Covid-19 Challenges: Will China’s Debt Relief to Africa Work?

by Admin (Posted on July 5, 2020February 25, 2021)

By Allawi Ssemanda

As a result of restless calls for debt relief for African countries due to the inevitable economic meltdown brought about by Covid-19, China’s Debt relief plan for Africa is steadily emerging. It is believed that China is Africa’s Largest single – country creditor and therefore had to lead efforts in discussing debt relief for the continent.

Whereas key questions regarding implementation plans remain unclear, arguably, issues raised bellow present a fair overview of the Chinese plan.

Beijing’s Official Frameworks for Debt Relief.

Recently, officials in Chinese government have made two clear commitment regarding the debt relief debate. The first commitment came during the Group of 20 (G-20) where debt service suspension initiative for the heavily indebted or poorest countries was reached after discussion of finance ministers and Central bank governors. It was after this agreement that China’s Foreign Affairs Ministry observed how G-20 including China agreed to suspend repayment of both principal and interest effective May 1^st 2020 until the end of the year, 2020. Under this arrangement, debt service payments owed by the 76 International Development Association (IDA) countries, plus Angola including 40 Sub-Saharan African Countries is suspended.

Beijing’s second commitment came from president Xi Jinping during a virtual event on 18^th May 2020 at opening of the 73^rd World Health Assembly where he promised $2 billion to help developing countries affected by Covid-19. During the event, president Xi committed that; “China will provide $2 billion over two years to help with Covid-19 response and with the economic and development in affected countries, especially developing countries.

A closer analysis of diction in Chinese version is categorical that such donation will be made from the category of International Assistance. Put differently, it will come from China’s Foreign Aid Budget.

It can be argued that because Beijing designated $2 billion to help developing countries respond to Covid-19 and address its effects on social and economic development in affected countries, China leaves an open door for such allocation to be earmarked toward debt relief. With China’s approach towards bilateral economic and social development, conclusion can be made that such assistance will take bilateral approach. This was evident as was affirmed by China’s Foreign Minister, Wang Yi, during a press conference on May 24^th stressing that China will ensure debt relief for African countries in two ways: bilateral approach and the G-20 debt payment suspension Initiative. This was re-emphasized as on June 7^th during the launching of the white paper entitled “Fighting Covid-19: China’s Action” with China’s Foreign Ministry emphasizing

that the $2 billion donation earmarked by China to support African countries will be dispensed through bilateral and multilateral means and will help address challenges such as poverty alleviation, public health and supporting economic recovery.

 

Does G-20 Initiative Cover Concessional Loans?

 

Discussing China’s debt relief for African countries without answering the question of concession loans leaves the discussion incomplete. Despite taking a lion’s share of China’s lending to African countries in the last two decades, as a result of their commercial nature commercial loans are not covered under this initiative.

A review of China-Africa Cooperation (FOCAC) financial commitments confirms this. According to Beijing’s 2006 FOCAC pledges, 50% of this funding is concessional in nature with concessional loans at $3 billion while concessional buyer’s credit was $2 billion. The 2009 FACOC pledges the $10 billion commitment China offered was concessional loan. This was actually 10 times bigger than special loans extended to Africa’s small and mid-sized enterprises. For 2012 FACOC financial pledges concessional loans totalled $20 billion which more than 50%. In 2015 concessional loans and exports buyers’ credit was $35 billion making it to about 60% of the total $60 billion committed. In 2018,there was a great shift with concessional loans dropping. Grants, zero interest loans and concessional loans all added to 25% of the $60 China committed to African countries.

With that background, the G-20 agreement as it is now is arguably inform of a pause or standstill not a cancellation of debts. However, this standstill is meant to help African countries time to be able to stand economically and meet their obligations. Further, observers agree that this kind of standstill will apply to concessional loans. Important to note is that the G-20 agreement again, to a pause or standstill, not a cancellation – as it is as of now is applicable for eight months starting from 1^st May, 2020 till 31^st December, 2020.

It can be argued that with the already devastating economic and health impact Covid-19 pandemic has caused, African countries still need a long debt relief beyond the one negotiated by G-20. This to happen means new negotiations which must look at factors such as resumption of African economies and addressing continued health and economic impact of this pandemic coupled with matching relief efforts by both multilateral creditors and private creditors so as to realise a holistic solution. In other words, the G-20 debt relief frame work which is equivalent to 8 Months suspension of debt repayment period is not long enough. Put differently, broader, bigger and long-term debt relief is not yet on table.

What does President Xi’s Speech mean for African Countries?

On 17^th June, 2020, Africa and China held a much-needed China-Africa Extraordinary Summit. The summit was chaired by China and Senegal (in its capacity as co-host of the Forum on China-Africa Co-operation – FOCA), and South Africa (as the current chair of the African Union). Dr Tedros Adhanom Ghebreyesus, the director-general of the World Health Organization (WHO) also attended.

In his address, president Xi pledged that China will stand shoulder to shoulder with African countries stressing that; “Let me reaffirm China’s commitment to its longstanding friendship with Africa. No matter how the international landscape may evolve, China shall never waver in its determination to pursue greater solidarity and cooperation with Africa.” 

During this summit, Chinese President Xi Jinping promised that China will continue helping African countries with equipments needed to contain the spread of Covid-19. Another great gesture was President Xi’s promise which re-emphasized the point that China will waive some debt from African countries due this year, and also restructure time frames for repayment from some countries. Such promises are not new, indeed, in 2015, 2018 and 2019, China wrote-off debts on a number of African countries

China’s promise to fund Africa’s Centre for Disease Control (CDC) in Ethiopia’s capital Addis Ababa as was announced by African Union Commission in many ways shades light of how Beijing is committed to strengthening China – Africa relationship.

Despite a few unresolved questions on the project; such as time frame of proposed CDC and the site, China’s pronouncement that Beijing is ready to fund the centre is enough to further describe Sino-Africa Relations as one of mutual benefit, respect and presents China as a true and reliable ally.

There is no doubt that the decision by Washington to withdraw financial support for World Health Organization at this critical time makes their work difficult, leaving negative consequences especially on regions like Africa which are arguably not fully self-reliant to singly deal with Covid-19.

---