Small Is Beautiful

China ramps up Africa engagement even as new lending drops

By Oyintarelado Moses

Posted on September 19, 2023 07:22

 © President of China Xi Jinping and South African President Cyril Ramaphosa attend the China-Africa Leaders’ Roundtable Dialogue on the last day of the BRICS Summit, in Johannesburg, South Africa, August 24, 2023. REUTERS/Alet Pretorius
President of China Xi Jinping and South African President Cyril Ramaphosa attend the China-Africa Leaders’ Roundtable Dialogue on the last day of the BRICS Summit, in Johannesburg, South Africa, August 24, 2023. REUTERS/Alet Pretorius

Reduced volumes are not cause for alarm about the future of China-Africa relations, says Oyintarelado Moses of the Global China Initiative at the Boston University Global Development Policy Center.

Estimates show that Chinese loans to Africa have decreased significantly in recent years, and several African governments have reported difficulties securing new loans.

With African financing needs continuing to expand due to developmental and climate goals, this raises the question whether China is reducing its engagement with the continent.

However, low lending volumes should not be a cause for alarm or scepticism about the future of China-Africa relations. Since the pre-2000s, lending has laid an economic foundation to expand market integration and diplomatic engagement. As relations mature, China’s changing priorities are altering the focus of the relationship with African nations to put more emphasis on other forms of engagement, such as trade, diplomacy and agriculture.

Expanding footprint in Africa

China’s lending relationship with Africa is not new. As early as the 1960s, Chinese loans established a foundation for deepened diplomatic engagement with Africa.

Chinese entities have financed and constructed development projects dating back to 1967 when China agreed to design, construct and bankroll the Tanzania to Zambia railway. This project paved the way for years of commercial and financial engagement on development projects throughout the continent.

Loans to Africa from China grew in the early 2000s, as companies in sectors with overcapacity in China were encouraged by government officials to explore new markets. In Africa, they found prospects for high economic growth.

Chinese development finance institutions, commercial banks, government agencies and companies supplied loans for African projects. After the announcement of the Belt and Road Initiative (BRI) in 2013, these institutions increased financing even further.

Long-term cooperation

Since the 1990s, China’s trade with Africa has grown from roughly $2bn to $260bn. China has convened eight forums on China-Africa cooperation since 2000 and contributed to building and financing key diplomatic sites, such as the AU headquarters and the Africa Centres for Disease Control and Prevention.

Recently, China showed support for the African Continental Free Trade Area and the AU’s accession to the G20. At the BRICS summit earlier in September, China shared a seven-point plan to deepen China-Africa cooperation on agriculture and food security.

Estimates from the Boston University Global Development Policy Center show that from 2000 to 2022, 39 Chinese entities supplied 1,243 loan commitments amounting to $170nn for 49 African governments and seven regional institutions.

Most loans were directed to energy, transport and information, and communication and technology sectors, which benefitted infrastructure development. Countries from all regions have received financing from China, with the top borrowers including Angola, Ethiopia, Kenya, Zambia, Egypt, Nigeria, Sudan, South Africa, Cameroon and Ghana.

Focus on Outcomes

In recent years, Chinese finance for Africa has decreased significantly. The COVID-19 pandemic is not enough to explain this. Loans have been declining since 2016, and environmental, social and debt risks have been identified for some Chinese-financed mega projects.

Changing priorities surrounding the BRI, domestic Chinese issues and rising debt levels in some of Africa’s largest borrowers help to explain the declines. China has suggested new approaches to lending, through a targeted and cautious “small and/or beautiful” approach that emphasises lending in smaller amounts and focuses on the beneficial social and environmental impacts of projects.

This could push Chinese companies and banks to become more aware of non-repayment risks and more conscious of project outcomes.

Given the ongoing financing gaps in the region and the opportunities for increased engagement, China will likely continue to lend to African countries, albeit at lower levels, for greener and socially beneficial projects.

As the focal point of China-Africa relations moves beyond lending to other types of engagement, the relationship is likely to grow and deepen in the years to come.

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