John O. Ifediora.

Zambians woke up on several days in early April, 2021 to the sight of Chinese nationals in Zambian police uniforms in their capital city of Lusaka. The eight Chinese nationals were enlisted as reserve officers in the Zambian police force with powers to detain and arrest. The awkwardness of the optics was not lost on onlookers; first a spectacle of amusement, and then one of anger and outcry as the implications of what was being observed became unambiguous. The country’s Inspector General of Police, Mr. Kakoma Kanganja, in a futile effort to calm frayed nerves, issued a statement that the appointments were legal, and in accord with Zambian constitutional administrative code 117 that prohibited discrimination in hiring on the bases of race. But as the facts and the motives that compelled the enlistment of the eight Chinese nationals became minimally transparent, Mr. Kanganja rescinded the ‘offer’ of employment two days later. The fact that the Chinese nationals had a week earlier donated two vehicles to the police force was now irrelevant and beside the point.

The Zambian affair was predictable, at least to those reasonably informed on the largely untransparent loan and funding agreements between African policy makers and officials in Beijing. The Chinese government and its subsidiaries that oversee funded projects in African countries are adept in executing the various programs that support their primary mission on the African continent. These programs range from disbursement of secured and unsecured loans, assistance in building transportation infrastructures, gas and oil pipelines across countries, and installation of power generating facilities. In the normal run of things, these activities are essential to the development of African economies starved of liquidity, and the requisite expertise to manage and sustain broad-based economic growth. And for this, China should be applauded for extending such opportunities for sustainable development to Africans. The Chinese government and its financial agencies have stepped in to fill the void left when Western multilateral Institutions and their governments, tired of not seeing commensurate economic development to the variety of loan and aid programs deployed in the continent, began a gradual and steady retreat.

Chinese loans to African countries between 2000-2020 totaled $159.9B for 1,188 projects. Some of the major borrowers are Zambia ($10.1B), Nigeria ($7.3B), and Angola ($42.6B); the rest run from several millions to single digit billions. The pattern and loan amount correlate perfectly with type and level of natural resource endowment in the country. Chinese loan and aid model in Africa is simple enough or so it seems, but for all the presumed simplicities that define the loan agreements, one thing is universally ambiguous but at once clear….repayment of the loans is expected, while grants and aid packages would entail in-kind reciprocity, but in what form? Loans from the IMF and the World Bank come with conditionalities that many African governments find overly burdensome. Indeed, some of the conditions for loans obtained from the IMF and the World Bank require direct supervision of how the funds are used, and how much maybe obtained. In point of fact, in the 1960s and early 1970s, much of the loans obtained from Western countries and Japan were secured by the natural resources of the recipient country. This practice, at the urging of the US, Britain and France, is no longer in use. The Chinese, however, have revived its use, and it is one aspect of the loan agreement with China that African governments have obscured from their respective constituencies.

It is the norm for a loan agreement fairly or unfairly executed to be secured by tangible or intangible asserts that provide some guarantee of repayment. Generally, there is nothing the matter with such contractual obligations so long as the contracting parties are fully informed of the requirements of the loans, and all vested parties ascend to it. In the China-to-Africa loan, grant and aid programs, African governments clearly understand what the agreements entail but those whose affairs they purport to represent do not. But for the Zambian episode, this ‘minor’ detail would not have come to light.

The Zambian Affair

Zambia, like other developing African countries similarly situated, is richly endowed with useful and in-demand natural resources such as copper and timber. The Chinese have invested heavily in copper mines, and essential transportation infrastructure for harvesting and transformation of timber into affordable wood ornaments and furniture; the Zambian hospitality sector has also benefited from the influx of investment funds. But these funds are external debts, ostensibly borrowed to sustain domestic productivity. A recent report by the Centre for Trade Policy and Development estimates that one third of Chinese loans are securitized by natural resources, a practice long abandoned by developed Western economies that colonized the continent.

With declines in commodity prices over the years, Zambia, as is the case with other resource-dependent African countries, looked to China as its finances worsened, and bailout talks with the IMF became unproductive. President Lungu’s trip to China to attend the Forum on China-Africa Cooperation held in Beijing in 2021 was indeed an effort to secure new loans for Zambia to be collateralized with Zambian’s national electricity company, Zesco. Such bilateral loan arrangements have fueled the growing concern with the level of indebtedness to China, and the lope-sided nature of the relationship between both countries … impoverished landlocked Zambian economy engaged in a ‘mutually’ beneficial loan negotiations with the second largest economy in the world. The optics is not encouraging, and the tenuous relationship between both countries is now being considered a test case of the broader continental uneasiness with the massive presence of Chinese nationals and businesses in Africa.

The IMF and the World Bank resuscitated the Zambian economy slightly over a decade ago through debt forgiveness. In 2011 its external debt was 15% of GDP; in June of 2018 the debt level had risen to 34.2% of GDP, and is expected to rise to 60% of GDP at the end of 2022. The relatively cheap and easily obtainable loans from China make it difficult for African policy makers to embark on projects that have rational macroeconomic outcomes; predicted dire consequences to Zambia when its Eurobonds became due in 2022 with an initial payment of $750 million are yet to fully unfold. Equally disturbing and just as worrisome is the fact that a Chinese firm, Sinohydro, that built a hydropower plant to supply the national electric grid with an additional 770MW of electricity, had to borrow funds on behalf of the Zambian government from private entities, thus by-passing the country’s treasury with supervisory powers to make the terms of the loans transparent to the public. This ‘unusual’ loan procurement practice further complicate the government’s ability to manage its foreign debts. In July, 2021 the government called for austerity measures as the finance ministry requested additional $666 million to complete outstanding infrastructure projects. China’s Export-Import Bank was formally notified to stand-by, the call from Zambia would come anytime. Meanwhile the IMF was still not picking up calls from Zambia.

*Photo credit: Getty Images.