Yes to Masks, No to Debt Relief

Economic relations between African states and China are marked by increasing interdependence—which Western actors not only eye suspiciously but sometimes exaggeratedly refer to as “neo-colonialism”. Nearly one fifth of all imports to the African continent now come from China—compared with 3 percent at the beginning of the millennium. Two-thirds of all African states name China as the largest source of their goods; numerous raw materials and products are exported from Africa to the People’s Republic. When Chinese production and thus demand is reduced, it is immediately noticeable on the African continent.[1] China is now not only the “factory of the world” but also the “locomotive of the global economy”, responsible for almost 30 percent of global economic growth in recent years.

In 2007/8, the Chinese government provided the global economy with a massive stimulus package. As a result, the economy of the People’s Republic in particular was able to recover quickly and returned to high growth rates in 2009 already. Public investment in the Chinese infrastructure sector helped “a number of resource-rich countries to avoid the economic downturn.”[2] But this time, the Chinese government seems to have become more cautious. In March, the Financial Times headlined: “China lacks the appetite to save the world economy, analysts warn.”[3]

Even before the outbreak of the virus, the Chinese economy was in increasing difficulties—partly due to the overcapacity in production caused by the last high stimulus packages and the enormous public and private debt. In light of the COVID-19 pandemic, the forecast for GDP growth in China in 2020 has been reduced from 6 to 2.1 percent.[4] However, in times when the global economy is in the “worst recession since the Great Depression”,[5] this still counts as quite high. The International Monetary Fund (IMF), for example, assumes that sub-Saharan Africa’s economies will contract by almost 3.2 percent this year—thus actually doing well in comparison to the EU and the USA. The Chinese newspaper Global Times recently wrote: “China is expected to be the only major economy to achieve growth this year. As a responsible large economy, China will carry forward the spirit of internationalism to help African and other developing countries to shake off the impact of the virus.”[6] The commentary stands in the context of renewed accusations against China as an irresponsible creditor: “The old scheme of the Western world cooking up the ‘debt trap’ issue has been one of the topics that anti-China forces used to insult China for political gain.”

High National Debt Slows Down Necessary Investments

It is estimated that China is now responsible for almost one fifth of the total debt of African national budgets.[7] The lending practice is repeatedly criticised, especially by Western actors, for having low environmental, social, and human rights standards, or overburdening national budgets. Even before the outbreak of the pandemic, many states were in payment difficulties, as a World Bank report from 2019 shows.[8] 2010 marked the beginning of “the largest, fastest, and broadest increase in the debt of emerging and developing countries in the last 50 years.”[9] 

In face of the crisis, many countries are currently borrowing billions to stimulate the economy and at the same time invest in health systems. But not all countries have the same opportunities to do so: while the German Federal Republic is seen as a safe investment haven and thus could in the meantime take up a credit with an interest rate of –0.47 percent (i.e. effectively being given money as a gift), interest rates for low- and middle-income countries have risen by an average of 3.5 percentage points from mid-February to mid-March alone.[10] But the loans that are now so urgently needed are not only disproportionately more expansive for many states—a large part of the newly borrowed money flows back into debt servicing immediately. In 2019, 64 low-income countries worldwide were spending more money on debt repayment than on their public health systems. More than 30 of these states are located on the African continent.[11]

 Thus, calls for a debt cut are growing louder and louder. In late March, Ethiopian Prime Minister Abiy Ahmed wrote in the Financial Times: “Health is a worldwide public good. It requires global action guided by a sense of global solidarity.” Therefore, “the issue of resolving Africa’s debt burden also needs to be put back on the table as a matter of urgency.”.[12] However, the International Monetary Fund (IMF), the World Bank, and the G20 states lagged far behind the demands for emergency aid and debt relief, which the government representatives of the 55 states of the African Union had endorsed. In mid-April, the G20 announced a debt moratorium for 73 countries worldwide that receive international development aid (the Debt Service Suspension Initiative, or DSSI). The repayment of bilateral loans to the G20 states was to be suspended until at least the end of 2020 and the subsequent repayment period extended. In spring already, commentators pointed out that today’s debt moratorium was nothing more than the debt crisis of tomorrow.

This is already proving to be true. In October, the DSSI was extended by half a year —the poorer states will therefore “only” have to start with repayment in June 2021. However, the six-month postponement does not provide the necessary fiscal leeway —but postpones the problem in the truest sense of the word. At the same time, the discussion about the DSSI is revealing existing conflicts surrounding international debt management. David Malpass, the World Bank president appointed by Donald Trump, had complained that the China Development Bank (CDB) was not participating in the DSSI. The Chinese government, on the other hand, pointed out that the CDB, due to its lending practice, should be classified as a commercial rather than a bilateral creditor —and in turn called on the World Bank to participate in the DSSI. The World Bank itself rejects participation on the grounds that poorer states must repay loans to the World Bank so that the latter can again grant new loans. The political scientist Deborah Brautigam also classifies Malpass’s statements as a “red herring” —not least because CDB is not a significant creditor for African states, with the exception of Angola.[13]

But the fact that so much attention is once again being placed on China in connection with the demands for a debt cut for African states is the result of a discourse that exaggerates the Chinese government as an actor on the African continent. Only a few states, among them Angola, Djibouti and Zambia, owe significant parts of their debt to China. Political scientist Yun Sun commented in spring: “Why should China carry the—quite substantial—financial loss alone? Indeed, Beijing points out that China is, in fact, not the largest creditor given that the multilateral financial institutions and the private sector own 35 and 32 percent, respectively, of Africa’s debt. (...) China is more likely to participate in collective debt forgiveness with multilateral institutions and other lenders, instead of chartering its own course unilaterally.”[14]

In fact, China makes the largest contribution to the DSSI from any single state. But bilateral loans account for only one-fifth of the total debt of the 73 poor countries to which it is directed. The bulk of the debt is owned by multilateral actors such as the World Bank, private banks and bondholders. Whether and to what extent the G20 states, among others, will succeed in bringing these private actors to the table is unclear. For Zambia, the current negotiations on this matter are already too late. With reference to the effects of the pandemic, the state stopped servicing part of its debt in mid-October and has since been classified as insolvent. The Zambian government's request for a six-month grace period was rejected by the holders of the 3 billion dollars’ worth of Eurobonds —among other things on the grounds that there was no transparency regarding the scope and possible restructuring of the loans from China. China, on the other hand, does not want to grant debt relief that would effectively be used to service the Eurobond debt. The South China Morning Post summarized the situation: “Both Chinese and commercial creditors are concerned that other lenders will benefit if they themselves grant debt relief.”[15]

Economically Restrained, Yet Pushing Forward Diplomatically

The lack of cooperation between various actors and the resulting difficulties in global crisis management also manifested itself in another area. The dispute over the role of the World Health Organization (WHO), which even led to a stop on contributions from the United States, was an example of the increase in tensions between major powers, as the International Crisis Group attested in spring this year[16] At the same time, the International Crisis Group attests to an increase in tensions between the major powers, which complicates cooperation in global crisis management. Meanwhile, doubts about the Chinese government’s information policy were growing louder not only in the US, but worldwide. The Chinese government’s reputation has declined in many industrialized countries.[17] China is trying to limit the damage —among other things with the sometimes laughed at “mask diplomacy”.

Expressions such as “win-win cooperation” and “all-weather-friendship” have shaped China’s diplomatic rhetoric towards African states for decades. The Chinese Ministry of Foreign Affairs continuously presents reports on Twitter documenting the dispatch of medical aid, the departure of Chinese experts to other states or the holding of workshops on virus control. On 10 April the Chinese Foreign Ministry announced: “China is helping the world to the best of its ability. Supplies have been or are provided to 127 countries & 4 intl orgs. We donated $20mln to WHO, sent 13 expert teams & held 70 video conferences. Local govts, companies also donated to over 100 countries & regions.” The message is always the same: “Together, Stronger”, “United We Shall Overcome” or “Solidarity stands as the key to our victory against the COVID-19.”

On the twentieth anniversary of the Forum on China-Africa Cooperation (FOCAC), Chinese Foreign Minister Wang Yi said in November: “I would like to reaffirm China’s firm commitment to making its vaccines a global public good. When the development of the vaccines is completed and they are available for use, China will actively consider providing them to African countries in need to help secure an early victory against the virus.”[18] The Chinese government depicts itself as a hegemon that looks after the international community—and tries to let the idea of a “Health Silk Road” flourish.[19] While the US would try to bring the world back to “Cold War confrontation and conflict”, China would create “public goods”. The Silk Road proposed by President Xi Jinping has become “the world’s most popular public good and the largest cooperation platform” according to Foreign Minister Wang Yi in the fall of 2020.[20]

It is still unclear whether the relationship between the great powers will improve significantly again under the presidency of Joseph Biden. It is foreseeable, however, that as was already the case during the Cold War, part of the conflict will be fought on the African continent —albeit so far only on a symbolic and economic level.

Political, Economic and Financial Sovereignty for Africa

African states are being courted diplomatically and with “health offensives” from various sides. Instead of becoming the plaything of interests, however, the potential for new choices for African governments also arises: intensifying South-South cooperation in particular increases the political power to act vis-à-vis Western actors. In order to avoid new dependencies, the negotiating power vis-à-vis China must be strengthened and self-confidently act on eye-level basis. Ethiopia is a model for this, as political scientist Stephen Chan recently commented.[21] Among other things, the East African country succeeded in extending a repayment period from ten to 30 years for a loan that Ethiopia had taken out for the construction of its railroad line between Addis and Djibouti.

Economist Hannah Ryder also thinks that African governments should “compare notes” when conducting negotiations with China. Ryder points to the massive investment gap that exists on the African continent, particularly regarding infrastructure. In this context, the problem is not the high debt of African states, but “a fundamental mismatch between the finance that African countries need to grow and the loans they can afford. International debt markets, as currently shaped, exclude and penalise the poorest countries that need them most.”[22] Long-term solutions must finally be sought —if not now, then when?

This question now reappears frequently. As producers of raw materials that are processed elsewhere in the world, African countries are particularly hard hit by reduced production. The interruption of global value chains by the pandemic could also provide an opportunity for more regionalization in production and corresponding diversification on the ground. The Tanzanian ambassador to China recently addressed the extremely unequal balance of trade between African states and the People’s Republic of China.[23] What is needed is a consistent turning away from the previous economic structures that cement inequality. This implies not only, but also a cut in debt—for the high level of debt of African states is directly related to their political independence, for which they had to pay dearly not least to the former colonial powers. At the same time, around 100 African intellectuals have called for the strengthening pan-Africanism and making context-based, people-oriented policies: “The dearth of political will and the extractive practices of external actors can no longer be used as excuse for inaction. We no longer have a choice: we need a radical change in direction. Now is the time!”[24]

[1] Olander, Eric: Coronavirus: Africa Braces for the Economic Impact of China Slump, The Africa Report, 28.2.2020

[2] Wong, Christine: The Fiscal Stimulus Programme and Public Governance Issues in China, in: OECD Journal on Budgeting, 3/2011

[3] Kynge, James: China Lacks the Appetite to Save the World Economy, Analysts Warn, Financial Times, 17.3.2020

[4] Yao, Kevin: China's economic growth seen hitting 44-year low in 2020, bounce 8.4% in 2021 - Reuters poll, Reuters, 27.10.2020

[5] Gopinath, Gita: The Great Lockdown. Worst Economic Downturn Since the Great Depression, International Monetary Fund Blog, 14.4.2020

[6] Global Times: Discrediting China-Africa cooperation won’t succeed.

[7] Brautigam, Deborah, Chinese Debt Relief. Fact and Fiction, The Diplomat, 15.4.2020; Kimberley, Neal: Coronavirus Debt Relief. Why Making China Pay For Covid-19 Won’t Help Africa, South China Morning Post, 29.4.2020

[8] Kose, M. Ayhan/Nagle, Peter/Ohnsorge, Franziska/Sugawara, Naotaka: Global Waves of Debt. Causes and Consequences, International Bank for Reconstruction and Development / The World Bank, 2020

[9] Ibid, p. 111.

[10] Eliott, Larry: Urgent Call to Head Off New Debt Crisis in Developing World, The Guardian, 22.3.2020

[11] In 2019, the Zambian government invested 8.8 percent of government revenues in the health sector—and had to spend nearly three times that amount on debt service. In Ghana, 28.3 percent of government revenues went to debt service in the same year, and in Angola as much as 42.6 percent. This compares with 10.8 percent and 6.4 percent respectively for the health sector, The Guardian, 22.3.2020

[12] Ahmed, Abiy: If Covid-19 Is not Beaten in Africa It Will Return to Haunt Us All, Financial Times, 25.3.2020

[13] Brautigam, Deborah: China, the World Bank, and African Debt: A War of Words, The Diplomat, 22.8.2020

[14] Sun, Yun: China and Africa’s Debt. Yes to Relief, No to Blanket Forgiveness, Brookings, 20.4.2020

[15] Nyabiage, Jevans: Stand-off with Chinese and private creditors threatens to deepen Zambian debt crisis, South China Morning Post, 25.10.2020

[16] International Crisis Group: Covid-19 and Conflict. Seven Trends to Watch, 24.3.2020, https://www.crisisgroup.org/global/sb4-covid-19-and-conflict-seven-trends-watch.

[17] Spross, Hans: Chinas Ansehen in Industrieländern stark gesunken, Deutsche Welle, 6.10.2020

[18] Ministry of Foreign Affairs of the People’s Republic of China: Build on Twenty Years of Prooud Achievements and Open Up a New Chapter in China-Africa Relations, 12.11.2020

[19] Lancaster, Kirk/Rubin, Michael/Rapp-Hooper, Mira: Mapping China’s Health Silk Road, Council on Foreign Relations, 10.4.2020

[20] Ministry of Foreign Affairs of the People’s Republic of China: Upholding Multilateralism and Moving in the Right Direction of Human Progress. Keynote Speech by State Councilor and Foreign Minister Wang Yi at the International Seminar on the 75th Anniversary of the United Nations, 1.09.2020

[21] Nyabiage, Jevans: After 20 years, there’s more than mere economic exchange in China’s trade relationship with Africa, South China Morning Post, 18.10.2020

[22] Ryder, Hannah: African debt isn’t the problem —the global financial system is, African Business, 15.11.2020

[23] Rahim Lema, Abdou, and Samu Ngwenya: COVID-19 Spells Trouble for China in East Africa, The Diplomat, 16.10.2020

[24] Open Letter from African Intellectuals to Leaders over Covid-19, Aljazeera, 17.4.2020