Webinar Summary – Chinese Loans to Africa Database: Lending in the Pandemic Era

By Jyhjong Hwang

On Thursday, April 28, the Boston University Global Development Policy (GDP) Center hosted a webinar discussion and demonstration of the Chinese Loans to Africa (CLA) Database. The webinar followed the launch of new data and an updated website experience earlier that week. During the webinar, Oyintarelado (Tarela) Moses discussed the main findings and impacts of the COVID-19 pandemic on Chinese loans to Africa in 2020. Magalie Masamba, Global China Post-doctoral Research Fellow at the GDP Center and Post-doctoral Fellow at the Centre for Human Rights at the University of Pretoria, Yike Fu, a China-Africa Policy Analyst at Development Reimagined, and Phiwokuhle Mnyandu, a Lecturer in African Studies at Howard University, gave remarks and reactions to the new data and research. The discussion was moderated by Cecilia Springer, Assistant Director of the GDP Center’s Global China Initiative.

To begin, Tarela Moses introduced the CLA Database and its most recent developments. The CLA database is an interactive data project that tracks loan commitments from Chinese policy and commercial banks, government entities, companies and other financiers, to African governments and state-owned enterprises. The database uses publicly available data from official government documents, contractor websites, fieldwork, interviews and media sources. To gather data, researchers use a methodology termed “Manual Forensic Internet Sleuthing” that involves cross-checking old and new loan data, uncovering new loans through media sources, reviewing Chinese and host country official sources and validating different sources against each other. The CLA Database does not track loan repayment nor cancellations and as such does not reflect debt held by African governments from Chinese lenders.

In 2020, $1.9 billion worth of Chinese loan commitments were signed with African borrowers. This includes 11 different loan commitments in eight countries and one regional multilateral development bank, the African Export–Import Bank (Afreximbank). These loans financed projects across the transportation, power generation, information and communications technology (ICT) and banking sectors. The Export-Import Bank of China (CHEXIM) signed eight loan agreements, while the Industrial and Commercial Bank of China (ICBC), the commercial Bank of China (BOC) and the Chinese company Dongfang Electric signed the remainder. African borrowers of Chinese loans in 2020 included Burkina Faso, the Democratic Republic of Congo (DRC), Ghana, Lesotho, Madagascar, Mozambique, Rwanda, Uganda and the regional bank Afreximbank. Distinct from the sectoral breakdown in previous years, the ICT sector became the second largest destination sector of Chinese loans, when historically it has trailed other sectors, such as power and mining.

Loan commitment amounts hit a historic low in 2020. Some possible contributors to this phenomenon include impacts of the COVID-19 pandemic on African willingness to borrow more, rising debt levels in some African countries, more cautious lending practices by some Chinese lenders and China’s macroeconomic pivot towards its “dual circulation strategy,” which gives Chinese domestic “circulation,” or domestic supply and demand, the center stage in economic development, while keeping enough openness to the international market to maintain supply chains.

Between 2000 and 2020, Chinese financiers signed 1,188 loan commitments worth $160 billion with 49 African governments, their state-owned enterprises and regional multilateral banks. Angola has been the top recipient by far, accounting for 27 percent of all Chinese loan commitment. Excluding Angola, Chinese lending to Africa peaked in 2013. Excluding 2016 when China Development Bank (CDB) signed large loans with Angola, CHEXIM has consistently committed the highest amount of loans by value to African borrowers and 2020 was no exception. In contrast, CDB did not sign any new loans with African borrowers in 2020.

The trend over the two decades raises the question of whether Chinese loans to Africa are drying up. Unlike World Bank lending, Chinese lending to Africa tends to decline during times of crisis, so the loan commitment dip in 2020 was not surprising. Moreover, this decrease in Chinese policy bank loans to Africa matches declining trends in Latin America and the Caribbean. In the future, other financial instruments such as foreign direct investment (FDI) may play a more prominent role in financing projects in Africa. Financing to African regional banks such as Afreximbank and the African Development Bank for on-lending may also increase as country-level debt burdens rise.

Following the presentation, Yike Fu provided additional insights from the data. First, not only did the total loan commitment amounts drop precipitously in 2020, but the total number of projects also decreased, with only 11 projects funded in 2020 compared to a total average of around 60 projects a year from 2015 to 2019. However, the average size of the loans did not change significantly from 2015-2020. The $200 million loan signed with Afreximbank may appear large, but it is on par with loans Afreximbank has received in the past. Fourth, all countries receiving Chinese loans in 2020 are either in high or moderate debt distress, though Fu had reservations over the criteria used to determine debt distress. Finally, Fu noted that among the top ten loan recipients since 2000, only Ghana received new loans in 2020. In contrast, historically heavy borrowers such as Angola and Ethiopia did not receive any loans.

In a Twitter survey conducted by Development Reimagined, 43 percent of respondents believed that COVID-19 in China was the most important reason Chinese loans to Africa fell in 2020, followed by 32 percent pointing to non-performing loans, 14 percent  to African debt distress and 11 percent to COVID-19 in Africa. Despite the significant drop in loan amounts in 2020, Fu remained optimistic over the future of Chinese loans to Africa, citing Africa’s long-term growth prospects. Demand for infrastructure development means concessional loans, from China or elsewhere, will be needed. To maintain momentum in infrastructure development, Fu asserted African governments must avoid “digging the well while thirsty”; in other words, governments cannot wait until all the infrastructure funding has been exhausted before exploring other funding options.

Phiwokuhle Mnyandu, with a background in African development studies, then offered an important big picture view of financing to Africa. He began by noting that of all global FDI in 2020, only 4 percent went to the African continent. Of this amount, 1 percent went to North Africa, 0.3 percent went to South Africa and 2.7 percent was split among the rest of Sub-Saharan Africa. Mnyandu then argued that financing to South Africa can serve as a roadmap to the future of Chinese financing to Africa. Unlike its neighbors who borrow heavily from Chinese policy banks, South Africa, as a comparatively more capitalized economy, has a diverse lender profile that includes both policy banks and commercial banks. For example, a 2013 deal to acquire a South African media company was jointly financed with a mix of equity shares and loans from the South African company Sekunjalo, the South African state-owned Public Investment Corporation (PIC) and two Chinese state-owned enterprises, the China International Television Corporation and the China Africa Development Fund (CAD-Fund). Mnyandu stated such public-private partnerships (PPP) are playing an increasingly important role vis-à-vis financing that relies wholly on Chinese policy bank loans.

Next, Magalie Masamba, specializing in law and sovereign debt restructure, raised the question of whether Africa is currently under unsustainable debt, and the role of Chinese public debt and other sources of debt. In addition, there are also controversies surrounding some Chinese loan-financed projects, such as the Entebbe Airport project in Uganda. With regards to contributing factors to the low level of Chinese loans to Africa in 2020, Masamba applauded the CLA Database research for separating domestic from international factors, as well as short-term shocks from long-term trends. She also suggested that Russia’s war in Ukraine may have an indirect impact on Chinese lending to Africa. Moreover, the World Bank has already begun tackling Africa’s debt issues in 2015 and 2016, primarily responding to the proliferation of Eurobonds in Africa, but also external debt. This suggests debt distress likely played a role in explaining the downward trend of lending since 2016.

Following the panelist discussion, Cecilia Springer posed several questions to the panelists. With regards to other factors contributing to low 2020 lending levels, Masamba noted the debt landscape, Fu commented on the impact of COVID-19 on Chinese lenders ability to travel to close deals and Mnyandu mentioned increasing alternatives to Chinese financing. Regarding prospects for African and Chinese cooperation on debt relief, Fu emphasized negotiations would not necessarily be easier if China decides to join the Paris Club. Rather, she said African borrowers may benefit from a regional committee that oversees bilateral negotiations. Lastly, in terms of the composition and direction of Chinese loans in the future, Mnyandu expected significant funding to be poured into the planned high-speed railway system linking capital cities of Southern African states, including South Africa, Zimbabwe, Namibia and Botswana. Moses pointed out that according to the 2021 Forum on China-Africa Cooperation (FOCAC) Dakar Action Plan, more concessional loans can be expected in the future. Given that concessional loans primarily come from Chinese policy banks, policy bank loans may continue to play a major role in lending. Moreover, participation by emerging multilateral institutions such as the New Development Bank and the Asian Infrastructure Investment Bank may also increase in the coming years. Finally, more financing of renewable energy can be expected, per recent guidance from multiple Chinese ministries.

The discussion was rounded out with Q&A from the audience where panelists emphasized the importance of partnerships for bolstering economic growth in Africa. China has been a partner in African development for many years, even as sector focuses, lending types and Chinese lenders are changing. Observing how these changes may alter the composition of Chinese loans to Africa is important for determining contributions to African economic growth in the future.

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