Africa strangled by public loans to China

Latest data from the China-Africa Research Initiative (Cari) shows Ethiopia owes Beijing $13.73 billion, followed by Kenya at $9.8 billion. Uganda owes $2.96 billion and Tanzania $2.34 billion. East Africa now owes China $29.4 billion in infrastructure loans.

The region’s economies are now spending almost eight per cent of their revenues to service these loans, which analysts say are becoming a burden, especially given that their impact is yet to be seen on the growth.

Passengers queue to ride Ethiopia’s tramway in 2015 in Addis Ababa. The China -funded project is hailed as a major step in the country’s economic development.
Addis Ababa LRT built with chinese funds

The bulk of the monies, according to research by The EastAfrican, went into the transport sector, followed by power, communications and manufacturing. Ethiopia’s biggest intake of the Beijing loans was in 2013, coinciding with the launch of its joint standard gauge railway project with Djibouti. Addis took up more than $6.62 billion from Beijing for its mega projects, which also included the setting up of manufacturing zones. In terms of sector funding, Ethiopia invested the bulk of its funds in the transport sector ($4.37 billion), which was used for both the Addis Ababa light railway project and the Addis-Djibouti 700km railway. This was followed by communications at $3.16 billion and power projects at $2.54 billion. Ethiopia borrowed $652 million last year, down from $926 million in 2016, while Kenya took $64 million, down from $1.09 billion in 2016.

Last month, Ethiopia became the first country to get its Chinese debt rolled over announcing that Beijing had agreed to restructure its $4 billion loan on the railway linking its capital Addis with Djibouti. Ethiopia’s Prime Minister Abiy Ahmed said that the country’s loans will now receive a further 20-year extension, which will see its annual repayments narrow to an affordable level.

“In conversations with our Chinese partners, we had the opportunity to enact limited restructuring of some of our loans. In particular, the loan for the Addis Ababa-Djibouti railway, which was meant to be paid over 10 years, has now been extended to 30 years. Its maturity period has also been extended” Dr Abiy said.

But, recently, the new authorities of Sierra Leone decided to not confirm the project of a new splendid and modern airport which would be useless as the old one is still running under its real capacity.

Chinese credits are very expensive for African countries in terms of counterpart that no guaranties are expected by China. Like Angola and Nigeria, South Soudan will use its petroleum to compensate road buildings. Angola, Ethiopia and Kenya are China’s main debtors in Africa. Only Angola owns petroleum, while Ethiopia and Kenya are counting on a possible industrial development; a risky calculation that shares Beijing.

China is also aware that political changes in Africa might ruin relations and refunds. Therefore, Beijing prefers a spending strong dictatorship instead of a thrifty democracy.

 

 

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