Chinese Loans in Africa

Chinese Loans in Africa

If you read anything about Africa you have probably come across the discussion that surrounds China’s economic activities on the continent. It can be a quite divisive topic, though one that isn’t really based on a good empirical insights. There simply isn’t a lot of good data in the public domain on China’s economic impact and decisions in Africa.

The China Africa Research Initiative at John Hopkins University has just made a big step to change this deplorable state of affairs. Long time China in Africa blogger Deborah Brautigam and several of her colleagues took the wraps off a comprehensive database of Chinese loans to development projects in Africa.

There has been a lot of hype around Chinese money flowing into Africa, with some commentators alleging that these kind of loans have been increasing exponentially in recent years. And because loans to infrastructure and resource development projects are the main form of Chinese assistance to African governments, understanding the scale of this phenomenon really matters for understanding China’s Africa politics at large.

If you are at all interested in the issue, be sure to check out the full briefing. If you just want a best of, read on.

First of all, we are talking about much less money than some of the hype would want you to believe. From 2000 to 2014, Chinese banks, contractors and government agencies extended $86.9 billion worth of loans to African governments. The largest share of this, $59.6 billion, was contributed by China Eximbank, which leaves the World Bank as the single largest funder of African development. Simply put, Western angst about being overrun by China in Africa are largely unfounded, especially because the growth of Chinese loans to African recipient is linear, not exponential.

China is also targeting its loans pretty narrowly. More than 50 percent of the total was disbursed to just five countries: Angola, Ethiopia, Sudan, Kenya and the DR Congo, with Angola alone receiving 23 percent. Angola also received five of the 22 lines of financing worth $1 billion or more, though all of these were loans at commercial rates to the state-owned oil company Sonangol. Almost all loans to Angola were designed to be paid back in oil.

Roughly two thirds of loans went to Infrastructure or mining projects, with transport and energy taking the lion’s share at 48 percent.

From these numbers, it is pretty clear to me that China is playing a pretty rational economic game with respect to its interests in Africa. On the one hand it is investing heavily in natural resources, especially oil. That is understandable, given China’s position as the world’s workbench and increasing domestic consumption of energy. Because China is pretty flush with foreign currency reserves, providing lines of credit backed by resources is a smart strategy.

On the other hand, China is using its credit to develop export opportunities. Ethiopia doesn’t have a lot of oil, but it has made a real push in terms of extending basic transport infrastructure and developing its hydro power generation potential over the last two decades. China happens to have a lot of expertise and very competitive companies in these sectors, because it underwent the same transition a few years earlier.

The Chinese government via its banks and Chinese suppliers are basically providing African governments with the cash they need to pay Chinese companies to build these infrastructure projects. I imagine that in many cases, the money doesn’t even leave China but only travels overseas on paper.

I doubt that any Western government would handle things differently under similar circumstances. That doesn’t mean, though, that I think this approach is completely unproblematic.

With Sudan, Angola and Ethiopia in the top spots of Chinese loan recipients, it is clear that China doesn’t care about the impacts its money has on African domestic politics. The Chinese government isn’t specifically seeking out dictatorships to cooperate with (after all, Kenya and Ghana are on top spots as well), it just doesn’t care. At all.

There isn’t much sense in whining about this, especially when Western governments don’t seem to care much as well. A more constructive approach would be to ask how decision making incentives could be shaped differently, to make all governments more interested in the effects of their development assistance/financial assistance on local politics.