- In recent years, China’s lending to Africa has declined, going down 3 and 4 per cent in 2018 and 2019, respectively.
- Over the years, 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.
Since the turn of the century, China has become a significant player in Africa’s economic growth. A series of interests have inspired China’s presence in Africa. 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. That said, it is crucial to understand the reasons behind China’s reduced lending to Africa and the implications for Africa’s economic future.
The Africa-China relations
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. 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 per cent in 2018 and 2019, respectively.
Why China’s lending to Africa has declined
There are several 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.
Kenya affected by reducing China’s lending to Africa
Kenya is among the nations affected by China’s new stance on lending to Africa. China’s loans for President William Ruto’s first full-year budget will be the lowest in 16 years as Beijing pursues a more cautious approach to lending in Africa, where several governments have reached the limit of their borrowing capacity and the risk of default looms.
According to Treasury documents made public, Chinese support for the fiscal year starting in July would decline to $12.7 million from $216.5 million in the current fiscal year and $522.5 million in 2017. Since 2015, China has become Kenya’s biggest bilateral creditor. The country has received significant funding for the development of vital infrastructure, such as roads and a modern railway.
China built the Thika Super Highway during the late Mwai Kibaki government. The Asian economy also built the standard gauge railway (SGR) under President Uhuru Kenyatta. However, China has not approved any new infrastructure investment for Kenya in recent years.
Interestingly, President Ruto’s government has vowed to cut its rate of borrowing since assuming office in September 2022. Foreign loans committed for the next budget have been reduced to $2.3 billion from the present $2.4 billion. Public debt surged during the leadership of Dr. Ruto’s predecessor, Mr. Kenyatta, who led a huge infrastructure-building effort.
Kenya’s debt more than quadrupled to $63.6 billion under Mr. Kenyatta’s 10-year administration, which started in 2013. The IMF believes that the country’s high risk of debt distress was driven by an increase in liabilities.
Kenya has said that it cannot ignore its obligation to repay debt. In 2020, the IMF categorized over 20 African countries, including Kenya, as being in or very vulnerable to debt distress. Lenders, notably China Eximbank and China Development Bank, have reacted by enforcing more rigorous lending standards.
Implications for Africa’s Economic Future
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 favourable 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-African relations, and a potential slowdown in infrastructure development. African countries must navigate these changes carefully to ensure sustainable economic growth in the coming years.