What is happening between Africa and China

China in Africa: Good Lenders, Bad Lenders

It was just a translation mistake. At the China-Africa Friendship Night in Beijing in January, a big screen showed four catchwords that were supposed to describe the relationship between China and the African continent: In addition to the words "innovation", "efficiency" and "transcendence", there was also "exploitation" in English ". The Chinese character on the screen actually meant "openness" or even "pioneering work", but the mistake raises questions about Sino-African relations.

China has come under fire for its large presence in Africa. From 2000 to 2017, China granted African countries and companies loans totaling 143 billion US dollars, making it Africa's largest creditor. China could use the money itself well. "Why is China, a country with over 100 million people still living below the poverty line, such a conspicuously large donor?" Asked influential Chinese law professor Xu Zhangrun in a 2018 letter to China's President Xi Jinping. International critics also claim that China is plunging African countries into debt and creating dependency.

A respite for Cameroon

China responded to the allegations. In 2018, Xi promised to cancel some of the debts of some poorer African countries. Including Cameroon. China waived $ 78.4 million for the Central African country in January. Cameroon had borrowed a total of $ 5.6 billion from Beijing since 2000, according to a study by the China-Africa research initiative at Johns Hopkins University. Cameroon's total debt is now around 5.8 trillion CFA francs (around $ 10 billion).

"At the forum on China-Africa cooperation, which has been held every three years since 2000, the Chinese president repeatedly cuts a certain amount of debt," explains Lucy Corkin, business manager at Rand Merchant Bank Africa. It is not about large sums of money, but the decree has a positive effect on diplomatic relations. "The case has happened before in the DR Congo. It is a respite for recipient countries that are unable to meet their obligations," explains Annalisa Prizzon, Senior Research Fellow at the British think tank Overseas Development Institute. This would lead to more fiscal leeway for social spending and enable countries to take out new loans. In order to grow, you have to invest.

"Lack of responsibility" in African countries

But not only Cameroon is in financial straits. In 2017, the International Monetary Fund (IMF) classified nine low-income sub-Saharan African countries as high debt risk countries, including Cameroon, Ethiopia and Zambia. Six others are deeply indebted, according to the IMF: Chad, the Republic of the Congo, Eritrea, Mozambique, South Sudan and Zimbabwe. These countries are considered highly indebted developing countries (HIPC), which are supposed to benefit from debt relief under the HIPC initiative of the G8 countries. By 2018, debt reduction packages totaling $ 76 billion had been approved for 36 countries, including 30 in Africa, under the HIPC initiative.

"It's interesting that China is only the largest moneylender in three of the current and former HIPC countries, and that is Djibouti, DR Congo and Zambia," says Prizzon. Thus, China could not be primarily responsible for the African-wide indebtedness. One cannot speak of exploitation either, says Corkin. "You think of China, it comes and takes what it wants, and the African states don't know what they're doing," says the South African.

If there is exploitation, it is because of the lack of responsibility African governments have shown towards their own people. "Often it is they who go to China to take out loans and negotiate the terms. Some have the national interest in mind, some are for the good of the people, and others are simply for their own benefit." According to Corkin, responsibility for the development of a country cannot always be passed on to external actors. After all, Chinese loans would also finance projects that Western lenders are unwilling to support.

The West is involved

The first African country has already pulled the emergency brake on credit: Sierra Leone broke a deal with China in October 2018. Sierra Leone's Minister of Aviation Cabinh Kallon announced that the already decided construction of a new airport would not take place. China had promised a loan and related construction work amounting to the equivalent of $ 318 million. With all the euphoria that China initially triggered with its investments in Africa, one must not forget that cooperation does not always run smoothly, says Corkin: "We know the tensions between Chinese and Africans in some countries where the projects are not were designed to be sustainable. " For example, there are contracts between China and the DR Congo, according to which Chinese investors are free to choose their suppliers and workers - there is no obligation to hire Congolese people.

China is taking on projects that the West is shying away from, says Corkin

But China is not the only international player in the African markets. "China's role in African countries must be seen in the context of what other actors in Africa are doing," warns Corkin. Otherwise there is a risk of portraying China as an isolated case, while many other countries are actually doing the same. In fact, with $ 54 billion in FDI, the US is the largest investor on the continent. An estimated 600 US companies operate in South Africa alone, including some of the largest American companies. The EU, on the other hand, is Africa's largest trading partner and accounts for 36 percent of all exports. During the fifth EU-Africa Summit in Abidjan in 2017, the EU also committed to mobilizing more than $ 54 billion in "sustainable" investments for Africa by 2020 - similar to President Xi, who provided an additional $ 60 billion in loans and other financing in 2018 announced.

"There are no good and bad donors, but there are good donors and bad donors," says Prizzon. The key point is to give the political decision-makers in the recipient countries the tools to make informed decisions as to whether this type of income source is worthwhile, whether the country can afford the guarantee. "It's simply about making informed decisions about borrowing."