Is the African development agenda in jeopardy as China trims its loans to the continent?

Photo: Reuters (Reuters)

NAIROBI, Kenya - China has become Africa’s leading trading partner, surpassing the European Union and the United States. From 2000 to 2017, China provided $143 billion in loans to African governments and their state-owned enterprises.

These include loans for infrastructural advancement, investment, and trade. However, recently, China’s lending to Africa has gradually declined. The decline has left many pondering how this will affect Africa’s economic growth and relations with China.

Africa-China relations date back to the struggle for independence. However, it was not until the early 2000s that engagements between African and China relations gained momentum. Over the years, China has become Africa’s leading trading partner, surpassing the European Union and the United States. China has invested significantly in Africa’s infrastructure, including railways, roads, airports, and ports. China’s government has also offered loans to African countries for infrastructure projects and other development initiatives.

China’s lending to Africa has grown exponentially over the past decade.

According to data from the China-Africa Research Initiative at Johns Hopkins University show that from 2000 to 2017, China provided $143 billion in loans to African governments and their state-owned enterprises. However, in recent years, China’s lending to Africa has declined, going down 3 and 4 percent in 2018 and 2019, respectively.

Financial experts argue that there are a number of reasons why China’s lending to Africa has declined steadily.

One of the principal reasons is the slowdown in the Chinese economy. China’s economy has grown slower in recent years, with the government becoming more cautious with overseas lending. The Chinese citizenry has also pressured its government to concentrate on domestic issues, including poverty reduction and improving healthcare and education.

Another reason for the decline in lending is the growing debt burden of African countries. Many African countries have borrowed heavily from China to finance their infrastructure projects. However, some of these projects have not generated the expected returns, leaving African countries struggling with debt repayment. This has created a debt crisis in Africa, with China becoming more cautious about lending to African countries.
Moreover, China has become more selective in its lending to Africa. In the past, China offered loans to Africa with a few conditions attached.

However, in recent years, China has become more focused on lending to countries with a good track record of repaying their debts and those with a clear plan for using the loans effectively. China has also sought to invest in projects with high potential for generating returns in recent times.
Reducing China’s lending to Africa has several implications for the continent’s economic future. One of the primary implications is that African countries may have to look for alternative sources of financing for their infrastructure projects and other development initiatives.

African countries may have to turn to other countries, such as the United States, Japan, and European countries, to fill the gap left by China’s reduced lending. However, these countries may not be able to provide the same level of financing as China, which could slow down Africa’s economic development.

Another implication of the decline in China’s lending to Africa is that the countries may have to become more self-reliant and focus on domestic resource mobilization. African governments may have to improve their tax systems and reduce corruption to generate more revenue to finance their development initiatives. This could lead to a more sustainable economic development model for African countries in the long run.

Moreover, Africa could also shift the balance of power between China and African countries. In the past, African countries heavily depended on China for their development initiatives. However, with the reduction in China’s lending, African countries may become more assertive in their relationship with China and demand more favorable terms for loans and investments.

The reduction in China’s lending to Africa could also lead to a slowdown in infrastructure development in Africa. Infrastructure development is critical for Africa’s economic growth, and China has been a major player in this area. With the reduction in China’s lending, African countries may be unable to finance their infrastructure projects, which could slow economic growth and development.

China’s reduced lending to Africa has raised concerns about the future of Africa’s economic development and the related interactions going into the future. The reduction in lending is due to a combination of factors, including the slowdown in the Chinese economy, the growing debt burden of African countries, and China’s increased selectivity in its lending.

The reduced lending has several implications for Africa’s economic future. African countries must find alternative sources of financing, a shift towards domestic resource mobilization, a change in the balance of power between China-Africa relations, and a potential slowdown in infrastructure development. African countries must navigate these changes carefully to ensure sustainable economic growth in the coming years.

GAROWE ONLINE