China loans: Southern Africa unfazed by prophets of doom

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By Magreth Nunuhe

Windhoek – The ongoing criticism, suspicion and fear of China’s influence and grip on Africa that might send the continent into a wave of financial dependency seems to have made no dent on the position of the majority of Southern African states that continue to increase their bilateral, economic and diplomatic ties with the eastern nation.

 The latest historic meeting of African leaders with the Chinese president Xi Jinping  in Beijing on 3-4 September 2018, where the latter pledged US$60 billion to Africa at the Forum for Africa-China Cooperation (FOCAC), is a case in point that has more critics choked over the debt that Africa is fast accumulating running into billions of dollars.

 While Africa needs the cash desperately to build its infrastructure, such as roads, ports bridges, telecommunication networks, power plants and railways to better connect with the rest of the world, there is anxiety that the continent could dig itself a deeper hole and will not be able to pay back the debt, compromising their national sovereignty.

But Namibia’s President Hage Geingob, who was among the leaders who attended the FOCAC, said that during the last 29 years since Namibia got its independence, the country has borrowed carefully and that anybody that was coming to Namibia to do business would do so “at our terms”.

“If someone is coming to Namibia, they are dealing with a sovereign state,” he added, saying that the country was borrowing for projects that can be seen.

“We want to create jobs. We have to kick-start somewhere,” he said.

Namibia intends to borrow R10 billion from China over a five-year period, just on the heels of another R10 billion loan it received from the African Development Bank (AfDB) this year in May to bridge its deficit. 

The Minister of Finance, Calle Schlettwein who was also part of the delegation to China, backed the President saying that the Chinese loans were much cheaper compared to other debt instruments and with the increase in debt exposure “we will have the ability to pay back”.

He said currently Namibia pays for domestic debt at a cost 7.7%, bonds at a cost of 9%, while Eurobond at a cost of 9%.

But the Chinese concessional loans come at an interest rate of 2% and 0.25% commitment fees on undisbursed balance of the loan, five years grace period before repayment of principal starts and a 15-year repayment period.

According to Schlettwein, the Namibian government has benefitted from China in the form of loans and grants to date to the tune of R2 billion, which is 2.6% of total debt and 7.9% of the foreign debt.

This is made up of a R302 million interest-free loan and R1.69 billion in concessional loans.

The Finance Minister said that the purpose of the R10 billion loan is to boost capital expenditure, but nothing has been signed so far as projects need to be agreed bilaterally.

“We had the bilateral meeting with China and we indicated projects that we believe are good – one is to upgrade the airport, the Chinese also want to go into PPP on the investment side,” he added.

“We are happy that the Chinese do not want to interfere in our processes,” he said, arguing that with China being the second largest economy and Namibia exporting more to China, not cooperating with that country would be a missed opportunity.

Schlettwein said that Namibia was the second most diversified economy in SADC and with the loan, a whole basket of activities would diversify the economy in order to make use of the intra-African trade regime.

The Finance Minister previously also defended the eastern nation’s financial relationship with Namibia, saying that China’s dominance is not reflected in government operations, nor do the Chinese dominate ownership of mining activities, wholesale and retail trade, financial intermediation and tertiary sectors.

According to Schlettwein, an amount of R1.99 billion, which was sourced from the China Export Import Bank-funded projects for the National Youth Centre, the 60 kilometre Omakange-Ruacana road in northern Namibia, the 90 kilometre Engela-Outapi road in northern Namibia, scanners at all border posts, an Electronic Documents Recording Management System (EDRMS) with the Office of the Prime Minister and TransNamib locomotives.

There have been ongoing debates on China’s presence and anti-Chinese sentiments have been meted out against the global giant’s influence especially in manufacturing, infrastructure and road construction.

China’s presence in Namibia has not been without controversy, as there have been accusations of bribery of Namibian government officials for major development tenders, allegations that the Chinese are contravening Namibian labour laws and importing Chinese nationals for jobs that Namibians can do.

The availing of R10 billion to Namibia has critics predicting more controversies and underhand dealings.

However, Namibia’s president was quick to defend that saying his open-door policy on the dealings with China would minimise corruption.

“Instead of speculating, let’s account for every cent,” said Geingob.

China’s cumulative loans to Africa since 2000 stood at US$124 billion by 2016, according to figures compiled by the China-Africa Research Initiative (CARI) at Johns Hopkins University School of Advanced International Studies in the United States.

Among some of the major Chinese initiatives is the One Belt One Road project, which saw close to 70 countries and international organisations take up major infrastructure projects funded by China.

Many Southern African countries have been building infrastructure with Chinese loans with South Africa, China’s biggest trade partner, having landed a US$14.7 billion loan to rehabilitate its energy utility Eskom and its rail, port and pipelines.

Angola is said to have accumulated loans well over R60 billion since 1983 with the latest figure standing at US$21.2 billion in oil-related loans since 2000.

In December 2017, the Herald reported that the Asian giant extended a US$153 million loan to Zimbabwe for the upgrade of the Robert Gabriel Mugabe International Airport and two grants for the construction of the New Parliament Building in Mount Hampden, including the High-Performance Computing Centre being constructed at the University of Zimbabwe, taking the total to US$213 million.

Six months ago, China Exim Bank extended a US$30 million concessional loan to Lesotho for a communications project with a five-year grace period. 

Botswana’s President Mokgweetsi Masisi is reportedly seeking a 12 billion pula (US$1.09 billion) loan for transport infrastructure, while the eastern nation is seemingly also going to cancel a debt of 80 million pula.

Zambia has reportedly defaulted on loan repayment to China to the extent that a possible takeover of the country’s national power utility, Zambia Electricity Supply Corporation (ZESCO) is imminent.

The Kingdom of eSwatini is the only country in Southern Africa and perhaps all of Africa, which has declined to take any loans from the Chinese.

 Dangers

 Further afield, Sri Lanka had to hand over its port to Chinese companies because of more than US$1 billion in unpaid debts, while Djibouti could also give up control of a key port to a Chinese company due defaults in payments.

Kenya owes China KSh 320 billion and with 72% of its debt to China, the eastern country could face a similar fate to Sri Lanka should it fail to pay its debt to that country.

While China seems to be generous in dishing out billions in grants and loans overseas, sentiments at home are not as optimistic. Reports indicated that the US$60 billion offered to Africa has triggered anger among the Chinese people at home who questioned why the money is not spent on them as they are also poor.

 

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