Are IMF Loans Being Used to Counter China in Africa?

By Ovigwe Eguegu
Posted on Friday, 3 January 2020 09:10

Ethiopia's Prime Minister Abiy Ahmed waits for the arrival of European Commission President Ursula von der Leyen before their meeting in Addis Ababa, Ethiopia December 7, 2019. REUTERS/Tiksa Negeri

The growing influence of China in world politics has not gone unnoticed in Washington.

In 2018, while presenting the U.S. national defense strategy, which set priorities for the Pentagon, then U.S.Defence Secretary Jim Mattis declared in very clear terms that the United States was entering into great power competition with China and Russia.

“Great power competition, not terrorism, is now the primary focus of U.S. national security”

Months later, then United States National Security Advisor John Bolton announced the “Prosper Africa” initiative, a key part of the Trump administration’s Africa Strategy.

Bolton’s speech focused heavily on the threat of Chinese lending and investment to both African and American interests and expressed the administration’s motivation for the United States to offer a competitive alternative to Africa.

What was missing from Bolton’s address was exactly how the Trump administration was going to prosper Africa and “advancing U.S. trade and commercial ties with nations across the region to the benefit of both the United States and Africa.”

Bolton’s address was big on U.S. intentions but lacked details, so it was no surprise that the announcement elicited very little excitement in Africa. However, it was a clear indication that the United States was getting serious about countering China’s deepening influence in Africa.

It was during the visit of U.S. Deputy Secretary of Commerce Karen Dunn Kelly and USAID Administrator Mark Green to Maputo in June that the Prosper Africa initiative started to take shape. This time it was less rhetoric and more substantive, Green and Kelly announced the U.S. goal to double two-way trade and investment between the U.S. and Africa by expanding private sector engagements between the U.S. and African countries.

The new details were met with some criticism “the initiative has little new money behind it—just $50 million, which, as a point of reference, is half the (FY17) budget for neglected tropical diseases”, said Sarah Rose, a Policy Fellow at the Center for Global Development in Washington, D.C.

However, what wasn’t revealed in the addresses given by Bolton, Kelly or Green is that IMF loans will become more accessible to African governments. Even to Equatorial Guinea, a country where high-level corruption, repression of civil and political rights have been rampant under the leadership of President Teodoro Obiang Nguema Mbasogo, who has been in power since 1979.

Equatorial Guinea typifies many of the attributes the IMF says it stands against. It is undemocratic and repressive even by Africa’s standards. So predictably, news of an IMF bailout package for Equatorial Guinea caused the international human rights community to have a collective stroke.

On the brighter side, the recently announced $2.9 billion IMF financing package for Ethiopia was received with much excitement. Unlike Equatorial Guinea, Ethiopia is led by a dynamic leader who enjoys widespread approval and international popularity.

Abiy Ahmed, the Prime Minister of Ethiopia rose to power at a crucial moment for Ethiopia and has shown serious about the reforms he promised. Ethiopia has one of the fastest-growing economies in the world, but Abiy is convinced there is room for structural and economic reforms to boost growth.

Among the prime minister’s key reform priorities include the massive privatization of state assets, namely the state-owned Ethio Telecom, which has 65 million subscribers being one of the main targets of foreign investors. A newly-privatized Ethio Telecom would likely be quite attractive to major global telecom operators like Vodafone and Orange looking to expand their presence in one of Africa’s largest and fastest-growing markets.

While the approval of the IMF loan is no doubt a sign of international confidence in Abiy’s leadership, it could also be interpreted as a way to lubricate the entry of western companies into Ethiopia to acquire state assets.

Zemedeneh Negatu, Global Chairman at Fairfax Africa Fund (U.S.) sees the IMF program as the U.S. trying to counter China in Ethiopia.

Angola is another country that recently received a $247 million loan from the IMF after it stuck to structural reforms plans and slimmed deficits. This latest financing package is part of a three-year $3.7 billion credit facility agreement that was initiated last year.

Just like Ethiopia, Angola has a fairly new leader that is keen on opening up the Angolan economy via privatization. Another thing both countries have in common is the high presence of Chinese investment and public debt to China.

To create wealth for its rapidly growing population, Africa needs reforms, investments, and access to adequate financing to bridge the infrastructure gap, and boost economic productivity, its projected demographic boom could become a ‘demographic doom’.

This is why there is a strong relationship between Africa’s increased access to Chinese loans and investments, with the increase of China’s influence in Africa.

Despite the IMF being a multilateral organization, the influence of the U.S. over access to IMF funds is hard to dispute. So it is within reason to see IMF loans as part of the U.S. plan to counter China in Africa, especially within the context of U.S.-China geopolitical rivalry in Africa.

Ovigwe Eguegu is a geopolitical analyst based in Abuja, Nigeria. His work focuses on the interplay of geopolitics and security in international relations. 

This article first appeared on The China Africa Project.

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