President William Ruto will this week seek to unlock a five-year freeze on Chinese debt at a summit of African nations in Beijing as China tweaks conditions for lending to the continent.
Dr Ruto, on Sunday, began a week-long visit to the world’s second largest economy, where he will hold bilateral talks with his host, President Xi Jinping, ahead of the three-day Forum on China-Africa Cooperation (Focac). end there.
Kenya will seek assurances on progress on incomplete Chinese-funded infrastructure projects, particularly the extension of the standard gauge railway (SGR) from Naivasha to the border town of Malaba and the Nairobi dual bypass.
The hunt for Chinese offers comes at a time when the flow of loans from Beijing to Africa has changed significantly, with the Asian nation reducing debt and avoiding its previous pet projects like roads, ports and railways.
Beijing is also increasingly concerned about Africa’s debt fragility, which has seen three countries – Ethiopia, Ghana and Zambia – default on foreign debt.
Kenya, which has been the main beneficiary of China’s loans on the continent, finally signed a loan agreement with Beijing in 2019, said a study by Boston University’s Center for Global Development Policy – which runs the China Loans to Africa (CLA) Database project.
At the time, the Export-Import Bank of China committed to provide financing for the Konza Data Center and Smart City Facilities to the tune of $166.7 million (about Sh21.67 billion at a conversion rate of Sh130 per dollar) and the Kenya Power Transmission Expansion Project at the time. cost $83.3 million (Sh10.83 billion).
CLA Database project findings suggest Kenya and Ethiopia are among the top five recipients of Chinese loans on the continent that missed out on new deals with Beijing post-Covid-19 pandemic.
This includes $4.61 billion (Sh599.3 billion) in 13 loan commitments to eight African countries, including Nigeria and Egypt in 2023, the first growth in seven years.
“The sectoral breakdown of 2023 loan commitments suggests that China’s lenders are using the pandemic years to re-evaluate their past lending behavior and have begun implementing new strategies for risk mitigation, as well as targeted lending that addresses strategic goals more efficiently and effectively,” CLA Database researchers wrote in a policy brief ahead of this week’s meeting in Beijing.
“The increase in China’s loans to African financial institutions in 2023 looks unique when compared to previous years’ loans. The five loans combined for $2.59 billion (about Sh336.7 billion), more than half of the total for 2023, were extended to multilateral and national banks in Africa.
Switch strategy
The study, which tracks loans signed between 2000 and 2023, shows that China’s loans provided through multilateral and national lenders on the continent accounted for 5.29 percent of total funds to Africa until 2022.
The tables were turned in 2023 when China’s loans to the financial sector for loans made up 56.18 percent of total financing, signaling a change in Beijing’s lending strategy.
Targeted loans to African financial institutions for the purpose of promoting trade finance and lending to SMEs represent a risk mitigation strategy that requires outsourcing to ‘pick the winners’ to African institutions with a deeper knowledge of the African market,” said the study.
Africa was prominent in the early years of the Belt and Road Initiative (BRI), as China sought to recreate the ancient Silk Road and extend its geopolitical and economic influence through a global infrastructure development push.
China, however, began to turn off the debt tap in 2019, a change accelerated by the pandemic, leaving a series of unfinished projects throughout the region, including the SGR from Naivasha to Malaba that is intended to connect Kenya with its neighbors.
A freeze on new loans to Kenya from 2019 has seen Egypt race ahead of Kenya in the value of loans from China, increasing by three times last year from five times in 2019.
Chinese loans to Egypt grew the fastest at 14.12 percent among Africa’s top recipients, largely supported by $988 million (Sh128.44 billion) to the Central Bank of Egypt (CBE) and $300 million (Sh39 billion) to the National Bank of Egypt (NBE).
The loan stock in Egypt increased to $9.7 billion (Sh1.26 trillion) in 2023 from $8.5 billion (Sh1.1 trillion) in 2019, behind Angola’s $46 million (Sh5.98 trillion) and Ethiopia’s $14.5 billion (Sh1 .89 trillion) .
Loans to Nigeria rose by 11.63 percent post-pandemic to $9.6 billion (Sh1.25 trillion) last year from $8.6 billion (Sh1.1 trillion) in 2019.
Dr Ruto is expected to negotiate loan offers for phases 2B and 2C of the SGR project (between Suswa near Naivasha to Kisumu and to Malaba), the construction of rural roads in Kenya, the Nairobi Intelligent Transport System, the establishment of a pharmaceutical park and the completion of the third phase of equipment upgrades at educational centers and technical and vocational training (TVET).
Last year, the Nigerian government signed $973 million (Sh126.49 billion) for the Lagos-Kano Railway (1400km) and the Kaduna-Kano Section (200km), according to CLA Database, while Angola signed a $249 million (Sh32.37 billion) loan deal for the National Broadband Project.
Chinese lenders – the Export-Import Bank of China and the China Development Bank – also lent $1 billion (Sh130 billion) to Cairo-based African Export-Import Bank (Afreximbank) and Lagos-based Africa Finance Corporation ($300 million). for a loan. to the traders.
“Although trade and SME financing facilities may not promote China’s commercial objectives as effectively as the more common ‘tied’ infrastructure loans that mandate the use of Chinese goods and services, trade financing and SME support facilities address China’s diplomatic and economic objectives.”, reports. was advised.
“They allow China to make promises to promote development and entrepreneurship in Africa, and also allow African businesses to import goods from China.”
