China’s ‘Plan B’ for African debt

Analysts fear move will accumulate more debt for African countries

Kampala, Uganda | RONALD MUSOKE | Africa could further sink into more debt if China goes ahead with plans to sell the continent’s debt to investors, starting next year, observers fear.

Hong Kong Mortgage Corporation (HKMC), a leading Chinese banking conglomerate, reports indicate, is negotiating with the Chinese government to buy and repackage an assortment of African infrastructure debt into securities, which will then be sold to investors.

Apparently, the move is aimed at “allowing the Chinese government to generate more money it can loan out to finance more infrastructure projects on the continent.”

The arrangement, still being formulated, could see more than 90 firms including project developers or operators, commercial and investment banks, amongst others from Hong Kong, mainland China and overseas joining as partners to buy Africa’s infrastructure debt.

“This initiative we believe will help recycle commercial banks’ capital to be redeployed into other Greenfield infrastructure projects, besides enabling wider capital markets participation in infrastructure development under the Road and Belt initiative,” HKMC Greater China chief executive, Helen Wong, said recently.

“I am happy that the HKMC is now considering a new line of business of buying infrastructure loans for the purpose of securitization,” Wong said, “This is because new capital standards for banks do not make it attractive for them to hold onto loans on a long term basis, even though the projects at the brownfield stage are operating smoothly.”

But observers of the China-Africa engagement say that while for Chinese financiers, this development offers several opportunities to make more money from the continent, this approach could also prove to be a “poisoned chalice” as it could push African countries into more debt.

China has over the last decade become the single largest bilateral financier of infrastructure in Africa surpassing the African Development Bank (ADB), the European Commission, the European Investment Bank, the International Finance Corporation, the World Bank and the G8 countries combined.

News of fanciful superhighways and suspended bridges being launched, huge hydro electric power dams and even new cities sprouting out in countries like Senegal and Angola is not uncommon these days, thanks to hassle-free looking loans from Beijing.

Choking on Chinese debt

There is no official Chinese data on loans to African countries but, according to latest data from the China-Africa Research Initiative at Johns Hopkins University which has been collecting, cleaning and analyzing data on African loans since 2007, the Chinese government, banks and contractors have extended US$ 143 billion in loans to African governments over the period.  Angola tops the list having received US$ 42.8 billion.

The East African countries are not far off behind. They are said to owe China a combined US $29.42 billion as at April, 2018, in infrastructure loans with Ethiopia leading the region with US$ 13.73 billion debt to Beijing, followed by Kenya at US$ 9.8 billion while Uganda owes US$2.96 billion and Tanzania (US$ 2.34 billion).  Rwanda, Burundi and South Sudan owe US$289 million, US$99 million and US$182 million, respectively.

The Johns-Hopkins University research project notes that Ethiopia has invested the bulk of its funds in the transport sector (US$ 4.37 billion), which was used for both the Addis Ababa light railway project and the Addis-Djibouti 700km railway followed by communication at US$3.16 billion and power projects at US$2.54 billion while close to US$ 2.02 billion has gone into kick-starting its special industrial zones.

The Kenyan government, on the other hand, has taken a US 597 million loan for power projects, including the US$135 million for the 55MW solar power plant in the northern town of Garissa. While South Sudan has received US$ 158 million for its transport sector to date, and a further US$ 24 million for its energy projects.

Uganda’s energy sector, on the other hand, has received the highest funding from Beijing, at US$1.92 billion, while its transport sector has absorbed US$ 762 million.  The Export-Import Bank of China has funded the US$1.4 billion Karuma and provided another US$483 million for Isimba—two hydroelectric power dams on River Nile, which are currently under construction.