Over the last two decades, China has established itself as Africa’s largest bilateral lender, helping bankroll key infrastructure projects on the continent.
Findings showed Chinese loans to Africa have higher interest rates compared to loans from the World Bank, Germany and France and other European countries.
For instance, research by AidData, an international development body at William & Mary University in the United states showed the interest rate for China’s loans is four times the size of typical loans with a repayment period of 10 years compared to 28 years for other types of loans and is focused on long-term infrastructure projects.
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The report also showed Chinese loan contracts contain unusual confidentiality clauses that bar borrowers from revealing the terms or even the existence of the debt which makes it difficult to track the terms and conditions of the loans given.
African countries with the highest exposure to chinese loans
China is currently involved in 35 infrastructure projects in Africa mainly in the power generation, ICT and transportation sectors. Chinese loans are mostly used to finance long-term infrastructures, this translates to Chinese loans being mostly project-tied loans.
From 2000 to 2020 alone, China lent a total of $159.87 billion to African countries with Angola, Ethiopia and Zambia topping the list of the countries with the highest amount of loans. Nigeria is the 6th country with the highest number of Chinese loans in Africa.
Angola, the highest borrower from the Chinese government currently has a 136.83percent debt-to-GDP ratio and its public debt per capita is $2,425 dollars per inhabitant as of 2020.
Ethiopia and Zambia the second and third countries with the highest Chinese loans also both have a 52.95% debt-to-GDP ratio and public debt per capita of $527 dollars per inhabitant and 123.17% debt-to-GDP ratio and public debt per capita of $1,351 dollars per inhabitant as at 2021 respectively.
Nigeria’s exposure to Chinese loans
Nigeria, the 6th country with the highest Chinese loan currently has 15 projects financed by Chinese loans. Chinese debt currently makes up 9.47percent of the total debt of Nigeria with a debt per capita of $438 per inhabitant.
The top Chinese loan-tied projects in Nigeria range from power, rail, water and road projects.
This further asserts that the possibility of repayment of these loans by African countries to China is uncertain due to the volume of these loans.
Defaulters of loans
There have been questions surrounding Chinese loans due to its non-disclosure agreements and there have been claims of China giving loans to burden low-income or poor countries with unsustainable loans.
The worry is increasing taking into cognisance that African countries with Chinese loans are witnessing a repayment crisis as most African countries are seeking deferment of interest payments and re-negotiating loan terms.
For example, Sri Lanka borrowed over $1 billion from China for its strategic deep-water port, but could not repay the money. This led to China’s control and management of the port, as Sri Lanka had to lease the port for 99 years to China.
Findings also showed Chinese loans require borrowers to create special accounts with cash balance requirements that China can seize in case of default.
China also often includes “cross-default” or “cross-cancellation” provisions that tie various loans to one another, these make it harder for a borrower to walk away from a project and give Chinese institutions bargaining power and policy influence.
Djibouti is also another example where it had no choice but to lease its land to China for $20 million per year due to its debt crisis and non-repayment of loans to the Chinese government.
Lessons for African countries
This very much poses a threat to the assets of some African countries in a situation of non-repayment of loans.
There is a need for transparency in dealing with Chinese loans, most countries are often torn between non-disclosure agreements and demands from other creditors to disclose what they owe China in order to write off their loans in the case where the country is struggling with its debt burden.
China’s debt diplomacy is not only a threat to natural assets but also a threat to a country’s sovereignty.