Covid pandemic reduced Chinese loans to Africa, report

Sideview of the JKIA-Westlands Expressway deck at Uhuru Highway on June 4, 2022. [Jonah Onyango, Standard]

China’s lending to African countries fell to a 16-year low in 2020 as the current Covid-19 pandemic took a toll on economies across the world.

A report by Boston University indicates that the pandemic and its economic aftershocks have adversely impacted projects under China’s Belt and Road Initiative (BRI), both in terms of implementation and funding.

According to the report, Chinese lending in the year under review dropped from 78 per cent from a year earlier to USD1.9 billion, the lowest since 2004.

As a result, the total number of projects decreased with only 11 projects funded compared to a total average of around 60 projects a year during 2015 – 2019.

The report further indicate that Chinese loan amounts tend to fluctuate during times of crisis and exposure to structural risk levels.

The decrease is also consistent with pullbacks of Chinese lending in other parts of the world in 2020, according to the report.

Although a collapse in economic growth since the pandemic has strained government finances in the region and increased scrutiny around Chinese lending, the Asian nation is still the biggest single creditor to sub-Saharan Africa.

World Bank’s Africa’s Pulse report indicates that by 2019 Chinese lending to Africa accounted for 59.3 per cent of total official bilateral debt.

The current drop in lending has raised questions as to whether Chinese loans to Africa are drying up. This is against the backdrop of Chinese financiers signing 1,188 loan commitments worth USD 160 billion with 49 African governments during 2000-2020.

But there are other larger issues pertaining to Chinese investment in African countries.

Apart from the impact of the pandemic, BRI projects are losing credibility due to violations of labour and human rights besides causing severe environmental damage.

Chinese companies across the continent have also been accused of signing skewed contract agreements with host countries.

This has seen Beijing being criticised for signing stringent agreements and further prohibiting their publication.

An article by Bloomberg indicate that the Covid-19 pandemic significantly constrained the fiscal discretion of many African borrowers, likely impacting willingness to borrow, and intensified the cautionary lending practices of Chinese lenders in recent years.

But the Boston research on Chinese loans to Africa show that from 2000 to 2020, Chinese financiers signed 1,188 loan commitments worth USD160 billion with African governments and state-owned companies.

 According to the research, the biggest borrowers were Angola, Ethiopia and Zambia. Currently, Ethiopia and Zambia’s governments are seeking to restructure their debts with China crucial for these negotiations to succeed.

The Chinese state and commercial creditors account for about one-third of Zambian debt.

“The decline in loan commitments from Chinese sources in 2020 may also be temporary and not signal a definite pullback in Africa’s borrowing from the country,” read part of the Boston University report.