Chinese Lending to Africa Slowed in 2019, But Don’t Rule Out a Revival
By Kevin Acker
Chinese loans have become an important source of infrastructure finance for African countries over the past two decades, with Chinese financiers committing approximately $153 billion to African governments and state-owned enterprises between 2000 and 2019. The COVID-19 crisis has introduced new challenges to African borrowers and Chinese financiers, as borrowers negotiate debt relief and new borrowing has slowed. However, China’s lending to Africa was already changing before the pandemic.
On Tuesday, March 30th, the Johns Hopkins SAIS China-Africa Research Initiative (CARI) hosted a webinar to discuss new data on Chinese loan commitments to Africa in 2019 in the Chinese Loans to Africa (CLA) database and to present a study on trends in China’s loan finance to Africa over the past two decades. Chinese loan commitments to African countries totaled $7 billion in 2019, down 30 percent from $9.9 billion in 2018. CARI also announced that it would be partnering with the Boston University Global Development Policy (GDP) Center to manage the CLA Database moving forward.
After an introduction by Deborah Brautigam, CARI Director, and Kevin P. Gallagher, GDP Center Director, Kevin Acker, CARI Research Manager, began with a showcase of the CLA database, an online interactive presenting data on each individual loan commitment from Chinese financiers to African governments and state-owned enterprises between 2000 and 2019. In addition to information on the lenders, loan amounts, and project sectors, researchers can download the entire database which includes information on project status, loan terms, contractors and more.
Acker discussed the ups and downs of China’s lending to Africa over the past 20 years, noting that loan commitments from China’s largest overseas lending institution, the Export-Import Bank of China, peaked in 2013, while overall Chinese loan commitments to Africa peaked in 2016 with $28 billion, over half of which went to just one country, Angola. Since then, China’s loan commitments to Africa have slowed, decreasing to $7 billion in 2019, their lowest level since 2010.
He also pointed out that the drop-off in lending is partly due to the fact that many of China’s historically large borrowers have either restructured their debt with China in years prior, or have reached a high risk of debt distress. Angola, Ethiopia, Kenya and Zambia received little new finance in 2019, while China’s top African borrowers in 2019 were Ghana, Egypt, South Africa, Côte d’Ivoire and Nigeria, all of which have so far had a decent track record of debt management.
In addition to changing borrowers, Acker commented that the Chinese lenders who are active in Africa are changing as well, as lending from the Export-Import Bank of China decreased, and lending from China Development Bank and commercial banks, such as the Industrial and Commercial Bank of China and the Bank of China, increased.
Finally, Acker highlighted the issue of resource backed loans, noting that while some historically large borrowers of oil-backed loans, such as Angola and the Republic of Congo, are no longer borrowing using this model, other countries, like Ghana and Guinea, have recently signed bauxite-backed infrastructure finance agreements.
Following the presentation of CARI’s research, discussants Dr. Grieve Chelwa, Postdoctoral Fellow at the Institute on Race and Political Economy at the New School and Dr. Yan Wang, Senior Academic Researcher with the Global China Initiative at the GDP Center, offered comments.
Chelwa started by pointing to CARI’s findings that 80 percent of China’s loan finance to Africa goes to infrastructure sectors, including transport, power, communications and water: “Infrastructure is really the lifeblood of economic development… this is specifically what the African governments have wanted… [and] what the African people have wanted.” Chelwa further commented on the fact that data on the outstanding debt of African governments shows that debt to China accounts for only 13 percent of total external debt on the continent, which contradicts the popular story that China is placing Africa in “debt bondage.”
Wang also highlighted the importance of Chinese finance in addressing infrastructure bottlenecks in Africa, and further pointed out that once completed, infrastructure projects should be counted as a public asset, which can provide a “cushion” for addressing debt issues. She then emphasized that China has a comparative advantage in infrastructure construction, and cited her research which found, for example, Chinese construction firms can build high speed rail at two thirds of the cost of European firms. Wang also offered some insights on the domestic China-side factors for the decrease in China’s lending between 2017 and 2019. China’s deleveraging and anti-corruption campaigns during that period may have spurred a “re-strategizing” of China’s overseas lending.
With the COVID-19 crisis, it is likely that the data will show a continued decrease in China’s lending through 2020. However, CARI researchers contend that Chinese finance will continue to play an important role in Africa, as African governments will continue to seek loan finance to bridge the infrastructure gap, and Chinese banks will continue to be interested in the profits available in emerging markets.
Kevin Acker is CARI’s Research Manager, where his research focuses on China’s overseas lending and debt relief. He is a 2019 M.A. graduate of China studies and Economics at Johns Hopkins SAIS, having spent the first year of this program at the Hopkins-Nanjing Center. He previously worked in international education and consulting. He holds a B.A. in Economics and China Studies from Binghamton University.Explore the Database