fell back to $7.6bn in 2019. Nevertheless, China's extensive trade and investment-linked with the region and the importance of some of the above borrowers means it is an essential player in any African and global solutions to excessive debt. The involvement of China in Africa's debt varies considerably between countries and over time. However, it has been framed in the context of the belt and road initiative in recent years.
China's total loan to Africa from the year 2000 to 2018 has been to the tune of about $148 billion, most on the huge scale of infrastructure projects. About five years ago, about 66 percent of the loan amount was given to the transportation and energy sectors. In 2010, the Chinese financial institutions funded an average of 70 projects every year in Africa with an average value of about $180 million. Among these are resources such as the guaranteed infrastructure finance, which has been focused on minerals and hydrocarbon-rich African countries. These countries include Nigeria, Kenya, Zambia, Algeria, Angola, Mozambique, Egypt, Sudan (oil and gas) and Ghana.
China is a leading bilateral lender in 32 African countries and also the top lender in the whole continent. As of March 31, 2020, the total amount borrowed by Nigeria from China was around $3.121 billion(N1,126.68 billion at USD 361). This sum of money represents only 3.94 percent of Nigeria's total public debt of $79.303 billion (N 28,628.49 billion at USD 361) as of March 31, 2020. In terms of external sources of funds, loans from China accounted for 11.28 percent of the external debt stock of about $27.67 billion on the same date.
Between 2010 to 2015, the debt of Nigeria to China grew by 1.36 percent from $14 billion to $23 billion, and the country had to spend about $195 million in 2020 as debt repayment to China.
Why do African Countries Loan from China?
China's total loans to Africa from 2000 to 2018 have been tuned to $148 billion, mostly on large-scale infrastructure projects; most of the debt owed to China is related to large infrastructural projects like railways, roads, ports, and also to the mining and energy industries.
As of March 2, 2021, these are lists of African countries owing china:
- Angola ($25 billion)
- Ethiopia ($13.5 billion)
- Kenya( $7.9 billion)
- Republic of Congo ($7.5 billion)
- Sudan ($6.4 billion)
- Zambia ($6.5 billion)
- Cameron ($5.5 billion)
- Nigeria ($4.8 billion)
- Ghana ($3.5 billion)
The Democratic Republic of Congo($3.4 billion)
NOTE: These amounts have increased rapidly in 2022
China has overtaken the United state to become the world's largest foreign direct investor in Africa in recent years. LSE senior visiting fellow Shirley Yu explains the reason behind the rise of investment in Africa is because China is no longer a low cost and
China had shifted from being a largely agrarian economy into the world's largest agricultural importation.
Shirley Yu further explained that China no longer has the labor premium, and Africa is a fast-growing consumer market.
As China turns itself from the world's factory into the world's consumer market, Africa's export to China can only rise by investing in upstream production. Many citizens are beginning to complain about how the government is collecting too many loans from china. They believe it is killing the continent’s economy and needs to stop. Some have expressed that if the country needs funds, there should be a partnership where China can invest in the project rather than give loans. What do you think about China’s lending to Africa?