By Jyhjong Hwang and Oyintarelado Moses
The 2022 update to the Chinese Loans to Africa (CLA) Database, managed by the Boston University Global Development Policy (GDP) Center, recorded 11 new loan commitments worth $1.9 billion from Chinese lenders to African government borrowers in 2020. A new policy brief provides details on these trends and highlights how Chinese lending to Africa has proved significant in the 21st century.
The new loans were signed with the governments of Burkina Faso, Democratic Republic of Congo, Ghana, Lesotho, Madagascar, Mozambique, Rwanda, and Uganda, and the African Export-Import Bank. The Export-Import Bank of China (CHEXIM) provided loans for eight of the 11 projects, followed by the Industrial and Commercial Bank of China (ICBC), Bank of China (BoC), and Dongfang Electric. The ICT sector featured prominently in 2020, while loans to historically flush sectors, such as transport and power, decreased.
From 2000-2020, Chinese financiers signed 1,188 loan commitments worth $160 billion with 49 African governments, their state-owned enterprises, and five African regional banks. Overall, CHEXIM and the China Development Bank (CDB) dominated as the sources of the total amount of lending from 2000-2020, providing 79 percent of loans. Loans to the transport, power, mining, and ICT sectors accounted for 74 percent of total commitments, representing a breadth of support for infrastructure development throughout the region.
Considering that 2020 lending is down 77 percent from 2019 volumes ($1.9 billion vs $8.2 billion), are Chinese loans to Africa drying up for good?
The short answer is no. The 2020 reduction in Chinese loan commitments to Africa is a continuation of a long-term decrease that was exacerbated by the COVID-19 pandemic. COVID-19 likely impacted both African countries’ ability to borrow and China’s willingness to lend.
However, this reduction aligns with dips in Chinese lending fluctuations during times of crisis and exposure to structural risk levels rooted in long-term shifts in domestic policy, fiscal development, and the international market. The decrease is also consistent with pullbacks of Chinese lending in Latin America and the Caribbean during 2020.
Other financing instruments and sources could potentially dominate future types of Chinese capital flows into African countries. These could include foreign direct investment (FDI), Chinese loans directed to African regional banks for on-lending, and loans from Chinese-led multilateral development banks, as indicated by the FOCAC Dakar Action Plan. Financing could also shift to more support for green projects, as new guidance on greening the Belt and Road Initiative (BRI) from China’s National Development and Reform Commission implies.
Future loan commitments to Africa could also be affected by the varying global geopolitical crises currently taking shape. Given that Chinese loan amounts to Africa tend to fluctuate during times of crisis, loan amounts in 2021 and 2022 would face downward pressures from both the continuing effects of the pandemic and the growing impacts of Russia’s war in Ukraine. Widespread lockdowns across major Chinese economic hubs such as Shanghai and Shenzhen in 2022 have created severe socio-economic disruptions and public anxiety.
Chinese foreign financing has been perceived by the Chinese public in the past as diverting resources away from domestic priorities, and rising COVID-19 cases may dampen public support for pouring more loans into Africa when there are perceived needs at home. Meanwhile, Russia’s war in Ukraine will likely continue to impact some countries in Africa via rising costs of food and fuel, thus squeezing domestic budget and income. The effects of borrowing from China might be mixed: mounting economic hardship may spur governments to borrow more from China, but also may increase perceived default risks of African countries that are already heavily indebted.
Chinese loans to Africa hit a record low in 2020. Although financing sources and types may diversify, a rebound in loan commitments would face an uphill battle in the years to come, both from structural reasons years in the making and emerging global events.
Jyhjong Hwang is a Global China Pre-Doctoral Research Fellow at the Boston University Global Development Policy Center, where she leads research for the Chinese Loans to Africa Database for the 2021-2023 research cycles.
Oyintarelado (Tarela) Moses is the Data Analyst and Database Manager for the Global China Initiative at the Boston University Global Development Policy Center.