Zambia risks losing national assets over Chinese debt – Moody’s warns

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By Jeff Kapembwa

Lusaka - Zambia, like other Sub-Saharan African countries indebted to China, risks asset seizure amid a growing debt portfolio, Moody’s Investor Services claims in its report.

Recently, finance minister Margaret Mwanakatwe refuted claims that Zambia was at risk of losing or giving away any of its assets to any creditor, China included, because there was no commitment to guaranteeing property in the event of default on the debt.

Reports claim that over 28% of the more than US$15 billion Zambia owes belonged to China. This implies that Zambia owes the Far-East Asian state in excess of US$5 billion in various loans secured for infrastructure development and other commitments.

Some of the assets said to have been at risk of forfeiture include state-owned Zambia National Broadcasting Corporation in which a Chinese’s Top Star owed 60% and Zambia’s power utility ZESCO which accumulated huge debts including US$2 billion for the construction of Kafue Gorge Lower.

Moody’s Investment Services, the Beijing-based credit rating firm, contends in its recent report that Zambia was one of the countries in the Sub-Saharan Africa region at risk of forfeiting some of the assets following an increasing debt burden it owes China.

It argues that the risk arises because of China’s response to Sub-Saharan African countries facing liquidity pressure which has not been uniform or transparent – implying predictability of credit implications being less clear.

It cites among other countries endowed with various mineral and natural resources ‑ Zambia, Angola, Republic of Congo and Kenya ‑ all with various strategic important infrastructure including ports, railways, among others, that risk losing control over their strategic assets which could be “debt swapped” with the Chinese creditors.

Moody’s further warns that such countries are at further risk of being offered liquidity relief or higher resource concessions that merely reduce the value of their future exporting earnings.

“Even if debt restructuring alleviates immediate liquidity pressure, the loss of natural resources revenue or other assets is credit negative,”

Outside of Sub-Saharan Africa, China got land in exchange for some debt relief in Tajikistan and took control of the Hambantota Port in Sri Lanka. In general, concentrated exposure to a single creditor, with little transparency about decisions to restructure the terms of the debt, increases rollover risks, weakening the fiscal profile, it adds.

For countries with narrow export bases, an increase in external debt associated with China’s lending may not be met with sufficient and stable foreign currency earnings in the future.

Besides, Moody’s says, Chinese loans also come with relaxed conditions such as no call for structural reforms to enhance governance and competitiveness thus jeopardising the longer-term growth benefits from such loans.

Chinese lending to African countries increased to more than US$10 billion annually between 2012 and 2017, from less than US$1 billion in 2002.

Angola (30%), Ethiopia (10%) and Kenya (7%) received almost half of all Chinese investment on the continent between 2000 and 2017, according to Moody’s.

Chinese Ambassador to Zambia Li Jie, dispelled reports or fears that China’s incline to providing financing to African countries in excess of US$60 billion through its 2015-2018 Forum on China Africa Corporation (FOCAC) was a ploy to colonise the continent with debts but that the idea was to empower “friends of China” with affordable finances for various undertakings.

China is merely working closely with Zambia, like many other countries on the continent in a win-win arrangement, merely to help it achieve greater development and does not have intentions of colonising it.

China has never colonised any African country and has no plans of doing so in future adding.

“Africa belongs to Africans and we only want to help it achieve sustainable development. This is the case even for Zambia.

“Now, there are some concerns and voices domestically and abroad suggesting that strengthening co-operation with China will increase the debt burden of Zambia. This worry is redundant.”

However, Mwanakatwe described as a “bluff “assertions that Zambia has succumbed to the demands of China over the debt owed to the emerging superpower arguing that no state-owned enterprise, including the Kenneth Kaunda International Airport, had been offered to China in exchange for the alleged high indebtedness.

In a statement, Mwanakatwe argued that no company or indeed asset has been extended as collateral for any borrowing, arguing that reports titled “Bonds Bills and ever bigger debt” by the Africa Confidential over the alleged sale of assets was unsubstantiated and lacked merit.

“There has been no debt default by the Republic of Zambia on our debt obligations to the Chinese Government and other Chinese lenders.

“For all other loans that have been contracted from the Chinese Government, the security on the loans is in the form of insurance taken from Sinosure and for the state-owned enterprises an insurance from Sinosure and guarantee from the government in place, therefore, no collateral in the form of assets has been provided for borrowing and none of the guarantees has been called upon.”

Mwanakatwe argued that to insinuate takeover of any assets by the Chinese government, therefore, is not practical and feasible. Further, I wish to state that the there has never at any time discussions of a debt swap between Zambia and any of its creditors, China included.

 

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