Why China Won’t Write Off Debt for Nigeria, Other Sub-Saharan Countries

Why China Won’t Write Off Debt for Nigeria, Other Sub-Saharan Countries

After years of defaults and debt write-offs by several multilateral and bilateral institutions, China, Africa’s now largest bilateral creditor, entered Africa’s loan market with a unique model that will ensure African nations do not get away with procured loans even if their leaders squandered it.

In early 2000, President Xi Jinping announced an African Infrastructure loan project to support and open up the African economy. A vision most African leaders keyed into because of its seemingly easy process and approval when compared to the process and scrutiny involved in securing loans from the likes of World Bank, the International Monetary Fund and other top financial institutions.

However, underneath the quick response and fast approval is a complex model that ensures these African nations are indebted to China, even in certain situations like COVID-19.

To avoid unnecessary requests for debt write-offs, defaults, and reliefs, the Chinese government had limited its African loans to infrastructural projects executed by Chinese owned companies and in most cases with Chinese labour.

Deborah Brautigam, Head of the China Africa Research Initiative at JHU’s School of Advanced International Studies, put loans made by the Chinese government to African nations between 2000 and 2018 at about $152 billion.

“The Chinese have always done their lending on the idea that individual projects contribute to structural transformation and economic development,” said Deborah Brautigam, who heads the China Africa Research Initiative at JHU’s School of Advanced International Studies. The thinking is, “those projects might be good projects and viable projects to get countries to a new stage where they might be in a position to repay the loans,” she said.

However, while the World Bank and other global financial institutions may offer debt reliefs and total write off in certain situations like the world is currently experiencing with COVID-19, China is unlikely to write off any debt given the fact that those infrastructural projects are expected to get yield results in future as the economy expands.

Also, the loans are visible projects either under construction or completed, therefore, China may offer moratorium and reduce interest rates but not write off loans as experienced in April during calls for debt relief. China was the last to join and has turned down a similar request by the International Monetary Fund to write off part of the debt owed by the Republic of Congo in 2019.