By Kezia Dickson
Sub-Saharan Africa has greatly relied on the financial assistance from Western democracies to stimulate their economies. However, the economic dependence on the West is changing course as the region leans towards greater economic dependence on the East. This East encapsulates one country: China.
China has been expanding its economic assistance in Sub-Saharan Africa. According to research conducted by the Brookings Institute , from 2005 to 2018, the Chinese invested $299 billion in the region, and President Xi Jinping has promised an additional $60 billion more in financial support. Some of these investments are part of China’s Belt and Roads Initiative, which is a long-term policy and investment program with the goal of infrastructure development and the economic integration of countries that are found along the Silk Road. The PRC has engaged with African countries such as Ethopia, Kenya, and Djibouti in its BRI.
What are the implications of this economic aid? Theoretically speaking, economic assistance would be economically beneficial for the African region. If the infrastructure projects hired local citizens, they could boost regional development. However, these goals haven’t necessarily been realized in practice. For example, Chinese financial institutions such as the Chinese Exim Bank and Chinese Development Bank provided funding to Ethiopia and Djibouti to develop a railway line. The initial project failed and has put Ethiopia and Djibouti in a financial disaster for the inability to repay back the loan.
The COVID-19 pandemic has only exacerbated the issue. Sub-Saharan Africa is currently in its first recession in 25 years. According to the World Bank, “COVID-19 will cost the region between $37 billion and $79 billion in output losses for 2020.” As part of a larger effort to help poorer countries deal with the impact of Covid-19, the World Bank and International Monetary Fund endorsed the Debt Service Suspension Initiative (DSSI). China is a participating country in this initiative. However, the Chinese have been reprimanded by other countries for not going far enough in reducing the debt. Many African countries received loans from the Chinese Development Bank for infrastructure projects. The Chinese did not include the China Development Bank as part of the DSSI since it is a commercial bank. Therefore, many countries are expected to default on their loans. Countries such as Gabon, Mozambique, Republic of Congo, and Zambia are in the “C” range, countries within this range on average default after seven months from being given this rating.
If countries at the risk of defaulting are not able to re-negotiate favorable terms for their loans, this could have dire consequences on their economies. Therefore, the Chinese government would need to become receptive to negotiating new terms for loans that came from the China Development Bank. China’s relationships with their African partners is of great importance. These peaceful relationships will continue to lie in the balance if China does not take the necessary steps to ease the debt of their African partners.