With Ethiopia and Zambia, Chinese loans are more about the receiving countries than China itself

Oreoluwa Runsewe
20% Complete
 11-Sep-2018

Amidst the commotion caused by the China-Africa summit last week in Beijing, news filtered that China was taking over Zambia’s state electricity company, Zesco. This was after it was alleged to have already completed a takeover of its state broadcasting stations. Though Zambia’s Minister for Energy Mathews Nkuwa debunked the reports, the initial uproar caused by the news seemed to imply that Africans were really waiting for who will be the first victim of China’s much acclaimed ‘debt trap’ on the continent.

 

However, within the same period, in the horn of Europe, the largest economy by GDP in East Africa, Ethiopia had its China loan payment extended by a period of 30 years. Ethiopia’s Prime Minister Abiy Ahmed told this to Ethiopian journalists in the capital Addis Ababa soon after his return from the summit in Beijing.

Read more: China to Restructure Some Ethiopia’s Loans

 

The extension of the loan, which allowed Ethiopia to build Africa’s first modern electrified railway line, seems to imply that China is trying to prove that it indeed believes in the potential of African economies, and is willing to invest in it. Some of the loans also allowed Ethiopia construct new roads in the capital, and upgrade its electric grid system.

 

The electrified railway line, which was completed in 2016, runs from Ethiopia to Djibouti, almost 800 km long, and will play an important role for economic development in the country in the near future.

 

Ethiopia is a landlocked country, and hence, relies on ports in Somaliland, Djibouti, Kenya, and until recently, Eritrea for maritime trade. 95 percent of Ethiopia’s trade pass through Djibouti’s port, which is also a major access to East Africa for many countries. Prime Minister Abiy Ahmed secured a stake for Ethiopia on Djibouti’s port shortly after he was appointed Prime Minister this year.

 

Ethiopia had a GDP of $72.37 billion in 2016, with a GDP per Capita of 802, a 6.3 percent increase from 2015, making it the fourth fastest growing economy in the world. It also has a population of more than 80 million people, making it the second largest population in Africa, and with its GDP per capita, a good market for investors. Ethiopia’s Debt to GDP ratio in 2017 was 33.5 percent, relatively low for a country whose economy is growing steadily.

 

On the other hand is Zambia, who experts warn might actually be the first victim of the vaunted ‘debt trap.’ Zambia currently has a debt of $20 billion, with $8 billion owed to China alone. To put this into context, its GDP is roughly $21 billion, meaning its debt to GDP ratio is almost 100 percent. That is a high ratio for a developing country in Africa and exemplifies the absolute absurdity of the borrowing from Zambia’s government.

 

Already, China actually has a 60 percent stake in one of Zambia’s state-run media stations TopStar, as part of a deal to repay a $273 million borrowed to fund the Topstar project. According to the Voice of America, “The Chinese firm Star Times owns 60 percent of TopStar, and ZNBC, a Zambian state broadcaster, owns 40 percent. The company is overseeing the distribution of some 1.25 million set-top boxes throughout the country while generating revenue to repay a $273 million Chinese loan for the project.”

 

Hence, it is harder to defend the stance of Zambia’s Minister of Energy about Zesco, when the other part of its assertion has been found to be false. Analysts say Zambia could actually find it difficult to pay its debts, with many of these projects actually being ‘Vanity Projects’ to salve the fragile egos of African leaders that are part of a bigger power dynasty in the country. For Zambia, it is its President Edgar Lungu, and his cronies who have been accused of corruption, with claims the corruption in his administration have reached a ‘satanic level’. Human Rights groups in Zambia say his administration has been subjected to more corruption charges than any other administration in Zambia’s history.

It is clear to see why it is indeed a debt-trap for many African countries, while it is an opportunity for others to close a gap on development; the caliber of leaders they have.

Read more: Beware; It’s Another Scramble for Africa

Hence, while we write about how China influence in Africa could be neocolonialist, which it probably is, we should also note that it is business for them, and they can’t ‘rule’ if African countries procure loans wisely without incurring excess debt.


Leave a Comment

Copyright 2017. All Right Reserved. PRIVACY POLICY

Powered by APRECON