TIOL - COB( WEB) - 937
SEPTEMBER 12, 2024

By Shailendra Kumar, Founder Editor

THE Chinese President, Mr Xi Jinping, is globally perceived as a ruthless, iron-fisted autocrat but he is also a bundle of deluding skillsets, including the one relating to stratagems of a dream-merchant! Voila, he catapulted the dense smokescreen of daydreaming to such a pedestal that his African counterparts almost ungrudgingly gulped down all his high-octane pledges sans a pinch of salt! Some of these subliminal and hallucination-enriching traits of his were on full display at the triennial shindig at the Forum on China-Africa Cooperation (FOCAC) held in the Great Hall of the People in Tiananmen Square in Beijing last week. Leaders and representatives of as many as 50-odd African countries were present at the three-day talkfest dominated by Mr Jinping who clearly embodies finest genre of economic jugglery and developmental jargons! Indeed, selling hollow hyperboles requires deep understanding of one's audiences' propensity to 'consume' and breathtaking smartness!

The capstone of his speech was the Chinese pledge to loosen its purse to support Africa swooning over the load of heavy debts with funding of nearly USD 51 billion till the next summit. He promised to bankroll more infrastructure projects, and the creation of at least 10 lakh jobs! Further elaborating his pledge, he said that China would bankroll projects in industry, trade and green transition of energy sector - new market for solar modules and EVs. He vowed that China would execute three times more infrastructure projects than in the past! He also announced that China would initiate 30 clean energy projects in Africa. He offered cooperation on nuclear technology and help deal with power deficit that has slowed down industrialisation efforts. Though he, of late, prefers to talk about 'small but beautiful' projects under his signature scheme - Belt and Road Initiative (BRI), but strangely, he was heard singing a different lyric - "China and Africa account for one-third of the world population, and without our modernisation, there will be no global modernisation".

Bizarro! The crafty Chinese President palmed off a solution pill to the debt-laden continent by promising more debts! Africa is already on debt-knife's edge! Secondly, African leaders are acutely aware that the major cause of their debt-stress are mindless investments of costly borrowed funds into mega glitzy infrastructure projects, which not only suffered bouts of corruption but also failed to create jobs and gin up economic growth! So, China once again pledges to bankroll infrastructure projects which have buffeted a large swathe of their revenue receipts, leaving no fund for health and education. For the sinking African economies, China offers emergency rescue loans tethered to servicing of its debts largely owed by it. A modern-day 'Shylock' specialising in practising 'Onion Ring Debt Diplomacy' - Africa has no choice but to go for fresh debts to service old debts provided by China in the past decades. In the coming years, like the layers of onion, another round of debt would be required to meet the obligations of last debt as Mr Jinping did not whisper a word about taking any haircut on the piled-up debts of China. Indeed, China which was the largest creditor for the Global South countries in the past decades, has turned into the world's largest debt collector this year. How?

The countries in the Global South presently owe nearly USD 1.15 trillion to USD 1.5 trillion to China, as per one latest study. About half of these loans, China has sanctioned in the past two decades, have become due but borrowers are financially in deep distress owing to a host of factors like post-pandemic relief measures; Ukraine war perking up commodity prices, rising inflation and subsequent hike in interest rates raising the cost of loans, and eroding value of local currencies against US Dollar coupled with tardy growth. About 78% of Chinese loans are presently nursing countries in financial shambles. As per the study of 165 countries by AidData, over 54% of China's loans doled out for airports, ports, roads, railways and power projects in the past, has become due for repayment and that is killing too many of African countries today. More than 25 African countries are already saddled with excess debt and are at high risk of defaulting, as per the African Development Bank. Since China's own banking sector has run into quicksand with off-balance sheet exposures, it has turned extra cautious to fund new projects, and a major chunk of its loans in the recent past has been only emergency rescue loan to help them stay afloat and repay their debts. From a peak of USD 150 bn in 2016, its loan portfolio diminished to less than USD 100 bn in 2020 and further dipped to USD 79 bn in 2021. Against China's records, the cautious World Bank doled out only USD 72 billion in international development financing commitment in 2021.

So, when Zambia and Ghana inched closer to the brink of default, China joined other lenders in joint talks on debt relief but did not help much as it was not willing to take any haircut. Ironically, China has also been imposing punitive penalties for late repayments. As per various estimates, in the past 23 years, China provided loans worth over USD 182 bn to 49 African countries and seven regional borrowers. Kenya, Egypt, Nigeria, Ethiopia and Angola are its top borrowers. The continent's foreign liability has peaked to USD 1.1 trillion by 2023. For instance, Nigeria's foreign debt is about USD 40 bn and over one-third of its revenue collected goes towards servicing its public debt. Uganda owes USD 12 bn to its foreign creditors. Kenya has external debt worth USD 35 bn. As per data, China accounts for 83% of bilateral borrowing in Nigeria; 73% in Kenya and 72% in Uganda. This does not mean that they have no other creditors. They have private bondholders and multilateral development agencies as well. Since they are on the verge of defaulting and desperately struggling to save their credit rating, they end up issuing costlier bonds. For instance, to meet its debt-servicing obligations, Kenya has recently floated bonds at 10% rate for USD two billion loan which is needed to pay off its Chinese loans due for repayment. Going for expensive bonds means skidding deeper into the debt quagmire! Worse, international data reveals that a good swathe of Africa has recorded zero per capita income growth in the past decade. Debt has done what it does the best - sharp depreciation of value of local currencies, which means sapping of purchasing power for common Africans.

The prevailing state of bad economics is heading to trigger a planet-size catastrophe for the global economy. Let me list out some of the dangerous consequences of the mounting debt-load in the continent. The world has, of late, been witnessing live footage of violent anti-government protests in many parts of Africa. Kenyan Parliament was torched by the protesters when new taxes were imposed. Though the government has raised funds through sovereign bonds to service its foreign debt but it finds itself so suffocatingly cornered to manage its finances that its new finance minister recently said that the Ruto government would go ahead with the new taxes! Clearly, the debt challenge has gone far beyond the waistline and the economic compulsions of African governments are not cutting much mustard with its own people! Predictably, less money means no fresh investments which could create jobs for the fastest-growing young population in the world; diminished capability to deal with pandemics like Mpox and Covid; aspirations of people for education and better health, devastating impact of climate change, and to top it all, forces people to migrate in masses. Worse, less money also sparks ethnic conflicts - killings of women, children and older people in many parts of Africa. Pogrom is a regular dance of Kalashnikov in countries like Nigeria, Sudan, Congo and many more. Africa has huge potential for growth and sustainability but for the crushing debt-burden which is the making of both internal political forces and greedy external lenders like China - the biggest bilateral creditor for the continent. Briefly, debt servicing is not only crowding out development spending but also peace and orderly living in the continent!

In a nutshell, China is in a frenzied-race with India and Indonesia (Jakarta held its African Summit three days prior to Beijing) to emerge as the most caring and reliable leader for the Global South but its debt-subterfuge is not helping Africa at all! The ghost of bone-crushing debt can no longer be kept in the backyard by simply not talking about it! I am pretty sure that China knows its onions but its pro-Africa overtures have crystal-clear come out as a move to bail out its own sinking banking system laden with domestic debts. Africa should not forget what Mr Jinping had promised at the last virtual Dakar summit of FOCAC in 2021 - China would buy African goods worth USD 300 bn. How much is its bilateral trade with Africa as of 2023 - close to USD 250 billion! And China has a trade surplus of USD 64 billion! This sort of trade policy is certainly not going to make tangible geopolitical gains if China is hoping to upend the US-led geopolitical order and the Western dominance of the global forums like the UN. The unflappable Western world needs to butt into the growing African crisis with much more serious countenance before it blows into yet another cannonball for the global economy! The West can no longer pretend not hearing the noise of a 'sinking elephant'! Sacré bleu!