Tuesday, November 28, 2023

Should Africa be wary of Chinese “soft loans”?

Large-scale structural projects, often accompanied by a soft loan, are proposed to African countries rich in natural resources, Botswana not sparred. China commonly funds the construction of infrastructure such as roads and railroads, dams, ports, and airports. While relations are mainly conducted through diplomacy and trade, military support via the provision of arms and other equipment is also a major component.

African countries have shown a healthy appetite for Chinese loans but some pundits now worry that the continent is gorging on debt, and could soon suffocate.

Its investment in Africa, perceived as ‘the dark continent’ has skyrocketed in recent years from $7 billion in 2008 to $26 billion in 2013, to now $60 billion.

The President of The Peoples Republic of China, Xi Jinping recently at the China-Africa forum in Beijing, where Botswana’s President Mokgweetsi Masisi was in was one of the attendants offered another $60 billion in financing for Africa and wrote off some debt for poorer African nations, while warning against funds going toward “vanity projects”.

He said the financing would include $15 billion in aid, interest-free loans and concessional loans, a $20 billion credit line, a $10 billion special fund for China-Africa development, and a $5 billion special fund for imports from Africa.

This relationship has gone without fraught with controversy.

For some Batswana, however, the flood of Chinese loans and investments doesn’t look so much like freedom as it does a new form of colonialism. The infrastructure is welcome, but as projects made possible by loans financed by the Chinese they will encumber the economy with debt and do little to alleviate the nearly 20 percent unemployment rate.

Some pundits believe that these loans are unnecessary for Botswana but other countries will be enslaved by them and sell national assets to the Chinese, such as the neigbouring Zambia.

Former BIDPA Senior Researcher, Professor Roman Grynberg says African countries should be worried about China’s muscle in Africa.

Some like Zambia, he said appear to be in serious risk of default and China has shown that it is willing to take assets in return. China is great power and while they are quite different to the US or Europe they have economic interests and if African countries are foolish with debt levels the Chinese will behave like any other creditor.

“China is the biggest producer of just about every mineral but in time its domestic capacity will decline and will become more reliant on African production. China will increasingly have to do debt for mineral swaps and this will put them in a new position in Africa.”

Investment Analyst at Kgori Capital, Kwabena Antwi, expressed that the key consideration when a country acquires new debt is not necessarily the party who is providing the loan but the ability of the country to repay the agreed loan installments. “African countries have looked to China for financing due to the willingness of China to provide funding for infrastructure projects,” he said.

Chinese companies mostly state owned, like in many other African countries; are largely into construction in Botswana such as dams, airports and roads. However the durability and the quality of such infrastructures has always been a worry to the government which spend billions on the projects.


Masisi upon his return from China-Africa forum in Beijing, announced that China has agreed to extend a loan to Botswana for rail and road infrastructure as well as writing off some debt.

In addition to the loan and a debt cancellation of P80 million, China has also offered a P340 million ($31 million) grant, he said.

“We got a little bit more than just the loan,” he told the local media.

The Ministry of Finance had earlier indicated that Botswana was seeking a P12 billion ($1.09 billion) loan for transport infrastructure.

The bulk of the loan is expected to fund the Mosetse-Kazungula railway line project, which will link the central part of Botswana to the tourism hub in the northwest.

The railway line will also promote regional trade as it will connect Botswana to Zambia via the Kazungula Bridge.

Meanwhile, Namibia’s President Hage Geingob made it quite clear that he did not believe that Namibia was ‘China’s puppet.’ Namibia remains a free nation to do what it chooses and say what it chooses with China, the country’s old friend and liberation struggle supporter. For decades when the Western world condemned Namibia and South Africa’s liberation struggle heroes such as Nelson Mandela and Sam Nujoma as terrorists, the Chinese stood behind Africa and gave invaluable support to the struggle for freedom. But that was yesterday’s China.

Earlier this week, Ghana President Nana Akufo-Addo defended the West African nation’s dealings with China, saying the country is doing business with its “eyes open” after signing eight accords for ventures worth more than $2.3 billion last month.

The two countries agreed deals from a $2 billion infrastructure program to a $350 million project which involves the building of marine facilities for a liquefied natural-gas terminal in the port of Tema during the Forum on China-Africa Cooperation in September.

The government of Akufo-Addo is trying to cut the nation’s reliance on aid and will not seek to renew or extend an almost $1 billion bailout program with the IMF which ends this year.

China does not have a Foreign Corrupt Practices Act like the United States, or similar legislation in other Western countries that criminalise bribes paid overseas in exchange for contracts.

Ghanaian investment analyst Michael Kottoh was quoted in Ghanaian media that, “there are several truly win-win deals African nations have closed without the typical onerous conditions associated historically with doing business with western countries.”

“But there is a sense in which China is obviously the bigger winner – simply because it has the upper leverage in most negotiations.”

Chad, Eritrea, Mozambique, Congo Republic, South Sudan and Zimbabwe were considered to be in debt distress at the end of 2017 while Zambia and Ethiopia were downgraded to “high risk of debt distress.”


One may say, the motive behind the re-colonisation by China is twofold. One for sustainable economies for them to benefit, for instance, South Africa, Botswana, Morocco and for creating bondage on struggling economies with huge reserves of natural mineral deposits in the case of Zambia and Zimbabwe, Angola.

In Angola’s case, the government has supplied oil to China in exchange for Chinese financing and construction of major infrastructure projects – but market driven private investment by Chinese firms has been limited compared with other African countries.

For Botswana, the Chinese are looking at huge state projects running in billions and to protect the Chinese doing business with Botswana government as these companies are taxed heavily back home. This for Botswana industries crates conflict and impediment on locals owning their own economy due to that blockage.

Whether African governments, Botswana in particular should continue trusting the Chinese contractors for construction works, Antwi strongly indicated that, the responsibility for effective implementation of the project falls on the project owner, who for sovereign nations, is the government. As a result, he said, “governments should therefore ensure that projects are undertaken in accordance with agreed requirements and ensure that contracts signed with infrastructure developer provide for recourse in the case where the final product does not meet the agreed-on requirements.”

From Grynberg’s point of view, Chinese contractors can be as good as anyone else, adding that it depends on who has had a slice of the contract. “The more people there in the middle the less there is for the actual construction.  When Europe and America developed in the 19th century it was the backward linkages to local iron and coal production that stimulated the local economy. No such thing is happening in Africa. We build railways, power stations and IT infrastructure and it is helping develop the capacity of China to produce and export. The steel copper and other materials are almost invariably coming from China,” in furthering sharing his views.

Research has shown that, China is now the single largest bilateral financier of infrastructure in Africa, surpassing the African Development Bank, the European Commission, the European Investment Bank, the International Finance Corporation, the World Bank and the Group of eight (G8) countries combined.


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