 "debt")
African countries feel that they have been trapped in Beijing's debt circle after China showed reluctance in lending financial support to them and diplomatic analysts described this move as a disturbing trend, Federico Giuliani writes in Inside Over.
Charles Robertson, the global chief economist at Renaissance Capital Ltd, clarified that China's scaling back would slow growth in the region and "can't be welcomed by most debt investors."
This new development is seen in the context of the worsening growth rate in the African region as the World Bank recently reviewed the economic growth outlook for Sub-Saharan Africa (SSA) to 3.3 per cent in 2022 from the initial projection of 3.6 per cent in April, due to the slowdown in global growth and the ongoing crisis between Russia and Ukraine.
According to the author citing Robertson, in the early years of China starting its lending process, Africa was just 25 per cent of countries at high risk of debt distress and now it has grown to 60 per cent.
It may be noted that German insurer Allianz and its credit insurance subsidiary Euler Hermes disclosed disturbing findings in November 2020. Over the coming decade, China may no longer be able to provide Africa with the same amount of funding, taking the form of loans, investment, and trade, as in the past. China has a heavy debt burden, stated Hermes. According to its 2020 report, the country's share of overall debt owed to G20 countries increased from 45 per cent in 2013 to 63 per cent at the end of 2019. China has made significant investments in foreign countries to secure supply and promote its exports. What's more, the country buys half of the world's raw materials, reported Inside Over.
The authors of the report indicated that they "expect China to slow its international engagement over the next few years". They argued that besides the trade war with the United States, two reasons are behind this shift.
First, the Chinese Communist Party's decision, driven by President Xi Jinping, to change the country's growth model to what it calls a "dual circulation" strategy. The idea is to prioritize its domestic market in order to reduce the country's reliance on imports while maintaining its export market shares. This refocusing is expected to help reduce cash outflows. Second, the Chinese economic machine is set to continue to experience a systemic slowdown and see its pace of growth diminish from the 7 per cent observed each year in the 2010s to somewhere in the range of 3.8 per cent and 4.9 per cent each year over the coming decade. This shift will further strain China's overseas lending and investment activities.
According to the report, this disengagement would adversely affect low and middle-income countries in particular. For instance, China has incurred significant losses on the loans it granted to multiple countries. It has become clear that several countries - mainly in Africa, including Angola, Ethiopia, the Republic of Congo, and Zambia - are no longer in a position to repay the debt they owe China. Sri Lanka which faces the worst economic crisis has started restructuring talks with China now.
Nigeria's external debt owed to China accounts for 83.57 per cent of its total bilateral debt as of June 30, 2022, totaling 3.9 billion US dollars, a 12.7 per cent increase from 3.5 billion US dollars in the same period last year, according to data from the Debt Management Office (DMO).
From 2000 to 2020, the top 10 African government recipients of Chinese loans were Angola, Ethiopia, Zambia, Kenya, Egypt, Nigeria, Cameroon, South Africa, the Republic of Congo, and Ghana, according to data from the Boston University Global Development Policy Centre. Analysts accused China of ruining the lives of millions of Africans who depended on China for the infrastructural and overall development of their countries, according to Inside Over.
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